<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 16, 1996
REGISTRATION NO. 333-12675
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------
AMENDMENT NO. 2
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 16, 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 TO BE EFFECTED IN OCTOBER 1996;
(II) THE ISSUANCE OF 794,088 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, an adenosine A(1) receptor antagonist discovered by CVT, has
potential applications in the treatment of edema 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, 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.
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
4
<PAGE>
useful in a variety of cellular proliferative disorders, including the
prevention of restenosis, as an adjunct to arterial bypass grafting and as a
treatment for cardiomyopathy. 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. See "Risk
Factors."
5
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
COMMON STOCK OFFERED........................ 2,500,000 shares
COMMON STOCK OUTSTANDING AFTER THE 6,950,356 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)............................. $ (4.53) $ (3.53) $ (1.84)
---------- ---------- ---------
---------- ---------- ---------
Shares used in computing pro
forma net loss per share (2).... 3,692 3,611 4,539
---------- ---------- ---------
---------- ---------- ---------
</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 794,088
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
$18.17; 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."
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 future. The Company will not receive product revenues unless and
until it completes clinical trials with respect to
8
<PAGE>
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
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 17.95% 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 6,950,356 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
4,450,356 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,
approximately 92,785 shares will be eligible for sale in the public market
immediately following the Offering. Beginning 180 days after commencement of the
Offering, approximately 2,482,503 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 approximately 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 387,578 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, which are not subject to
lock-up
13
<PAGE>
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. 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 794,088 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 Tranche:
<TABLE>
<CAPTION>
----------------------
SEPTEMBER 30, 1996
----------------------
AS
IN THOUSANDS, EXCEPT SHARE AND 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; 4,450,356 shares issued and outstanding, pro forma;
6,950,356 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 $18.17 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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<PAGE>
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 794,088 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 794,088 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 4,450,356 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 6,950,356 100.0% 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
$18.17 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)..... $ (4.53) $ (3.53) $ (1.84)
----------- ----------- -----------
----------- ----------- -----------
Shares used in computing pro forma
net loss per share (1).............. 3,692 3,611 4,539
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
<TABLE>
<CAPTION>
------------------------------------------------------------
AS OF DECEMBER 31,
----------------------------------------------
IN THOUSANDS 1992 1993 1994 1995
---------- ---------- ---------- ---------- AS OF
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 the Company's corporate partner.
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.
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 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 was recorded in the nine months ended September 30, 1996.
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.
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
20
<PAGE>
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 $581,000 in the
nine months ended September 30, 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. 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 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, an adenosine A(1) receptor antagonist discovered by CVT, has
potential applications in the treatment of edema 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, 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 arterial bypass grafting and as a treatment for cardiomyopathy.
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 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
22
<PAGE>
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.
25
<PAGE>
Graphical description of sodium reabsorption in the kidney
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.
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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 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.
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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.
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
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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.
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.
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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.
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
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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.
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 an initial fee 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,
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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 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.
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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, 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.
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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 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
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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.
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
35
<PAGE>
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 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
36
<PAGE>
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.
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 Fountainbleau, France, and a Ph.D. in 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
39
<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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<PAGE>
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 $750; (ii) the 65,000 share
option vested as to 26,000 shares through September 2, 1996 and 39,000
shares were canceled on September 2, 1996.
(6) In connection with the termination of Mr. Hirsch's employment, the option to
purchase 23,600 shares was canceled on May 1, 1996.
AGGREGATE OPTION EXERCISES IN FISCAL 1995 AND DECEMBER 31, 1995 OPTION VALUES
The following table sets forth for each of the Named Executive Officers the
shares acquired and the value realized on each exercise of stock options during
the fiscal year ended December 31, 1995 and the number and value of securities
underlying unexercised options held by the Named Executive Officers at December
31, 1995:
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT DECEMBER IN-THE-MONEY OPTIONS AT
SHARES 31, 1995(#) DECEMBER 31, 1995($)(1)
ACQUIRED ON VALUE REALIZED EXERCISABLE/ EXERCISABLE/
NAME EXERCISE (#) ($)(1) UNEXERCISABLE(2) UNEXERCISABLE
- -------------------------------- ------------ -------------- ---------------------- -------------------------
<S> <C> <C> <C> <C>
Louis G. Lange, M.D., Ph.D. 15,000(3) $157,500 145,000/0 $1,603,300/0
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.
In September 1996, the Company entered into a Separation and Consulting
Agreement with Thomas L. Gutshall. 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 which will be 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)
---------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
INVESTOR
- -----------------------------------------------------------------
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)............. 60,000 28,000 38,250 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 18,750 6,250
Entities affiliated with Hambrecht & Quist Group................. -- 90,000 56,250 37,500
</TABLE>
(1) Includes 2,500, 500, 625, 20,000, 12,750, 9,500, 6,250 and 18,750 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., entities affiliated
with Sequoia Capital V and entities affiliated with Hambrecht & Quist Group,
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, 9,375, and 56,250 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
48
<PAGE>
Ventures, entities affiliated with Delphi Ventures, II, L.P., entities
affiliated with Asset Management Associates, 1989, L.P., entities affiliated
with Sequoia Capital V and entities affiliated with Hambrecht & Quist Group,
respectively. The warrants will be net exercised upon the closing of the
Offering.
(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 December 31, 2001.
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 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 Continuing Guarantee and the Guarantee and Pledge Agreement
were released upon the closing of the Company's sale of Series A Preferred
Stock.
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
49
<PAGE>
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, 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. In September 1996, pursuant to a Separation and Consulting Agreement,
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 December 31, 2001. 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
December 31, 2001. 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.
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 September 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 13.55% 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 7.20 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 1.50 *
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 17.95
</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 4,450,356 shares of
Common Stock outstanding as of September 30, 1996 and 6,950,356 shares of
Common Stock outstanding after completion of the Offering.
51
<PAGE>
(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.
(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.
52
<PAGE>
(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).
53
<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 4,450,356 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
54
<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.
55
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this Offering, the Company will have 6,950,356 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 4,450,356 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, approximately 92,785 shares will be eligible for
sale in the public market immediately following the Offering. Beginning 180 days
after commencement of this Offering, approximately 2,482,503 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 approximately 1,875,068 Restricted
Shares, which are also subject to such lock-up agreements, will have been held
for less than two years or, in the case of affiliates, for less than three
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."
56
<PAGE>
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 this Offering and 387,578 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 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.
57
<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.
58
<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.
59
<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.
Palo Alto, California
February 23, 1996, except for
Note 10, as to which the date is
, 1996
- --------------------------------------------------------------------------------
The foregoing report is in the form that will be signed upon completion of the
1-for-10 reverse stock split described in Note 10 to the consolidated financial
statements.
ERNST & YOUNG LLP
Palo Alto, California
October 15, 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,
(3,656,268 - 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 $ (4.53) $ (3.53) $ (1.84)
--------- --------- ---------
--------- --------- ---------
Shares used in computing
pro forma net loss per
share 3,692 3,611 4,539
--------- --------- ---------
--------- --------- ---------
</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 in 1994 consist
primarily of auction market preferred stock, money market capital notes, and
bank notes. 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.
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 $(4.02) $(8.21) $(11.37) $(8.76) $(5.50)
<S> <C> <C> <C> <C> <C>
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Shares used in computing net
loss per share 1,371 1,384 1,471 1,456 1,522
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</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
shares of convertible preferred stock outstanding as of September 30, 1996. Pro
forma stockholders' equity at June 30, 1996, as adjusted for the conversion of
preferred stock, is disclosed on the balance sheet.
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)
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 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
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)
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 an 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.
As of December 31, 1994 and September 30, 1996, the average portfolio duration
was approximately three months and six months, respectively, and the contractual
maturity of the investments did not exceed 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.
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)
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.
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>
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 (CONTINUED)
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. 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 until March 1998 and minimum subsequent payments would total
$1,500,000 in 1998 and $500,000 in 1999. Otherwise, maximum payments could total
$2,000,000, $1,700,000 and $1,300,000 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>
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)
6. LEASES (CONTINUED)
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 June 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.
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.
The liquidation preference includes all declared but unpaid dividends. 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 expected to occur in
October 1996, the conversion ratio was 1-for-10. Conversion of the
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)
8. STOCKHOLDERS' EQUITY (CONTINUED)
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.
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-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)
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 $0.08 per share (25,000 shares of common stock at $0.80 per share on an
as-if-converted
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)
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-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)
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.
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.
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
is expected to be effected in October 1996. Effective upon the closing of the
initial
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)
10. SUBSEQUENT EVENTS (CONTINUED)
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-20
<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 27,251
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 39,585
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 to be 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 to be effective upon stockholder approval.
3.4++ Restated Certificate of Incorporation of the Registrant to be effective upon closing
of the Offering.
</TABLE>
II-2
<PAGE>
<TABLE>
<C> <S>
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+ Promissory Note for $500,000 between Registrant and Louis G. Lange, M.D., Ph.D.,
effective as of September 23, 1996.
10.8+ 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+ Promissory Note for $37,500 between Registrant and Louis G. Lange, M.D., Ph.D.,
effective as of September 23, 1996.
10.27+ Promissory Note for $25,000 between Registrant and Louis G. Lange, M.D., Ph.D.,
effective as of September 23, 1996.
10.28+ Promissory Note for $25,000 between Registrant and Louis G. Lange, M.D., Ph.D.,
effective as of September 23, 1996.
10.29+ 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>
- ------------------------
+ To be filed by amendment.
++ 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 15 , 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 15, 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 15, 1996
*
Samuel D. Colella Director October 15, 1996
*
Thomas L. Gutshall Director October 15, 1996
*
Barbara J. McNeil, M.D., Ph.D. Director October 15, 1996
*
Costa G. Sevastopoulos, Ph.D. Director October 15, 1996
*
J. Leighton Read, M.D. Director October 15, 1996
*
Isaac Stein Director October 15, 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 reference to our firm under the caption "Experts" and to the
use of our report dated February 23, 1996 (except for Note 10, as to which the
date is , 1996), in the Registration Statement (Form S-1) and related
Prospectus of CV Therapeutics, Inc. for the registration of shares
of common stock.
Palo Alto, California
, 1996
- --------------------------------------------------------------------------------
The foregoing is in the form that will be signed upon completion of the 1-for-10
reverse stock split described in Note 10 to the consolidated financial
statements.
ERNST & YOUNG LLP
Palo Alto, California
October 15, 1996
II-7
<PAGE>
INDEX TO EXHIBIT
<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 to
be effective upon stockholder approval.
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+ Promissory Note for $500,000 between Registrant and Louis G. Lange, M.D., Ph.D., effective
as of September 23, 1996.
10.8+ 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+ Promissory Note for $37,500 between Registrant and Louis G. Lange, M.D., Ph.D., effective as
of September 23, 1996.
10.27+ Promissory Note for $25,000 between Registrant and Louis G. Lange, M.D., Ph.D., effective as
of September 23, 1996.
10.28+ Promissory Note for $25,000 between Registrant and Louis G. Lange, M.D., Ph.D., effective as
of September 23, 1996.
10.29+ 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>
- ------------------------
+ To be filed by amendment.
++ Previously filed.
* Confidential treatment is being sought for portions of this exhibit.
<PAGE>
NUMBER COMMON STOCK SHARES
CVT [Graphic]
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
SEE REVERSE FOR CERTAIN
DEFINITIONS AND A STATEMENT AS
TO THE RIGHTS, PREFERENCES,
PRIVILEGES AND LIMITATIONS OF
CUSIP 126667 10 4 SHARES
THIS CERTIFIES THAT
IS THE RECORD HOLDER OF
FULLY PAID AND NONASSESSABLE SHARES OF THE COMMON STOCK, $.001 PAR VALUE, OF
CV THERAPEUTICS, INC.
transferable on the books of the Corporation by the holder hereof in person or
by a duly authorized attorney upon surrender of this Certificate properly
endorsed. This Certificate is not valid unless countersigned and registered by
the Transfer Agent and Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile signatures
of its duly authorized officers.
Dated:
[Seal]
/s/ Kathleen Stafford /s/ Louis Lange
CHIEF FINANCIAL OFFICER CHAIRMAN OF THE BOARD
AND CHIEF EXECUTIVE OFFICER
COUNTERSIGNED AND REGISTERED:
NORWEST BANK MINNESOTA, N.A.
TRANSFER AGENT AND REGISTRAR
BY /s/ L M Kaufman
AUTHORIZED SIGNATURE
<PAGE>
A statement of the powers, designations, preferences and relative,
participating, optional or other special rights of each class of stock or series
thereof and the qualifications, limitations and restrictions of such preferences
and/or rights as established, from time to time by the Certificate of
Incorporation of the Corporation and by any certificate of determination, the
number of shares constituting each class and series, and the designation
thereof, may be obtained by the holder hereof upon request without charge at the
principal office of the Corporation.
The following abbreviations, when used in the inscription on the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with right of
survivorship and not as tenants
in common
UNIF GIFT MIN ACT - ................. Custodian ..................
(Cust) (Minor)
under Uniform Gifts to Minors
Act...........................................
(State)
UNIF TRF MIN ACT - .......... Custodian (until age ..............)
(Cust)
....................... under Uniform Transfers
(Minor)
to Minors Act ............................
(State)
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED,_______________hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------
- --------------------------------------
_______________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
_______________________________________________________________________________
_______________________________________________________________________________
_________________________________________________________________________Shares
of the common stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
_____________________________________________________________________ Attorney
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated____________________________
X_____________________________________
X_____________________________________
NOTICE: THE SIGNATURE(S) TO THIS ASSIGNMENT MUST
CORRESPOND WITH THE NAME(S) AS WRITTEN
UPON THE FACE OF THE CERTIFICATE IN
EVERY PARTICULAR, WITHOUT ALTERATION OR
ENLARGEMENT OR ANY CHANGE WHATEVER.
Signature(s) Guaranteed
By___________________________________________________________________________
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION
(BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT TO
S.E.C. RULE 17Ad-15.
<PAGE>
October 15, 1996
CV Therapeutics, Inc.
3172 Porter Drive
Palo Alto, CA 94304
Ladies and Gentlemen:
You have requested our opinion with respect to certain matters in connection
with the filing by CV Therapeutics, Inc. (the "Company") of a Registration
Statement on Form S-1 (the "Registration Statement") with the Securities and
Exchange Commission (the "Commission") covering an underwritten public offering
of up to 2,875,000 shares (including 375,000 shares of Common Stock for which
the underwriters have been granted an over allotment option) of the Company's
stock (the "Common Stock").
In connection with this opinion, we have (i) examined and relied upon the
Registration Statement and related Prospectus, the Company's Restated
Certificate of Incorporation and Bylaws and the originals or copies certified to
our satisfaction of such records, documents, certificates, memoranda and other
instruments as in our judgment are necessary or appropriate to enable us to
render the opinion expressed below, (ii) assumed that the Restated Certificate
of Incorporation, as set forth in Exhibit 3.4 of the Registration Statement,
shall have been duly approved and filed with the office of the Delaware
Secretary of State and (iii) assumed that the shares of the Common Stock will
be sold by the underwriters at a price established by the Pricing Committee of
the Board of Directors of the Company.
On the basis of the foregoing, and in reliance thereon, we are of the opinion
that the Common Stock, when sold and issued in accordance with the Registration
Statement and related Prospectus, will be validly issued, fully paid and
nonassessable.
We consent to the reference to our firm under the caption "Legal Matters" in the
Prospectus included in the Registration Statement and to the filing of this
opinion as an exhibit to the Registration Statement.
Very truly yours,
COOLEY GODWARD LLP
By: /s/ Deborah A. Marshall
------------------------------
Deborah A. Marshall
<PAGE>
MASTER LEASE AGREEMENT
Agreement No. 9609 Dated as of September 27, 1996
-----
Lessor: Hambrecht & Quist Guaranty Finance, LLC
Address: One Bush Street
San Francisco, CA 94104
Lessee: CV Therapeutics, Inc.
Address: 3172 Porter Drive
Palo Alto, CA 94304
This contract is a MASTER LEASE AGREEMENT of fixtures, furniture,
equipment, and leasehold improvements made to real property which is leased to
Lessee under a FACILITY LEASE as described herein, and other personal property
(individually and collectively called "EQUIPMENT" or "PROPERTY"), described in
any schedule now or hereafter attached hereto described as "EQUIPMENT SCHEDULE
No. 1" (each an "EQUIPMENT SCHEDULE" and collectively "EQUIPMENT SCHEDULES").
The FACILITY LEASE is a commercial lease between Lessee, as Tenant, and Matadero
Creek, as Landlord, dated August 6, 1993, as amended on June 30, 1994.
Each EQUIPMENT SCHEDULE shall incorporate therein all of the terms
and conditions of this and any attachments, modifications, exhibits or
amendments executed by Lessee and Lessor ("LEASE"). In the event of a conflict
between this MASTER LEASE AGREEMENT and any EQUIPMENT SCHEDULE or attachment,
modification or amendment to any EQUIPMENT SCHEDULE the latter shall prevail;
however, no EQUIPMENT SCHEDULE shall have any effect or modification on any
other EQUIPMENT SCHEDULE except as expressly provided herein. Any EQUIPMENT
SCHEDULE covered hereunder is subject to approval by Lessor and shall be
effective only upon written communication of acceptance from Lessor to Lessee.
For the purposes of this Master Lease Agreement, the term Related Documents
means and includes without limitation this Master Lease Agreement and the
Equipment Schedule, and (a) agreements between Lessor and Lessee all dated as of
September 27, 1996 including but not limited to: the Security Agreement
between Lessor, as Secured Party, and Lessee, as Debtor; the Financing Agreement
between Lessor, as Secured Party, and Lessee, as Debtor; and the Business Loan
Agreement between Lessor, as Lender, and Lessee, as Borrower; and (b) agreements
between Hambrecht & Quist Transition Capital, LLC ("H&QTC") and Lessee all dated
as of September 27, 1996 including but not limited to: the Business Loan
Agreement between H&QTC as Secured Party and Lessee, as Debtor, the Security
Agreement between H&QTC, as Secured Party, and Lessee, as Debtor.
For the purposes of this Master Lease Agreement, the term Collateral shall
have that meaning as defined in the Security Agreement between Lessor, as
Debtor, and Lessee, as Secured Party.
Lessor hereby leases to Lessee, and Lessee hereby leases from Lessor, the
PROPERTY described in the EQUIPMENT SCHEDULE(s) in accordance with the preceding
paragraph and the parties mutually agree as follows:
1. SELECTION; WARRANTY AND DISCLAIMER OF WARRANTIES BY LESSOR. LESSOR IS
NOT THE CONTRACTOR, MANUFACTURER OR VENDOR OF
Master Equipment Lease, Page 1
<PAGE>
PROPERTY. LESSEE HAS SELECTED THE PROPERTY. LESSOR MAKES NO WARRANTY,
EXPRESSED OR IMPLIED, AS TO ANY MATTER WHATSOEVER, INCLUDING THE CONDITION OF
PROPERTY, ITS MERCHANTABILITY OR ITS FITNESS FOR ANY PARTICULAR PURPOSE, AND,
AS TO LESSOR, LESSEE LEASES PROPERTY "AS IS". LESSEE ACKNOWLEDGES THAT THIS
LEASE IS INTENDED TO QUALIFY AS A "FINANCE LEASE" UNDER THE CALIFORNIA UNIFORM
COMMERCIAL CODE ("CUCC").
2. CLAIMS AGAINST VENDOR. If PROPERTY is not properly installed, does
not operate as represented or warranted by the contractor, manufacturer, or
vendor ("Vendor"), or is unsatisfactory for any reason, Lessee shall make any
claim on account thereof solely against Vendor and shall, nevertheless, pay
Lessor all rent payable under this LEASE. Lessor hereby agrees to assign to
Lessee, solely for the purpose of making and prosecuting any said claim, all of
the rights which Lessor has against Vendor for breach of warranty or other
representation respecting PROPERTY.
3. VENDOR NOT AN AGENT. Lessee understands and agrees that neither
Vendor, nor any sales representative or other agent of Vendor, is an agent of
Lessor. No sales representative or agent of Vendor is authorized to waive or
alter any term or condition of this LEASE, and no representation as to PROPERTY
or any other matter by Vendor shall in any way affect Lessee's duty to pay the
rent and perform its other obligations as set forth in this LEASE.
4. NON-CANCELABLE LEASE; LESSEE'S OBLIGATIONS ABSOLUTE; LESSOR
OBLIGATIONS AND TERMINATION RIGHTS. This LEASE cannot be canceled or terminated
except as expressly provided herein. Lessee's obligation to pay all amounts due
under each LEASE shall be absolute and unconditional and shall not be subject to
any delay, reduction, set-off, defense, counterclaim or recoupment for any
reason whatsoever. To the extent permitted by applicable law, Lessee
specifically waives its rights and remedies under Section 10508 through 10522 of
the CUCC, including (without limitation) Lessee's rights to (i) cancel or
repudiate this Lease, (ii) reject or revoke acceptance of the leased property,
(iii) recover damages from the Lessor for breach of warranty or for any other
reason under such CUCC sections, (iv) claim a security interest in any rejected
property in Lessee's possession of control, (v) deduct from rental payments all
or any part of any claimed damages resulting from Lessor's default under this
Lease, (vi) accept partial delivery of the Property, and (vii) "cover" by making
any purchase or lease of other property in substitution from property due from
Lessor, (viii) recover from the Lessor any general, special, incidental or
consequential damages, for any reason whatsoever other than Lessor's breach of
this Agreement, and (ix) specific performance, replevin or the like for any of
the Property.
5. EQUIPMENT LEASE. The following terms and conditions shall apply to
the lease of Equipment.
5(a). TERM. This LEASE commences on October 1, 1996 (the
"COMMENCEMENT DATE"), notwithstanding that rent payments shall commence as
provided in Paragraph 5(b) below, and shall continue until all Lessee's
obligations are fulfilled hereunder, unless sooner terminated as provided herein
as to all or any part of the PROPERTY. The INITIAL TERM of any EQUIPMENT
SCHEDULE begins on the COMMENCEMENT DATE and expires on the day immediately
preceding the third (3rd) anniversary of the COMMENCEMENT DATE.
In the absence of any written agreement to the contrary, each EQUIPMENT
SCHEDULE shall be dependent on any and all other EQUIPMENT SCHEDULES now or
hereafter executed by the parties hereto with respect to any purchase or renewal
as provided in Paragraph 5(c) hereof.
5(b). RENT. Lessee shall pay the rent payments as shown on the
EQUIPMENT SCHEDULE and as may be adjusted by the rider to the Equipment Schedule
the first of which rent
Master Equipment Lease, Page 2
<PAGE>
payments shall be due on the COMMENCEMENT DATE specified therein, unless the
Lessee qualifies for deferred payments as herein described. The Lessee shall
qualify to defer the first eighteen (18) months of rent payments until the first
day of the nineteenth month, on which date the nineteenth (19th) rent payment
will also be due, unless (a) after September 1, 1996 Lessee sells shares of its
stock (or options or other rights to acquire such shares) with gross proceeds of
at least Thirteen Million Dollars ($13,000,000) prior to the end of the
deferment period, or (b) there is an occurrence of any EVENT OF DEFAULT under
Paragraph 17. In the event that Lessee fails to qualify for deferred payments
prior to the date that the nineteenth (19th) rent payment is due, all deferred
payments will be due within ten (10) days of such failure to qualify, except in
the case of an Event of Default, in which case all deferred payments will be
immediately due. Subsequent payments shall be due on the same day of each month
(or other calendar period indicated on the EQUIPMENT SCHEDULE) thereafter. Rent
payments shall be due whether or not Lessee has received any notice that such
payments are due. All rent payments shall be paid to Lessor at its address set
forth on the EQUIPMENT SCHEDULE or as otherwise directed by Lessor in writing.
5(c). PURCHASE AND RENEWAL. If no default shall have occurred and is
continuing hereunder or under any EQUIPMENT SCHEDULE or under the Related
Documents, and provided that all lease payments due, and all lease payments that
would have been due notwithstanding any deferral as provided in paragraph 5(b)
above, have been paid in full, Lessee shall have the option, exercisable at any
time, to elect to purchase all of the PROPERTY under each and every EQUIPMENT
SCHEDULE to this LEASE (but not less than all the EQUIPMENT SCHEDULES to this
LEASE), for the Lessor's purchase cost less sixty percent (60%) of all rents
paid to that date for such EQUIPMENT SCHEDULE. In the event that the purchase
option is not exercised, Lessee may give Lessor six months written notice of its
intention to terminate all of the EQUIPMENT SCHEDULES to this LEASE. Should
Lessee fail to give notice to Lessor six months prior to the end of the INITIAL
TERM of the EQUIPMENT SCHEDULE, the LEASE TERM shall be extended, until Lessee
gives such six months notice to terminate the EQUIPMENT SCHEDULE. In the event
an EQUIPMENT SCHEDULE is extended, Lessee shall continue to pay Lessor rent at
the rate of 40% of the EQUIPMENT RENT as provided in Paragraph 5(b) above.
6. LOCATION; INSPECTION; LABELS. PROPERTY shall be delivered to and
shall not be removed from the "Property Location" shown on the EQUIPMENT
SCHEDULE, without Lessor's prior written consent, which consent shall not be
unreasonably withheld for PROPERTY loaned to others in the ordinary course of
Lessee's business for which Lessee has provided Lessor a description of such
PROPERTY and the address where it is to be temporarily located. Lessor shall
have the right to inspect PROPERTY with reasonable notice during regular
business hours. If Lessor supplies Lessee with labels stating that PROPERTY is
owned by Lessor, Lessee shall affix such labels to and keep them in a prominent
place on PROPERTY.
7. REPAIRS; USE; ALTERATIONS. Lessee at its own cost and expense, shall
keep PROPERTY in good repair, condition and working order; shall use equipment
lawfully; and shall not alter PROPERTY without Lessor's prior written consent.
Unless a default shall have occurred and is continuing under any of the Related
Documents, Lessee shall have the right to quietly possess, enjoy and use the
PROPERTY without interference by Lessor, its assigns, or anyone claiming
through or under Lessor.
8. SURRENDER. Upon the expiration of the INITIAL TERM of any EQUIPMENT
SCHEDULE, or any renewal TERM not automatically extended pursuant to Section
5(c) above, or upon demand by Lessor made pursuant to the terms of this LEASE,
Lessee, at its expense, shall return the EQUIPMENT by delivering it to such
place or on board such carrier, packed for shipping, within the continental
United States, as Lessor may specify. Lessee agrees that the PROPERTY, when
returned, shall be in the same condition as when delivered to Lessee, reasonable
wear and tear excepted, and if available for PROPERTY of like kind and age, in a
condition which will permit Lessor to be eligible for manufacturer's standard
maintenance contract without incurring any
Master Equipment Lease, Page 3
<PAGE>
expense to repair or rehabilitate such PROPERTY (Lessee shall be liable for
reasonable and necessary expenses to place PROPERTY in such condition). Lessee
shall give Lessor six months written notice that it is returning the PROPERTY as
provided above.
9. LOSS OR DAMAGE. Lessee shall bear the entire risk of loss, theft,
destruction of or damage to PROPERTY or any item thereof (herein "Loss or
Damage") from any cause whatsoever. No Loss or Damage shall relieve Lessee of
the obligation to pay rent or of any other obligation under this LEASE, provided
all applicable insurance payments received by Lessor pursuant to paragraph 10
below are applied to such repair or replacement, or as mutually agreed between
Lessor and Lessee. In the event of Loss or Damage, Lessee, at the option of
Lessor, shall (a) place the same in good condition and repair; or (b) replace
the same with like property in good condition and repair with clear title
thereto in Lessor.
10. INSURANCE. The Lessee at all times will maintain, with insurance
companies acceptable to Lessor and licensed and qualified to do business in the
jurisdiction in which Lessee's operations are conducted, insurance on all
property owned by it, in such amounts (including, without limitation, so-called
"all-risk" coverage at replacement value and "broad form" liability coverage),
against such hazards and liabilities and for such purposes as the Lessor shall
determine is reasonable to insure the value of the Collateral and as is
customary in the industry for companies of established reputation engaged in the
same or similar businesses and owning or operating similar properties. Without
limiting the generality of the foregoing, Lessee shall initially maintain
Commercial General Liability Insurance covering Lessee and naming Lessor as
additional insured, for claims of bodily injury, and property damage arising out
of Lessee's operations, assumed liabilities or use of any of the real property
leased or owned by Lessee, for limits of liability not less than: (a) Bodily
Injury and Property: $3,000,000 each occurrence; (b) Damage Liability:
$3,000,000 annual aggregate. In addition, the Lessee shall maintain all
insurance required of the tenant by the landlord of any of the real estate
leased by the Company and shall maintain adequate business interruption
insurance to assure in addition to customary risks that Lessee is able to pay
the rent and all other charges due under its leases notwithstanding a business
interruption. The Lessor shall be named as loss payee with respect to property
damage insurance for PROPERTY, and additional loss payee and additional insured
for property damage to all other Collateral and all other insurance coverage as
described herein and shall be given 30 days' advance notice of any amendment to
or cancellation of insurance. No settlement on account of any loss covered by
such insurance shall be effected without the consent of the Lessor. Upon
request of the Lessor from time to time, and in any event on the Commencement
Date of the first Equipment Schedule attached to this Master Lease Agreement and
thereafter fifteen (15) days prior to the expiration date of any policy of
insurance required hereunder, the Lessee shall furnish to the Lessor
certificates or other evidence satisfactory to the Lessor of compliance with the
foregoing insurance provisions. If the Lessee fails to provide or cause to be
provided such insurance, the Lessor in its sole discretion, may provide such
insurance and charge the cost to the Lessee and the Lessee shall promptly pay
the cost thereof to the Lessor. Any payment not recovered from the Lessee shall
bear interest at an annual rate of twelve percent. The Lessor shall not, by the
fact of approving, disapproving, accepting, obtaining or failing to obtain any
such insurance, incur any liability for the form or legal sufficiency of
insurance contracts, solvency of insurance companies or payment of lawsuits, and
the Lessee hereby expressly assumes full responsibility therefor and liability,
if any, thereunder.
11. TAXES; LIENS. Lessee shall reimburse to Lessor (or pay directly if
instructed by Lessor) and shall hold Lessor harmless on an after-tax basis from
all charges and taxes, together with any penalties or interest thereon or other
additions thereto, which may now or hereafter be imposed or levied by any
federal, state or local taxing authority in the United States upon the sale,
purchase, ownership, leasing, possession or use of the PROPERTY or upon any rent
payable hereunder, or otherwise in connection with the transactions contemplated
by this agreement, excluding, however, all taxes on or measured by Lessor's net
income. At (a) the end of any renewal term or (b) if the Initial Term is not
extended, at the end of the Initial Term, (c) or upon
Master Equipment Lease, Page 4
<PAGE>
request by Lessor, Lessee shall deposit with Lessor an amount that Lessor
reasonably estimates may be due for property taxes on the PROPERTY.
12. LESSOR'S PAYMENT; LIENS. If Lessee fails to provide or maintain said
insurance, to pay said taxes, charges and fees, or to discharge any levies,
liens, and encumbrances made, caused, allowed or suffered by Lessee, Lessor
shall have the right, but shall not be obligated, to obtain such insurance, pay
such taxes, charges and fees, or effect such discharge. In that event, Lessee
shall repay to Lessor the cost thereof with the next rent payment. Lessee shall
keep or cause PROPERTY to be kept free and clear of all levies, liens and
encumbrances.
13. FACILITY LEASE. Lessee shall make all payments when due to the
landlord under the Facility Lease, and perform all of its obligations under the
Facility Lease. If Lessee fails to make any payments when due under the
Facility Lease, Lessor shall have the right, but shall not be obligated, to pay
such rent, charges and fees, or effect such discharge. In that event, Lessee
shall repay to Lessor the cost thereof immediately upon demand by Lessor.
Lessee shall give Lessor notice within ten days of when any officer of Lessee
becomes aware of any default by landlord under any of its obligations under the
Facility Lease.
14. GENERAL INDEMNITY. Lessee shall indemnify Lessor against and hold
Lessor harmless from any and all claims, actions, damages, including reasonable
attorneys' fees, obligations, liabilities and liens (including any of the
foregoing arising or imposed under the doctrine of "strict liability in tort or
product liability"), arising out of the manufacture, purchase, lease,
possession, operation, condition, return or use of PROPERTY or by operation of
law, excluding however, any of the foregoing resulting from culpable negligence
or willful misconduct of Lessor. Lessee agrees that upon written notice by
Lessor of the assertion of such a claim, action, damage, obligation, liability
or lien, Lessee shall assume full responsibility for the defense thereof.
15. ASSIGNMENT; OFFSET. (a) Without Lessor's prior written consent,
Lessee shall not assign, transfer, or otherwise dispose of this Lease, Property,
or any interest therein, or sublet or lend Property or permit it to be used by
anyone other than Lessee or Lessee's employees. Lessor shall reasonably consent
to the sublet of property under the sub-lease agreement under the Facility
Lease, provided that Lessor has been provided a copy of the sub-lease agreement.
To the extent that any such assignment or transfer constitutes the grant of a
security interest, this Paragraph 15(a) shall be enforceable to the extent
permitted by law.
(b) Lessor may assign or sell this LEASE, any of its rights
hereunder, or grant a security interest in any PROPERTY in whole or in part with
or without notice to Lessee. Lessee acknowledges that any such assignment by
Lessor shall not materially impair the prospect of obtaining return performance
by Lessor, materially change Lessee's duties or obligations under this LEASE,
nor materially increase the burden or risk imposed on Lessee and Lessee agrees
that any such assignment or transfer shall be permitted provided such assignment
does not materially affect the interests of Lessee. If Lessee is given notice
of such assignment or sale, it agrees to acknowledge receipt thereof in writing.
16. DELINQUENT PAYMENTS. (a) Service Charge. Since it would be
impractical or extremely difficult to fix Lessor's actual damages for collecting
and accounting for a late payment, if any payment to Lessor required herein is
not paid on or before its due date, Lessee shall pay to Lessor an amount equal
to five percent of any such late payment (but not less than $10 nor more than
$250). (b) Interest. Lessee shall also pay interest on any such late payment
from the due date thereof until the date paid at the lesser of 14% per annum or
the maximum rate allowed by law.
Master Equipment Lease, Page 5
<PAGE>
17. EVENTS OF DEFAULT. Any of the following shall constitute an EVENT OF
DEFAULT under the LEASE:
(a) Lessee fails to pay when due any rent or other amount required herein
to be paid by Lessee, and such nonpayment continues for a period of ten days
after written notice thereof from Lessor;
(b) Lessee ceases doing business as a going concern, is insolvent, makes
an assignment for the benefit of creditors, admits in writing its inability to
pay its debts as they become due, files a voluntary petition in bankruptcy, is
subject to an involuntary petition in bankruptcy, is adjudicated bankrupt or
insolvent, makes a bulk transfer of furniture, furnishings, fixtures or other
equipment or inventory, files or has filed against it a petition seeking any
reorganization, arrangement or composition, under any present or future statute,
law or regulation;
(c) Lessee fails to perform or observe any other term, covenant or
condition of this LEASE or any other document, agreement or instrument executed
pursuant hereto or in connection herewith which is not cured within ten days
after written notice thereof from Lessor;
(d) Any of Lessee's representations or warranties made herein or on any
statement or certificate at any time given in writing pursuant hereto or in
connection herewith shall prove false or misleading in any material respect when
made;
(e) Lessee defaults under any of the Related Documents.
(f) Lessee defaults under or otherwise has accelerated any obligation,
credit agreement, loan agreement, conditional sales contract, lease, indenture
or debenture, except such as may in good faith be contested or disputed or for
which arrangements for deferred payments have been made for a cumulative amount
less than $125,000; or Lessee defaults under any other agreement or EQUIPMENT
SCHEDULE now existing or hereafter made with Lessor or with any of Lessor's
commonly owned affiliates.
(g) Lessee defaults under or otherwise has accelerated the Facility Lease,
or the Facility Lease is otherwise terminated.
18. REMEDIES. If an EVENT OF DEFAULT occurs and is continuing, Lessor
shall have the right, with or without notice or demand upon Lessee, to pursue
and enforce, successively and/or concurrently, any one or more of the following
remedies in order to protect the interests and reasonably expected profits and
bargains of Lessor:
(a) Lessor may terminate this LEASE and/or any EQUIPMENT SCHEDULE with
respect to all or any part of the PROPERTY;
(b) With or without retaking the PROPERTY Lessor may (1) recover from
Lessee all accrued and unpaid rents and other amounts then due and owing under
the terms hereof, (2) recover from Lessee from time to time all rents and other
amounts as and when becoming due hereunder, (3) accelerate and cause to become
immediately due and payable all rents and other amounts due and/or would become
due hereunder and recover from Lessee the present value to Lessor of such
amounts; which "present value" for purposes of this Agreement shall be
calculated by discounting the amounts due at a rate equal to nine percent
(9.00%), to the earlier of the following dates: 1) the date Lessor has obtained
possession of the PROPERTY, 2) the date Lessee has made an effective tender of
possession of the PROPERTY back to Lessor, or 3) if Lessee retains the PROPERTY,
to the date of payment of such amounts.
Master Equipment Lease, Page 6
<PAGE>
(c) Lessor may take possession of the PROPERTY (by Lessor, independent
contractor or by requiring Lessee to assemble and surrender the PROPERTY in
accordance with the provisions of Paragraph 9 hereof) without demand or notice,
without any court order or other process of law and without liability to Lessee
for any damages occasioned by such taking of possession and any such taking of
possession shall not constitute a termination of this LEASE and (1) terminate
the lease term as to the PROPERTY, (2) recover from Lessee all accrued and
unpaid rents and other amounts owing under the terms hereof, (3) sell the
PROPERTY at public or private sale, and recover from Lessee the difference, if
any, by which the net proceeds of sale shall be less than the present value of
Lessor's total reasonably anticipated profits with respect to the PROPERTY, (4)
re-lease the PROPERTY to a third party for the account of Lessee and recover
from Lessee when becoming due any deficiency between the rents provided herein
and those received from such third party, (5) re-lease the PROPERTY to a third
party for the account of Lessee and recover from Lessee the present value of
Lessor for any deficiency between the rents provided herein and those receivable
from such third party over the re-lease term, (6) recover from Lessee the
present value of Lessor of the excess of the rents reserved herein for the
balance of the INITIAL TERM (or any remaining term not covered by any re-lease
pursuant to Paragraph 18(c)(5) hereinabove) over the then-reasonable rental
value of the PROPERTY; and
(d) Upon request of Lessor, Lessee shall use reasonable commercial efforts
to effect an assignment of its interest in the FACILITY LEASE to Lessor to the
extent permitted thereunder and leave the premises under the FACILITY LEASE
peaceably and surrender possession to Lessor in accordance with the provisions
of Paragraph 9 hereof, without any court order or other process of law and
without liability to Lessee for any damages occasioned by such taking of
possession and any such taking of possession shall not constitute a termination
of this LEASE and Lessor may (1) terminate the lease term as to the PROPERTY,
(2) recover from Lessee all accrued and unpaid rents and other amounts owing
under the terms hereof, (3) re-lease the PROPERTY to a third party for the
account of Lessee and recover from Lessee when becoming due any deficiency
between the rents provided herein and those received from such third party over
the re-lease term, (4) re-lease the PROPERTY to a third party for the account of
Lessee and recover from Lessee the present value of any deficiency between the
rents provided herein and those receivable from such third party over the
re-lease term, (5) recover from Lessee the present value of the excess of the
rents reserved herein for the balance of the INITIAL TERM (or any remaining term
not covered by any re-lease pursuant to Paragraph 18(d)(4) hereinabove) over the
then-reasonable rental value of the PROPERTY; and
(e) Pursue any other remedy available at law or in equity, including but
not limited to seeking damages or specific performance and/or obtaining an
injunction.
No right or remedy herein conferred upon or reserved to Lessor is exclusive
of any right or remedy herein, by law, by equity, by statute or otherwise
provided or permitted; but each shall be cumulative of every other right or
remedy given hereunder, now or hereafter existing at law, in equity, by statute
or otherwise, and may be enforced concurrently therewith or from time to time,
but Lessor shall not be entitled to recover a greater amount than is permitted
by law.
In addition, Lessor shall attempt in good faith to mitigate its damages,
but Lessor shall not be obligated to sell or re-lease the PROPERTY. Any sale or
re-lease may be held at such place or places as are selected by Lessor, with or
without having the PROPERTY present. Any such sale or re-LEASE shall be on
commercially reasonable terms and may be at wholesale or retail, in bulk or in
parcels. For purposes of determining the worth to Lessor of any future amounts,
said amounts shall be discounted at a rate equal to the rate established for the
relevant EQUIPMENT SCHEDULE pursuant to Paragraph 6(b) and 7(b) above. Time and
exactitude of each of the terms and conditions of the LEASE are hereby declared
to be of the essence. Lessor may accept past due payments without modifying the
terms of this LEASE and without waiving any further rights of
Master Equipment Lease, Page 7
<PAGE>
Lessor hereunder. Except as expressly provided herein, neither Lessor nor
Lessee shall be liable to the other for any consequential or incidental damages.
19. LESSOR'S EXPENSES. Lessee shall pay Lessor (in addition to any other
amounts specified herein) all costs and expenses, including without limitation
reasonable attorneys' fees, the fees of the collection agencies, and other
out-of-pocket expenses such as telephone and telegraph charges, incurred by
Lessor in enforcing any of the terms, conditions or provisions hereof or in
protecting Lessor's rights herein.
20. OWNERSHIP; PERSONAL PROPERTY. The PROPERTY is, and shall at all times
remain the PROPERTY of Lessor; and Lessee shall have no right, title or interest
therein or thereto except as expressly set forth in this LEASE. The PROPERTY
is, and shall at all times be and remain, personal property notwithstanding that
the PROPERTY or any part thereof may now be, or hereafter become, in any manner
affixed or attached to real PROPERTY or any improvements thereon.
21. NOTICES. Services of all notices under this LEASE shall be sufficient
if given personally or mailed to the respective party at its address set forth
above, or at such other address as said party may provide in writing from time
to time. Any such notice mailed to said address shall be effective when
received or five days after being deposited in the United States mail, first
class, postage prepaid, addressed to the party to whom the notice is to be given
at the address shown above.
22. FINANCIAL STATEMENTS. Lessee will furnish to Lessor, in form and
substance satisfactory to Lessor:
(a) As soon as possible after the end of each fiscal year of Lessee, and in
any event within ninety (90) days thereafter, (i) a complete copy of its audited
year-end financial statements which shall include the balance sheet of Lessee as
of the close of the fiscal year, and an income statement for such year, and a
statement of cash flows for such year, audited by certified public accountants
selected by Lessee and satisfactory to Lessor, and (ii) a statement certified by
the chief financial officer of Lessee that Lessee is in compliance with all the
terms, conditions, covenants and warranties of this Agreement;
(b) No later than thirty (30) days after the close of each month, Lessee's
balance sheet as of the close of such month, and its income statement, and cash
flow statement for that month certified as being complete, correct, and fairly
representing its financial condition and results of operations by the chief
financial officer of Lessee;
(c) Other information. Lessee will (1) maintain accurate books and records
concerning its business, (2) upon request, furnish to Lessor such information,
statements, lists of property and accounts budgets, forecasts, or reports as
Lessor may reasonably request with respect to the business, affairs, and
financial condition of Lessee, and (3) such other information concerning the
PROPERTY as Lessor may reasonably request.
If Lessee becomes a company the stock of which is traded on a nationally
recognized public stock exchange, Lessee's obligations hereunder shall be
satisfied by providing Lessor with all financial information as soon as such
information is filed with the Securities and Exchange Commission, and by
providing copies of all press releases as soon as they are published, and by
providing, if requested in writing by Lessor, all of the information described
in paragraphs 22(a), 22(b) and 22(c) within thirty (30) days of such written
request.
23. SUCCESSORS AND ASSIGNS. This LEASE shall inure to the benefit of and
be binding upon the successors and permitted assigns of the parties hereto.
Master Equipment Lease, Page 8
<PAGE>
24. CAPTION HEADINGS. Caption headings in this Master Lease
Agreement are for convenience purposes only and are not to be used to interpret
or define the provisions of this Master Lease Agreement.
25. LESSEE REPRESENTATIONS AND WARRANTIES. Lessee hereby represents and
warrants as follows: (a) the use by the Lessee of the PROPERTY pursuant to this
LEASE does not violate or infringe any patent, trademark, trade and/or other
similar right of any person; (b) no consent or approval of, giving notice to,
registration with, or taking of any other action in respect of, any state,
federal or other governmental authority or agency is required with respect to
the execution, delivery and performance by the Lessee of the LEASE or, if any
such approval, notice, registration or action is required, it is obtained; (c)
there are no suits or proceedings pending or threatened in any court or before
any regulatory commission, board or other administrative governmental agency
against or affecting the Lessee to fulfill its obligations under the LEASE; and
(d) the PROPERTY is being leased hereunder for business purposes.
26. MISCELLANEOUS. This instrument constitutes the complete and
exclusive statement of the terms of the Agreement between Lessor and Lessee.
Such agreement shall not be amended, altered or changed except by a written
agreement signed by the parties hereto and in compliance with applicable law.
Lessee shall provide Lessor with such corporate resolutions, and other documents
(including UCC Financing Statements and other documents for filing or recording)
as Lessor shall request from time to time. Lessor's filing of UCC Financing
Statements is precautionary and has no effect on the characterization of this
agreement as a LEASE. If more than one Lessee is named in this LEASE, the
liability of each shall be joint and several. This LEASE shall be governed by,
and construed in accordance with the laws of the State of California. If any
provision of this LEASE or any remedy provided herein be invalid under any
applicable law, such provisions shall be inapplicable and deemed omitted, but
the remaining provisions of this LEASE shall be and remain effective in
accordance with their terms. Any failure of the Lessor to require strict
performance by the Lessee or any waiver by Lessor of any provision herein shall
not be construed as a consent or waiver of any other breach of the same or of
any other provision.
IN WITNESS WHEREOF, Lessor and Lessee have hereunto set their respective
hands as of the date set forth below.
LESSOR: LESSEE:
HAMBRECHT & QUIST CV THERAPEUTICS, INC.
GUARANTY FINANCE, LLC
By: /s/ Donald M. Campbell By: /s/ Kathleen Stafford
------------------------------ ------------------------------
Name: Donald M. Campbell Name: Kathleen Stafford
---------------------------- ----------------------------
Title: Chief Executive Officer Title: CFO
--------------------------- ---------------------------
Date: 27 September 1996 Date: 9/27/96
---------------------------- ----------------------------
Master Equipment Lease, Page 9
<PAGE>
FINANCING AGREEMENT
THIS FINANCING AGREEMENT (this "Agreement") is made as of this 27th day
of September, 1996, between Hambrecht & Quist Guaranty Finance, LLC, a
California limited liability company, having a mailing address at One Bush
Street, San Francisco, California 94104 ("Secured Party") and CV Therapeutics,
Inc., a Delaware corporation, having a mailing address at 3172 Porter Drive,
Palo Alto, CA 94304 ("Debtor").
RECITALS:
WHEREAS, Debtor owns certain equipment, trade fixtures, tenant
improvements and other personal property located at 3172 Porter Drive, Palo
Alto, CA (the "PREMISES"); and
WHEREAS, Debtor has requested that Secured Party extend to Debtor a
forward commitment to purchase from and lease back to Debtor (a) certain
equipment, trade fixtures, and other personal property located and used by the
Debtor in its business operations at the PREMISES and (b) all of Debtor's rights
with respect to certain tenant improvements located and used by the Debtor in
its business operations at the PREMISES on December 1, 1996 (the "LEASE
OPTION"), and
WHEREAS, Debtor and Secured Party have entered into a Business Loan
Agreement, and Promissory Note, and a Security Agreement, as each of those
agreements are defined herein.
WHEREAS, Secured Party has agreed to provide the LEASE OPTION
requested by Debtor on the terms and conditions set forth herein;
NOW, THEREFORE, the parties hereto hereby agree as follows:
SECTION 1 CERTAIN DEFINITIONS.
Unless otherwise defined herein, the following terms shall have the
following respective meanings except as the context shall otherwise require:
"BUSINESS LOAN AGREEMENT" means the certain BUSINESS LOAN AGREEMENT dated
as of even date herewith, between Debtor as Borrower and Secured Party as
Lender, including any amendment thereto.
"FACILITY LEASE" means that commercial lease of the PREMISES between
Debtor, as Tenant, and Matadero Creek, as Landlord, dated as of August 6, 1993,
and as amended as of June 30, 1994.
"FINANCING DOCUMENTS" means, collectively, this Agreement, the Business
Loan Agreement, the Promissory Note, and the Security Agreement, and any riders,
supplements and amendments thereto, and all other documents or instruments
heretofore, now or hereafter executed, pursuant to this Agreement, or any of the
aforesaid Financing Documents.
"JUNIOR LENDER" means Hambrecht & Quist Transition Capital, LLC, a Delaware
limited liability company.
Financing Agreement, Page 1
<PAGE>
"LEASE OPTION" shall have the meaning given the term in the Recitals to
this Agreement.
"MASTER LEASE AGREEMENT" shall mean a master lease agreement in
substantially the form attached hereto, which Debtor and Secured Party shall
undertake to enter into as Lessee and Lessor respectively in the event that
Debtor elects to exercise its Lease Option.
"PROMISSORY NOTE" means that certain PROMISSORY NOTE, dated as of even
date herewith, by Debtor, as Borrower including any amendment thereto.
"PERSONAL PROPERTY" means certain equipment, trade fixtures, tenant
improvements, and other personal property that Debtor deems necessary for use at
the PREMISES in connection with its business operations, and that, upon Debtor's
request, Secured party has agreed to purchase and lease under the LEASE OPTION.
"SECURITY AGREEMENT" means that certain SECURITY AGREEMENT, dated as of
even date herewith, between Debtor and Secured Party, including any amendment
thereto, granting Secured Party a security interest in the collateral, as
defined therein.
SECTION 2 FORWARD COMMITMENT TO PURCHASE PERSONAL PROPERTY.
Section 2.1 PURCHASE OF PERSONAL PROPERTY.
Subject to the terms of this Agreement, Debtor may direct Secured Party to
purchase PERSONAL PROPERTY on January 1, 1997 for an amount no greater than Two
Million Dollars ($2,000,000.00);
SECTION 2.2 EXPIRATION OF COMMITMENT TO PURCHASE PERSONAL PROPERTY.
If, on or before January 1, 1997, Debtor has not directed Secured Party to
purchase PERSONAL PROPERTY, or if Debtor has not met all the conditions
precedent to purchase the PERSONAL PROPERTY, or if because of an Event of
Default, as defined under the FINANCING DOCUMENTS, Secured Party is not
obligated to purchase PERSONAL PROPERTY, Secured Party's obligation under this
Section 2 to purchase PERSONAL PROPERTY shall become null and void.
SECTION 2.3 CONDITIONS PRECEDENT TO PURCHASE OF PERSONAL PROPERTY.
Without limiting the generality of the conditions precedent contained in the
MASTER LEASE AGREEMENT, all of which conditions precedent are also conditions
precedent to Secured Party's obligation to purchase and lease back the PERSONAL
PROPERTY, the following matters shall be deemed additional conditions precedent
to Secured Party's obligations under this Section 2 hereof:
(a) Debtor shall not be in default under any of the FINANCING DOCUMENTS or
under any material agreements with Junior Lender.
(b) Debtor shall not be in default or otherwise have accelerated the
Facility Lease, or the Facility Lease be otherwise terminated.
(c) Debtor shall not be in default under the MASTER LEASE AGREEMENT upon
its execution.
Financing Agreement, Page 2
<PAGE>
(d) Debtor shall execute a MASTER LEASE AGREEMENT, and Equipment Schedule,
a Bill of Sale, a Lessee's Acceptance Certificate, such documents as
are requested for UCC financing statements, all in substantially the
form as attached hereto.
(e) Debtor shall sell and transfer to Secured Party all right, title, and
interest in the PERSONAL PROPERTY as Debtor may have; and
SECTION 2.2 THE LOAN FEE UNDER THE PROMISSORY NOTE.
In the event that Secured Party and Debtor enter into the Master Lease Agreement
according to the terms and conditions described in this Agreement, the Loan Fee
as defined in the Promissory Note will be waived.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first above written.
CV THERAPEUTICS, INC.
[Debtor]
By: /s/ Kathleen Stafford
--------------------------------
Name: Kathleen Stafford
------------------------------
Title: Chief Financial Officer
-----------------------------
HAMBRECHT & QUIST GUARANTY FINANCE, LLC
[Secured Party]
By: /s/ Donald M. Campbell
--------------------------------
Name: Donald M. Campbell
------------------------------
Title: Chief Executive Officer
-----------------------------
Financing Agreement, Page 3
<PAGE>
BUSINESS LOAN AGREEMENT
THIS BUSINESS LOAN AGREEMENT between CV THERAPEUTICS, INC. a Delaware
corporation, having a mailing address at 3172 Porter Drive, Palo Alto,
California 94304 ("Borrower") and HAMBRECHT & QUIST GUARANTY FINANCE, LLC, a
California limited liability company, having a mailing address at One Bush
Street, San Francisco, California 94104 ("Lender") is made and executed on the
following terms and conditions. Borrower has applied to Lender for a loan or
loans and other financial accommodations. All such loans and financial
accommodations made pursuant to this Agreement or the Related Documents, from
Lender to Borrower, are referred to in this Agreement individually as the "Loan"
and collectively as the "Loans." Borrower understands and agrees that: (a) in
granting, renewing, or extending any loan, Lender is relying upon Borrower's
representations, warranties and agreements, as set forth in this Agreement; (b)
the granting, renewing, or extending of any Loan by Lender at all times shall be
subject to Lender's sole judgment and discretion; and (c) all such Loans shall
be and shall remain subject to the following terms and conditions of this
Agreement.
SECTION 1. CERTAIN DEFINITIONS.
The following words shall have the following meanings when used in this
Agreement. Terms not otherwise defined in this Agreement shall have the
meanings attributed to such terms in the California Uniform Commercial Code.
All references to dollar amounts shall mean amounts in lawful money of the
United States of America.
"AGREEMENT" shall mean this Business Loan Agreement, as may be modified
from time to time, together with all exhibits and schedules attached to this
Business Loan Agreement from time to time.
"BORROWER" shall mean CV Therapeutics, Inc.
"COLLATERAL" shall have that meaning as defined in the Security Agreement.
"EVENT OF DEFAULT" shall mean and include any of the Events of Default set
forth below in the section titled "Events of Default."
"FINANCING AGREEMENT" means that certain FINANCING AGREEMENT between
Borrower, as Debtor, and Lender, as Secured Party dated as of even date
herewith.
"INDEBTEDNESS" of any Person means all items of indebtedness that, in
accordance with generally accepted accounting principles and practices
consistently applied, would be deemed a liability of such Person as of the date
as of which indebtedness is to be determined and shall also include all
indebtedness and liabilities of others assumed or guaranteed by such Person or
in respect of which such Person is secondarily or contingently liable (other
than by endorsement of instruments in the course of collection) whether by
reason of any agreement to acquire such indebtedness, to supply or advance sums,
or otherwise.
"JUNIOR LENDER" shall mean Hambrecht & Quist Transition Capital, LLC.
"LENDER" means Hambrecht & Quist Guaranty Finance, LLC, its successors and
assigns.
"LOAN" OR "LOANS" means and includes any and all loans and financial
accommodations from Lender to Borrower, whether now or hereafter existing, and
however evidenced made pursuant to this Agreement or the Related Documents
including without limitation those loans and financial accommodations described
herein or described on any exhibit or schedule attached to this agreement from
time to time.
- --------------------------------------------------------------------------------
Business Loan Agreement, Page 1
<PAGE>
"LOAN OBLIGATIONS" means and includes all loans, advances, debts,
liabilities, obligations, or any other financial accommodations, owing by
Borrower to Lender arising under the BUSINESS LOAN AGREEMENT, the PROMISSORY
NOTE or under any other Related Documents of every kind and description
(whether or not evidenced by any note or other instrument and whether or not for
the payment of money), direct or indirect, absolute or contingent, due or to
become due, now existing or arising hereafter including, without limitation, all
interest, fees, rents, charges, expenses, attorneys' fees, and accountants' fees
chargeable to Borrower or incurred by Lender in connection with this Agreement
or the Related Documents.
"MATURITY DATE" means January 1, 1997.
"PERMITTED JUNIOR INDEBTEDNESS" means and includes all Indebtedness from
Borrower to Junior Lender under that Business Loan Agreement dated September__,
1996 between Borrower and Junior Lender, as Lender, as amended from time to
time, including, but not limited to, all amounts that Borrower owes to Junior
Lender (the "H&QTC Loan Agreement"), and any other Indebtedness from Borrower to
Junior Lender for any other financial accommodation for which Lender has
consented in writing, including all rent payments, interest and any other
charges for direct or indirect financial accommodation made by Junior Lender to
Borrower.
"PERSON" means any entity, government, governmental agency or any other
entity and whether acting in an individual, fiduciary or other capacity.
"PROMISSORY NOTE" means that certain PROMISSORY NOTE, executed by Borrower
and dated as of even date herewith, including any amendment thereto.
"RELATED DOCUMENTS" means and includes without limitation the Financing
Agreement, the PROMISSORY NOTE, the Security Agreement, all other promissory
notes, credit agreements, loan agreements, guaranties, security agreements,
mortgages, deeds of trust, and all other instruments and documents, whether now
or hereafter existing, executed in connection with any of the foregoing, and
agreements between Debtor and Hambrecht & Quist Transition Capital, LLC
("H&QTC") including without limitation the Business Loan Agreement, the
Promissory Note, and Security Agreement.
"SECURITY AGREEMENT" means that certain SECURITY AGREEMENT between
Borrower, as Debtor, and Lender, as Secured Party dated as of even date herewith
including any amendment thereto, granting Secured Party a Security Interest in
the Collateral.
"SECURITY INTEREST" means and includes without limitation any type of
collateral security, whether in the form of a lien, charge, mortgage, deed of
trust, assignment, pledge, chattel mortgage, chattel trust, factor's lien,
equipment trust, conditional sale, trust receipt, lien or title retention
contract, lease or consignment intended as a security device, or any other
security or lien interest whatsoever, whether created by law contract or
otherwise.
SECTION 2. TERM.
This Agreement shall be effective as of the 27th day of September, 1996,
and shall continue thereafter until all LOAN OBLIGATIONS of Borrower to Lender
have been performed in full and the parties terminate this Agreement in writing.
SECTION 3. REPRESENTATIONS AND WARRANTIES.
Except as set forth on Exhibit A, Borrower represents and warrants to Lender as
of the date of this Agreement and as provided in Section 3.15.
- --------------------------------------------------------------------------------
Business Loan Agreement, Page 2
<PAGE>
SECTION 3.1. CAPACITY.
Borrower is duly organized, validly existing and in good standing under the laws
of the State of Delaware. Borrower has full power, authority, and legal right
to own its properties and assets and to conduct its business as presently
conducted.
SECTION 3.2. AUTHORITY.
Borrower has full power, authority and legal right to execute and deliver, and
to perform and observe the provisions of this AGREEMENT and the RELATED
DOCUMENTS to be executed by Borrower. Borrower's execution, delivery and
performance of this AGREEMENT and the RELATED DOCUMENTS have been duly
authorized by all necessary corporate action. When duly executed and delivered
by Borrower, this AGREEMENT and the RELATED DOCUMENTS will be legal, valid, and
binding obligations of Borrower enforceable in accordance with their respective
terms, except as enforceability may be limited by the United States Bankruptcy
Code or other statutes affecting creditor's rights generally or by general
principles of equity.
SECTION 3.3. COMPLIANCE.
Borrower is not in violation of, conflict with or default under (i) any
provision of its amended and restated certificate of incorporation or bylaws, or
(ii) any contract, instrument, judgment, order writ or decree to which it or any
of its subsidiaries is a party or by which it or any of them is bound, or, to
the best of its knowledge, of any provision of any federal or state statute,
rule or regulation applicable to the Borrower or any of its subsidiaries, except
as would not have a material adverse effect on the assets, condition, affairs or
prospects of the Borrower and its subsidiaries taken as a whole, financial or
otherwise (a "MAE"). The execution, delivery, and performance of this Agreement
and the Related Documents, will not, with or without the passage of time and
giving of notice, result in any such violation, conflict or default, or an event
that results in the creation of any material lien, charge or encumbrance upon
any assets of the Borrower or any of its subsidiaries or the suspension,
revocation, impairment or forfeiture of any material permit, license,
authorization, or approval applicable to the Borrower or any of its
subsidiaries.
SECTION 3.4. FINANCIAL STATEMENTS.
The audited financial statements for Borrower for the year ending December 31,
1995 and the unaudited financial statement for Borrower for the quarter ending
June 30, 1996 that Borrower supplied to Lender are true and complete in all
material respects and fairly present Borrower's financial condition as of the
date of the statements. Borrower has no material contingent obligations except
as disclosed in such financial statements.
SECTION 3.5. MATERIAL ADVERSE EVENTS.
Since the most recent financial statements provided to Lender by Borrower, there
has been (i) no event or condition constituting a MAE, and (ii) no material
impairment of the prospect of repayment of any portion of the Loan Obligations
owing to Lender as they become due.
SECTION 3.6. TAXES.
Each of Borrower and any of its subsidiaries has filed or caused to be filed all
tax returns which are required to be filed by it. Each of Borrower and any of
its subsidiaries has paid all taxes which have or may have become due pursuant
to said returns or otherwise or pursuant to an assessment received by Borrower,
except such taxes, if any, as are being contested in good faith and as to which
adequate reserves have been created. The charges, accruals, and reserves in
respect of income taxes on the books of Borrower are adequate. Borrower knows
of no proposed tax assessment against it or any of its subsidiaries and no
extension of time for the assessment of federal, state, or local taxes of
Borrower or any of its subsidiaries is in effect or has been requested, except
as disclosed in the financial statements furnished to Lender.
- --------------------------------------------------------------------------------
Business Loan Agreement, Page 3
<PAGE>
SECTION 3.7. PROPRIETARY INFORMATION AGREEMENTS
Each current and former employee of and consultant to Borrower has executed a
customary and reasonable proprietary information and inventions agreement. The
Borrower is not aware that any of its employees are in violation thereof.
SECTION 3.8. PATENTS AND TRADEMARKS
To the best of its knowledge, Borrower has sufficient title and ownership of all
patents, copyrights, trade secrets, information, proprietary rights and
processes necessary for its business as now conducted and as now proposed to be
conducted without any conflict with or infringement of the rights of others,
except that no representations is made with respect to noninfringement of
patents not issued as of the date hereof or to any exclusive rights to trade
secrets or know-how of the Borrower. To the best of its knowledge, there are
not outstanding options, licenses, or agreements of any kind relating to any
material use of the foregoing, nor is the Borrower bound by or a party to any
options, licenses or agreements of any kind with respect to the patents,
trademarks, service marks, tradenames, copyrights, trade secrets, licenses,
information, proprietary rights and processes of any other person or entity. The
Borrower has not received any communications alleging that the Borrower has
violated or, by conducting is business as proposed, would violate any of the
patents, trademarks, service marks, tradenames, copyrights or trade secrets or
other proprietary rights of any other person or entity. The Borrower is not
aware that any of its employees is obligated under any contract (including
licenses, covenants or commitments of any nature) or other agreement, or subject
to any judgment, decree to order of any court of administrative agency, that
would materially interfere with the use of his best efforts to promote the
interests of the Borrower or that would materially conflict with the Borrower's
business as proposed to be conducted
SECTION 3.9. PRIORITY INTEREST IN COLLATERAL.
No Person other than Lender has any interest (by way of Security Interest, other
lien or charge, or otherwise) in the COLLATERAL except as permitted pursuant to
Section 5.1(a).
SECTION 3.10. ACCURATE INFORMATION.
All information supplied to Lender by or on behalf of Borrower is and shall be
true and correct in all material respects.
SECTION 3.11. TITLE TO PROPERTY.
Immediately prior to the grant of a Security Interest to the Lender of the
Collateral by the Borrower, Borrower owned the Collateral free and clear of all
encumbrances or otherwise permitted pursuant to Section 5.1(a).
SECTION 3.12. HAZARDOUS SUBSTANCES.
None of Borrower's properties or assets has ever been used by Borrower or, to
the best of Borrower's knowledge, by previous owners or operators in the
disposal of, or to produce, store, handle, treat, release, or transport, any
hazardous waste or hazardous substance other than in accordance with applicable
law; to the best of Borrower's knowledge none of Borrower's properties or assets
has ever been designated or identified in any manner pursuant to any
environmental protection statute as a hazardous waste or hazardous substance
disposal site, or a candidate for closure pursuant to any environmental
protection statute; no lien arising under any environmental protection statute
has attached to any revenues or to any real or personal property owned by
Borrower; and Borrower has not received a summons, citation, notice, or
directive from the Environmental Protection Agency or any other federal or
state governmental agency concerning any action or omission by Borrower
resulting in the releasing, or otherwise disposing of hazardous waste or
hazardous substances into the environment.
SECTION 3.13. LITIGATION; COMPLIANCE WITH LAWS AND AGREEMENTS.
Except as set forth on Exhibit A, there are no actions or proceedings pending,
or to the knowledge of Borrower threatened, against or affecting Borrower which,
if adversely determined, could have a material adverse effect on Borrower.
Borrower is not in default with
- --------------------------------------------------------------------------------
Business Loan Agreement, Page 4
<PAGE>
respect to any writ, the breach of which may have an material adverse affect on
the operations or financial condition of Borrower, nor is it in default under
any indenture, agreement, or other instrument to which Borrower is a party or by
which Borrower may be bound, the reach of which may have a material adverse
effect on the operations or financial condition of Borrower.
SECTION 3.14. DEFAULTS.
Immediately following the closing Borrower will not be in default in the payment
of principal or interest on any INDEBTEDNESS and is not in default under any
instrument or agreement under or subject to which any INDEBTEDNESS has been
issued, and no event has occurred and is continuing which, with or without the
lapse of time or the giving of notice, or both, constitutes or would constitute
a default under any such instrument or agreement or an EVENT OF DEFAULT
hereunder.
SECTION 3.15. SURVIVAL OF REPRESENTATION AND WARRANTIES.
Borrower understands and agrees that Lender is relying upon the above
representations and warranties in extending Loan advances to Borrower. Borrower
further agrees that except as disclosed to Lender in writing the foregoing
representations and warranties in Sections 3.1 through Section 3.13 shall be
continuing in nature and shall remain in full force and effect until such time
as Borrower's Loan and Note shall be paid in full, or until this Agreement shall
be terminated in the manner provided above, whichever is the last to occur.
SECTION 4 AFFIRMATIVE COVENANTS.
Until payment in full of the Loan Obligations, Borrower agrees to do the
following:
SECTION 4.1. FINANCIAL STATEMENTS, REPORTS AND CERTIFICATIONS.
Until payment in full of the Loan Obligations, Borrower will furnish to Lender,
in form and substance satisfactory to Lender:
(a) As soon as possible after the end of each fiscal year of
Borrower, and in any event within ninety (90) days after the end of
each fiscal year, a complete copy of its audited year-end financial
statements which shall include the balance sheet of Borrower as of the
close of the fiscal year, an income statement and a statement of cash
flows for such year, audited by certified public accounts selected by
Borrower and satisfactory to Lender.
(b) No later than thirty (30) days after the end of each month,
Borrower's balance sheet as of the close of that month and its income
statement and cash flow statement for that month certified as being
complete, correct, and fairly representing its financial condition and
results of operations by the chief financial officer of Borrower.
(c) No later than ninety (90) days after the end of each fiscal
year, Borrower's new budget or operating plan for the then current
fiscal year.
(d) No later than thirty (30) days after the end of each month,
a schedule of accounts payable and accounts receivable.
(e) No later than thirty (30) days after the end of each fiscal
quarter, a certificate of the Borrower's corporate controller, or
other equivalent officer, stating that there are no defaults by the
Borrower under any of its agreements with the Lender or under any
third party loan or lease agreements or describing any such existing
default(s) and specific action being taken to cure default(s). The
Borrower's corporate controller, or other equivalent officer, will,
within five days after the occurrence of an event of
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Business Loan Agreement, Page 5
<PAGE>
default under any of the foregoing, issue a statement describing the
default, and specific action being taken to cure the default.
(f) Promptly provide all audit reports prepared by the
Borrower's independent accountants, notice of any action or preceding
before any court or governmental agency, copies of all federal and
state patent, trademark or copy right applications and registrations
of the same, notice of any circumstance which may reasonably be
expected to have a material adverse effect on the Borrower, and such
other information as the Lender may reasonably request.
(g) Such other information concerning the COLLATERAL as Lender
may reasonably request.
(h) If Borrower becomes a company the stock of which is traded on a
nationally recognized public stock exchange, Borrower's obligations
hereunder shall be satisfied by providing Lessor with all financial
information filed with the Securities and Exchange Commission within five
(5) days of such filing, and by providing copies of all press releases as
soon as they are published, and by providing, if requested in writing by
Lender, all of the information described in paragraphs 4.1(a) and 4.1(b)
within thirty (30) days of such written request.
SECTION 4.2 OTHER INFORMATION.
Borrower will (1) maintain accurate books and records concerning its business,
(2) upon request, furnish to Lender such information, statements, lists of
property and accounts, lists of assets and liabilities, agings of receivables
and payables, inventory schedules, budgets, forecasts, or reports as Lender may
reasonably request with respect to the business, affairs, and financial
condition of Borrower, and (3) permit Lender or representatives thereof, with
reasonable prior notice from time to time during normal business hours, to
inspect the properties of Borrower and any of its subsidiaries and to inspect,
audit, make copies of, and make extracts from, the books or accounts of Borrower
and any of its subsidiaries.
SECTION 4.3 EXPENSES.
Borrower will pay all reasonable out-of-pocket expenses of Lender (including,
but not limited to, fees and disbursements of Lender's counsel) incident to (1)
preparation and negotiation of this Agreement and the Related Documents and any
amendments, extensions and renewals thereof, including, but not limited to, the
perfection of Lender's Security Interest in Borrower's Collateral, (2) the
protection of the rights of Lender under this Agreement and the Related
Documents, or (3) defense by Lender against all claims against Lender relating
to any of its acts of commission or omission directly or indirectly relating to
this Agreement and the Related Documents, all whether by judicial proceedings or
otherwise (other than claims which are (i) sustained by a court of competent
jurisdiction, (ii) non-appealable and (iii) predicated on Lender's gross
negligence or willful misconduct). Borrower will also pay and save Lender
harmless from any and all liability with respect to any stamp or other taxes
(other than transfer or income taxes or any taxes relating to any equity
securities issued by Borrower to Lender in connection herewith) which may be
determined to be payable in connection with the making of this Agreement and the
Related Documents or any action of Lender authorized under this Agreement or the
Related Documents with respect to the COLLATERAL, including, without limitation,
transfer of the COLLATERAL to Lender's name or that of its nominee or the
purchaser at a foreclosure sale.
SECTION 4.4. NOTICE OF EVENTS.
BORROWER will promptly give LENDER written notice of any EVENT OF DEFAULT or any
event which with the giving of notice or passage of time, or both, would become
an EVENT OF DEFAULT.
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Business Loan Agreement, Page 6
<PAGE>
SECTION 4.5 ERISA REPORTS.
Borrower will furnish to Lender (1) as soon as possible and in any event within
thirty (30) days after Borrower or any of its subsidiaries knows or has reason
to know of any REPORTABLE EVENT, with respect to any employee benefit PLAN
("PLAN") subject to ERISA and maintained by Borrower or any of its subsidiaries,
a statement of the chief financial officer of Borrower or the affected
subsidiary setting forth details as to such REPORTABLE EVENT and the actions
which Borrower or the affected subsidiary proposes to take with respect thereto,
together with a copy of the notice of such REPORTABLE EVENT given to the Pension
Benefit Guaranty Corporation, if a copy of such notice is available to Borrower,
and (2) prompt written notice of any decision by Borrower or any of its
subsidiaries to terminate or withdraw from any PLAN, and (3) promptly after
receipt thereof a copy of any notice of intent to terminate any PLAN or to
appoint a trustee to administer any PLAN which Borrower, any subsidiary or any
member of the Controlled Group may receive from the Pension Benefit Guaranty
Corporation or the Internal Revenue Service with respect to any PLAN.
SECTION 4.6 NOTICE OF LITIGATION.
Borrower will promptly give notice to Lender in writing of any proceedings
against Borrower involving amounts in excess of One Hundred Thousand Dollars
($100,000) not fully covered by insurance, any claim or dispute which may exist
between Borrower and any PERSON and which, if adjudicated adversely to Borrower,
would have a material adverse effect on Borrower's business or financial
condition, any labor controversy resulting in or threatening to result in a
strike against Borrower, or any proposal by any public authority to acquire a
material portion of the assets or business of Borrower.
SECTION 4.7 OTHER DEBT.
BORROWER will promptly pay and discharge when due any and all INDEBTEDNESS and
obligations, including, without limitation, all assessments, taxes, governmental
charges, levies and liens of every kind and nature, imposed upon Borrower or any
of its subsidiaries or its or their properties, income, or profits, prior to the
date on which penalties would attach, and lawful claims that, if unpaid, might
become a lien or charge upon the property of Borrower or any of its
subsidiaries, except such as may in good faith be contested or disputed or for
which arrangements for deferred payment have been made for a cumulative amount
of not more than One Hundred Twenty Five Thousand Dollars ($125,000), provided
appropriate reserves are maintained to the satisfaction of Lender for the
eventual payment thereof in the event it is found that such INDEBTEDNESS is an
INDEBTEDNESS payable by Borrower or any of its subsidiaries, and when such
dispute or contest is settled and determined, will promptly pay the full amount
then due.
SECTION 4.8 COOPERATION.
Borrower will execute and deliver to Lender any and all documents, and do or
cause to be done any and all other acts reasonably deemed necessary by Lender,
in its sole discretion, to effect the provisions and purposes of this AGREEMENT.
SECTION 4.9 NOTICE OF LOSS.
Borrower shall give Lender written notice of any loss with respect to the
COLLATERAL, including but not limited to theft, damage, destruction, and
disappearance, in excess of Fifty Thousand Dollars ($50,000) in each instance.
SECTION 4.10 LOCATION OF COLLATERAL.
Borrower will give Lender written notice at least thirty (30) days prior to
changing the location of its chief place of business or the location or any of
the COLLATERAL, including any change of location of any property located 3172
Porter Drive, Palo Alto, California 94304 or to any other of Borrower's
locations, Borrower will give Lender written notice of any property loaned to
others in the ordinary course of Borrower's business, including a description of
the property and the address where such property is to be temporarily located.
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Business Loan Agreement, Page 7
<PAGE>
SECTION 4.11 MAINTENANCE OF EXISTENCE.
Subject to Section 5.2 hereof, Borrower will preserve and maintain its legal
existence and all rights, privileges and franchises of it or any of its
subsidiaries necessary or desirable in the normal conduct of its or their
business, will conduct its or their business in an orderly, efficient and
regular manner, and will comply with all applicable laws and regulations and the
terms of any indenture, contract or other instrument to which it or any of its
subsidiaries may be a party or under which it or any of its subsidiaries or its
or their properties may be bound, the noncompliance with which would have MAE.
SECTION 4.12 MAINTENANCE OF INSURANCE.
Borrower will maintain public liability, property damage and workers'
compensation insurance. Borrower shall, at its own cost and expense, maintain
insurance with respect to the COLLATERAL against loss or damage by fire, theft,
explosion and all other hazards and risks ordinarily insured against by other
owners or users of such properties in similar business for the full insurable
value of the COLLATERAL, including earthquake insurance if requested by
Lender after October 1, 1997.
SECTION 4.13 INSURANCE REPORTS.
Furnish to Lender, upon request of Lender, reports on each existing insurance
policy showing such information as Lender may reasonably request, including
without limitation the following: (a) the name of the insurer; (b) the risks
insured; (c) the amount of the policy; (d) the properties insured; (e) the then
current property values on the basis of which insurance has been obtained, and
the manner of determining those values; and (f) the expiration date of the
policy.
SECTION 4.14 MAINTENANCE OF PROPERTIES, ETC.
Borrower will maintain and preserve all of the properties of it or any of its
subsidiaries, necessary or useful in the proper conduct of its or their business
in good working order and condition, ordinary wear and tear excepted.
SECTION 4.15 MATERIAL ADVERSE CHANGE.
Promptly inform Lender in writing of (i) an event or condition constituting an
MAE or (ii) any material impairment of the prospect of repayment of any portion
of the Loan Obligations owing to Lender as they become due.
SECTION 4.16 OTHER AGREEMENTS.
Other than as otherwise allowed, comply (and cause each of its subsidiaries to
comply) with all material terms and conditions of all other material agreements,
whether now or hereafter existing, between Borrower (and each of its
subsidiaries) and any other party and notify Lender immediately in writing of
any default in connection with any other such agreements. Perform and comply
with all terms, conditions and provisions set forth in this Agreement and in the
Related Documents in a timely manner
SECTION 4.17 LOAN PROCEEDS.
Use all Loan proceeds solely for Borrower's business operations, unless
specifically consented to the contrary by Lender in writing.
SECTION 4.18 COMPLIANCE CERTIFICATE.
Unless waived in writing by Lender, provide Lender at least annually with a
certificate executed by Borrower's chief financial officer or person acceptable
to Lender, certifying that the representations and warranties in Sections 3.1
through 3.13 set forth in this Agreement are true and correct as of the date of
the certificate and further certifying that, as of the date of the certificate,
no Event of Default exists under this Agreement.
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Business Loan Agreement, Page 8
<PAGE>
SECTION 4.19 ADDITIONAL ASSURANCES.
Make, execute and deliver to Lender such promissory notes, mortgages, deed of
trust, security agreements, financing statements, instruments, documents and
other agreements as Lender or its attorneys may reasonable request to evidence
and secure the Loan and to perfect Lender's Security Interests and liens.
SECTION 5. NEGATIVE COVENANTS.
Borrower covenants and agrees with Lender that while this Agreement is in
effect, Borrower shall not without the prior written consent of Lender:
SECTION 5.1 INDEBTEDNESS AND LIENS.
(a) incur, assume or permit to exist any Indebtedness other than (i) PERMITTED
JUNIOR INDEBTEDNESS, (ii) accounts payable to trade creditors for goods and
services and current operating liabilities (not the result of the borrowing of
money) incurred in the ordinary course of Borrower's business in accordance with
customary terms and that are not delinquent, and (iii) Indebtedness of Borrower
secured by liens permitted pursuant to clause (b)(ii) of this Section 5.1, (iv)
Indebtedness existing on the date hereof and disclosed in Exhibit A hereto, (v)
contingent obligations of Borrower consisting of guarantees (and other credit
support) of the obligations of vendors and suppliers of Borrower in respect of
transactions entered into in the ordinary course of business, (vi) other
Indebtedness of Borrower, provided that the total amount in the aggregate
outstanding INDEBTEDNESS at any time described in (iv), (v), and (vi) above not
to exceed $250,000; (vii) extensions, renewals, refundings, refinancings,
modifications, amendments and restatements of any of the items of Indebtedness
described in (i) through (vii) above, PROVIDED that the principal amount thereof
is not increased or the terms thereof are not modified to impose more burdensome
terms upon Borrower (b) create, incur, or assume any mortgage, pledge
encumbrance, lien or charge of any kind (including the charge upon property at
any time purchased or acquired under conditional sale or other title retention
agreement) upon any asset now owned or hereafter acquired, except for (i)
SECURITY INTEREST that are granted in favor of the JUNIOR LENDER as security for
the PERMITTED JUNIOR INDEBTEDNESS, (ii) other than as permitted pursuant to
clause (iii) hereof, SECURITY INTERESTS that are to secure Borrower's
Indebtedness incurred solely for the purpose of financing the acquisition or
lease of any specific items of equipment and granted in favor of a purchase
money lender or equipment lessor with respect to such Indebtedness, but only to
the extent that such lien is confined solely to the equipment so acquired and
such INDEBTEDNESS is limited to the purchase price or lease obligations the
respect to such equipment, and (iii) easements, reservations, rights of way,
restrictions, minor defects or irregularities in title and other similar liens,
(iv) liens in favor of customers and revenue authorities arising as a mater of
law to secure payments of customs duties in connection with the importation of
goods; (v) liens arising solely by virtue of any statutory or common law
provision relating to banker's liens, rights of setoff or similar rights and
remedies as to deposit accounts or other funds maintained with a creditor
depository institution; (vi) liens existing on the date hereof and disclosed on
Exhibit A hereto; (vii) liens not otherwise permitted, which liens do not in the
aggregate exceed $250,000 at any time (viii) liens incurred in connection with
the extension, renewal or refinancing of the indebtedness secured by liens of
the type described in clauses (i) through (ii) above, provided that any
extension, renewal or replacement lien shall be limited to the property
encumbered by the existing lien and the principal amount of the indebtedness
being extended, renewed or refinanced does not increase.
SECTION 5.2 CONSOLIDATION, MERGER, ETC.1
Consolidate with, merge into, or sell (whether in one transaction or in a series
of transactions) all or substantially all of its assets to any PERSON without
the prior written consent of Lender except (i) to or with a successor in
interest to all or substantially all of the business of Borrower, provided that
such successor has a net worth or financial condition reasonably acceptable to
Lender, or (ii) the merger for purposes of reincorporating Borrower in another
state in the United States.
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Business Loan Agreement, Page 9
<PAGE>
SECTION 5.3 CONTINUITY OF OPERATIONS.
(a) Engage in any business activities substantially different than those in
which Borrower is presently engaged or presently proposes to be engaged, (b)
cease operations or, (c) pay any dividends on Borrower's stock, or purchase or
retire any of Borrower's outstanding shares (except for the repurchase of lost
or unvested shares upon termination of employment or consulting relationships).
SECTION 5.4 LOANS, ACQUISITIONS AND GUARANTIES.
(a) Loan money or assets, except for the loan of assets in the ordinary course
of business, and (i) travel advances, employee relocation loans and other
employee loans and advances in the ordinary course of business, (ii) loans to
employees, officers or directors relating to the purchase of equity securities
of Borrower, and (iii) other loans to officers, directors and employees approved
by the Board of Directors, (b) purchase or acquire any interest in any other
enterprise or entity, or (c) incur any obligation as surety or guarantor other
than in the ordinary course of business.
SECTION 5.5. DEFAULTS.
Fail to make any payment of principal or interest on any INDEBTEDNESS.
SECTION 6 EVENTS OF DEFAULT.
If one or more of the following events shall occur ("EVENTS OF DEFAULT" or an
"EVENT OF DEFAULT"):
(a) Borrower shall default in the payment of any of the LOAN
OBLIGATIONS within ten (10) days of when same is due, whether at
maturity, upon acceleration, or otherwise; or
(b) Any representation or warranty made by Borrower in, or
pursuant to, this AGREEMENT or any RELATED DOCUMENTS shall prove to
have been incorrect or misleading in any material respect when made;
or
(c) Borrower shall be in default in the performance of any of
the covenants in Section 4 or Section 5; or Borrower fails or neglects
to perform, keep, or observe any other term, provision, condition,
covenant, or agreement contained in this Agreement, in any of the
Related Documents, and as to any default under such other term,
provision, condition, covenant or agreement that can be cured, has
failed to cure such default within ten (10) days after the Borrower
receives written notice thereof from Lender or any officer of Borrower
becomes aware thereof provided, however, that if the default cannot
by its nature be cured within the ten (10) day period, and cannot be
cured within the ten (10) day period after diligent attempts by
Borrower, and such default is likely to be cured within a reasonable
time, then Borrower shall have an additional reasonable period (which
shall not in any case exceed thirty (30) days) to attempt to cure such
default, and within such reasonable time period the failure to have
cure such default shall not be deemed an Event of Default; or
(d) Borrower shall be in default under any agreement with Junior
Lender, provided however that if any default under any agreement with
Junior Lender shall be cured or waived, it shall be automatically
cured or waived under this Agreement; or
(e) An order for relief shall be entered against Borrower by any
United States Bankruptcy Court; or Borrower shall generally not pay
its debts as they become due (within the meaning of 11 U.S.C. 303(h)
as at any time amended or any successor statute thereto) or make an
assignment for the benefit of creditors; or Borrower shall apply for
or consent to the
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Business Loan Agreement, Page 10
<PAGE>
appointment of a custodian, receiver, trustee, or similar officer for
it or for all or any substantial part of its property; or such
custodian, receiver, trustee, or similar officer shall be appointed
without the application or consent of Borrower and such appointment
shall continue undischarged for a period of sixty (60) days; or
Borrower shall institute (by petition, application, answer, consent,
or otherwise) any bankruptcy, insolvency, reorganization, moratorium,
arrangement, readjustment of debt, dissolution, liquidation or similar
proceeding relating to it under the laws of any jurisdiction; or any
such proceeding shall be instituted (by petition, application, or
otherwise) against Borrower and shall remain undismissed for a period
of sixty (60) days; or any judgment, writ, warrant of attachment,
execution, or similar process shall be issued or levied against a
substantial part of the property of Borrower and such a judgment,
writ, or similar process shall not be released, vacated, or fully
bonded within sixty (60) days after its issue or levy; or
(f) This Agreement or any of the Related Documents ceases to be
in full force and effect (including failure of any collateral document
to create a valid and perfected security interest or lien at any time
and for any reason); or
(g) Commencement of foreclosure, whether by judicial proceeding,
self-help, repossession or any other method, by any creditor of
Borrower against any Collateral, or any creditor takes, attempts to
take or gives written or oral notice to Borrower of its intent to take
any action against the property of Borrower or any of its subsidiaries
on or in which Lender has a lien or security interest. This includes
a garnishment, attachment, or levy on or of any of Borrower's deposit
accounts. However, this Event of Default shall not apply if there is
a good faith dispute by Borrower or any of its subsidiaries as to the
validity or reasonableness of the claim which is the basis of the
creditor proceeding, and if Borrower gives Lender written notice of
the creditor proceeding and furnishes reserves or a surety bond for
the creditor proceeding satisfactory to Lender; or
(h) Any REPORTABLE EVENT, which Lender determines in good faith
constitutes grounds for the termination of any PLAN or PLANS by the
Pension Benefit Guaranty Corporation or for the appointment by the
appropriate United States District Court of a trustee to administer or
liquidate any PLAN or PLANS shall have occurred and be continuing
thirty (30) days after written notice of such determination by Lender
shall have been given to Borrower, or a decision shall have been made
by Borrower or any Subsidiary to terminate, file a notice of
termination with respect to, or withdraw from, any PLAN or PLANS, or a
trustee shall be appointed by the appropriate United States District
Court to administer any PLAN or PLANS, or the Pension Benefit Guaranty
Corporation shall institute proceedings to terminate any PLAN or PLANS
or to appoint a trustee to administer any PLAN or PLANS, and in the
case of the occurrence of any of the above, the aggregate amount of
Borrower's liability to the Pension Benefit Guaranty Corporation under
Sections 4062, 4063, and 4064 of ERISA as determined in good faith by
Lender could exceed 10% of Borrower's Consolidated Tangible Net Worth,
and such liability of Borrower is not covered in full, for the benefit
of Borrower, by insurance;
THEN, automatically, at the option of Lender, Lender's obligation to take any
action hereunder for Borrower's benefit shall terminate and all LOAN OBLIGATIONS
shall, without presentment, demand, protect, or notice of any kind, all of which
are hereby expressly waived, be forthwith due and payable, and Lender may,
immediately and without expiration of any period of grace, enforce payment of
all LOAN OBLIGATIONS and exercise any and all other
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Business Loan Agreement, Page 11
<PAGE>
remedies granted to it under any of the other RELATED DOCUMENTS, at law, in
equity, or otherwise.
SECTION 7. DEFAULT.
Upon and during the continuance of an Event of Default, including failure to pay
upon final maturity, Lender, at its option, may do one or both of the following:
(a) increase the interest rate on the Promissory Note up to fourteen percent
(14%) per annum, or, if lower, up to the maximum interest amount allowable by
applicable law, and (b) add any unpaid accrued interest to principal and such
sum will bear interest therefrom until paid at the rate provided in the
Promissory Note.
SECTION 8. OUT OF POCKET EXPENSES.
Borrower shall pay to Lender all of Lender's reasonable out-of-pocket expenses
described in Section 4.3(i), which shall be due and payable in full on
acceptance of this Agreement.
SECTION 9. ADDITIONAL PROVISIONS.
Without the prior written consent of Lender, Borrower shall not sell, lend or
transfer title on its assets to its parent, subsidiaries or affiliated companies
except in the normal course of business.
SECTION 10. MISCELLANEOUS PROVISIONS.
The following miscellaneous provision are a part of this Agreement:
SECTION 10.1 AMENDMENTS.
This Agreement, together with any Related Documents, constitutes the entire
understanding and agreement of the parties as to the matters set forth in this
Agreement. No alteration of or amendment to this Agreement shall be effective
unless given in writing and signed by the party or parties sought to be charged
or bound by the alteration or amendment.
SECTION 10.2 APPLICABLE LAW.
This Agreement has been delivered to Lender and accepted by Lender in the State
of California. If there is a lawsuit, Borrower agrees upon Lender's request to
submit to the jurisdiction of the court of San Francisco County, the State of
California. This Agreement shall be governed by and construed in accordance
with the laws of the State of California.
SECTION 10.3. WAIVER OF JURY TRIAL.
Borrower and Lender each hereby waives, to the fullest extent permitted by
applicable law, any right it may have to a trial by jury in respect of any
litigation directly or indirectly arising out of, under or in connection with
this Agreement, any Related Agreement or any of the Loan Obligations. Borrower
and Lender hereby (a) certify that no representative, agent or attorney of the
other party hereto has represented, expressly or otherwise, that such other
party would not, in the event of litigation, seek to enforce the foregoing
waiver and (b) acknowledges that it and the other party hereto have been induced
to enter to this Agreement by, among other things, the mutual waivers and
certifications contained in this Section 10.3.
SECTION 10.4 CAPTION HEADINGS.
Caption headings in this Agreement are for convenience purposes only and are not
to be used to interpret or define the provisions of this Agreement.
SECTION 10.5 CONSENT TO LOAN PARTICIPATION.
Borrower agrees to and consents to Lender's sale or transfer, whether now or
later, of one or more participation interest in the Loans to one or more
purchasers, whether related or unrelated to Lender. Lender may provide, without
any limitation whatsoever, to any one or more purchasers, or potential
purchasers, any information or knowledge Lender may have about Borrower or about
any other matter relating to the Loan, and Borrower hereby waives any rights to
privacy it may have with respect to such matters, provided such purchasers agree
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Business Loan Agreement, Page 12
<PAGE>
to the confidentiality provisions hereof. Borrower additionally waives any and
all notices of sale of participation interest, as well as all notices of any
repurchase or such participation interest in the Loans and will have all the
rights granted under the participation agreement or agreements governing the
sale of such participation interests. Any costs associated with the attempt to
arrange any such participation interest will be borne by Lender.
SECTION 10.6 NOTICES.
All notices required to be given under this Agreement shall be given in writing
and shall be effective when actually delivered or when deposited in the United
States mail, first class, postage prepaid, addressed to the party to whom the
notice is to be given at the address shown above. Any party may change its
address for notices under this Agreement by giving formal written notice to the
other parties, specifying that the purpose of the notice is to change the
party's address. To the extent permitted by applicable law, if there is more
than one Borrower, notice to any Borrower will constitute notice to all
Borrowers. For notice purposes, Borrower agrees to keep Lender informed at all
times of Borrower's current address(es).
SECTION 10.7. SEVERABILITY.
If a court of competent jurisdiction finds any provision of this Agreement to be
invalid or unenforceable as to any person or circumstances, such finding shall
not render that provision invalid or unenforceable as to any other persons or
circumstances. If feasible, any such offending provision shall be deemed to be
modified to be within the limits of enforceability or validity; however, if the
offending provision cannot be so modified, it shall be stricken and all other
provisions of this Agreement in all other respects shall remain valid and
enforceable.
SECTION 10.8 TIME IS OF THE ESSENCE.
Time is of the essence in the performance of this Agreement and the Related
Documents.
SECTION 10.9 WAIVER.
Lender shall not be deemed to have waived any rights under this Agreement,
unless such waiver is given in writing and signed by Lender. No delay or
omission on the part of Lender in exercising any right shall operate as a waiver
of such right or any other right. A waiver by Lender of a provision of this
Agreement shall not prejudice or constitute a waiver of Lender's right otherwise
to demand strict compliance with that provision or any other provision of this
Agreement. No prior waiver by Lender, nor any course of dealing between Lender
and Borrower, shall constitute a waiver of any of Lender's rights or of any
obligations of Borrower as to any future transactions. Whenever the consent of
Lender is required under this Agreement, the granting of such consent by Lender
in any instance shall not constitute continuing consent in subsequent instances
where such consent is required and in all cases such consent may be granted or
withheld in the sole discretion of Lender.
SECTION 10.10 CONFIDENTIALITY.
In handling any confidential information Lender shall exercise the same degree
of care that it exercises with respect to its own proprietary information of the
same types to maintain the confidentiality of any non-public information thereby
received or received pursuant to this agreement except that disclosure of such
information may be made (i) to the subsidiaries or affiliates of Lender in
connection with their preset or prospective business relations with Borrower,
(ii) to prospective transferees or purchasers of any interest in the Loans,
provided that they have entered into a comparable confidentiality agreement in
favor of Borrower and have delivered a copy to Borrower, (iii) as required by
law, regulations, rule or order, subpoena, judicial order or similar order an
(iv)) as may be required in connection with the examination, audit or similar
investigation of Lender. Confidential information hereunder shall not include
information that either; (a) is in the public domain or in the knowledge or
possession of Lender when disclosed to Lender, or becomes part of the public
domain after disclosure to Lender through no fault of Lender; or (b) is
disclosed to Lender by a third party, provided Lender does not have actual
knowledge that such third party is prohibited from disclosing such information.
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Business Loan Agreement, Page 13
<PAGE>
BORROWER ACKNOWLEDGES HAVING READ ALL THE PROVISION OF THIS BUSINESS LOAN
AGREEMENT, AND BORROWER AGREES TO ITS TERMS. THIS AGREEMENT IS DATED AS OF
SEPTEMBER 27, 1996.
BORROWER:
CV THERAPEUTICS, INC.
BY: /s/ Kathleen Stafford
------------------------------------------
TITLE: Chief Financial Officer
-----------------------------
LENDER:
HAMBRECHT & QUIST GUARANTY FINANCE, LLC:
BY: /s/ Donald M. Campbell
------------------------------------------
TITLE: Chief Executive Officer
-----------------------------
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Business Loan Agreement, Page 14
<PAGE>
BUSINESS LOAN AGREEMENT
THIS BUSINESS LOAN AGREEMENT between CV THERAPEUTICS, INC. a Delaware
corporation, having a mailing address at 3172 Porter Drive, Palo Alto,
California 94304 ("Borrower") and HAMBRECHT & QUIST TRANSITION CAPITAL, LLC, a
Delaware limited liability company, having a mailing address at One Bush Street,
San Francisco, California 94104 ("Lender") is made and executed on the following
terms and conditions. Borrower has applied to Lender for a loan or loans and
other financial accommodations. All such loans and financial accommodations,
made pursuant to this Agreement or the Related Documents from Lender to
Borrower, are referred to in this Agreement individually as the "Loan" and
collectively as the "Loans." Borrower understands and agrees that: (a) in
granting, renewing, or extending any loan, Lender is relying upon Borrower's
representations, warranties and agreements, as set forth in this Agreement; (b)
the granting, renewing, or extending of any Loan by Lender at all times shall be
subject to Lender's sole judgment and discretion; and (c) all such Loans shall
be and shall remain subject to the following terms and conditions of this
Agreement.
Section 1. CERTAIN DEFINITIONS.
The following words shall have the following meanings when used in this
Agreement. Terms not otherwise defined in this Agreement shall have the
meanings attributed to such terms in the CALIFORNIA Uniform Commercial Code.
All references to dollar amounts shall mean amounts in lawful money of the
United States of America.
"AGREEMENT" shall mean this Business Loan Agreement, as may be modified
from time to time, together with all exhibits and schedules attached to this
Business Loan Agreement from time to time.
"BORROWER" shall mean CV Therapeutics, Inc.
"COLLATERAL" shall have that meaning as defined in the Security Agreement.
"EVENT OF DEFAULT" shall mean and include any of the Events of Default set
forth below in the section titled "Events of Default."
"INDEBTEDNESS" of any Person means all items of indebtedness that, in
accordance with generally accepted accounting principles and practices
consistently applied, would be deemed a liability of such Person as of the date
as of which indebtedness is to be determined and shall also include all
indebtedness and liabilities of others assumed or guaranteed by such Person or
in respect of which such Person is secondarily or contingently liable (other
than by endorsement of instruments in the course of collection) whether by
reason of any agreement to acquire such indebtedness, to supply or advance sums,
or otherwise.
"LENDER" means Hambrecht & Quist Transition Capital, LLC, its successors
and assigns.
"LOAN" OR "LOANS" means and includes any and all loans and financial
accommodations from Lender to Borrower, whether now or hereafter existing, and
however evidenced made pursuant to this Agreement or the Related Documents
including without limitation those loans and financial accommodations described
herein or described on any exhibit or schedule attached to this agreement from
time to time.
"LOAN OBLIGATIONS" means and includes all loans, advances, debts,
liabilities, obligations, or any other financial accommodations, owing by
Borrower to Lender arising under the BUSINESS LOAN AGREEMENT, the PROMISSORY
NOTE or under any other Related Documents of every kind and description
(whether or not evidenced by any note or other
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Business Loan Agreement, Page 1
<PAGE>
instrument and whether or not for the payment of money), direct or indirect,
absolute or contingent, due or to become due, now existing or arising hereafter
including, without limitation, all interest, fees, charges, expenses, attorneys'
fees, and accountants' fees chargeable to Borrower or incurred by Lender in
connection with this Agreement or the Related Documents.
"MATURITY DATE" means September 30, 1999.
"PERMITTED SENIOR INDEBTEDNESS" means and includes all Indebtedness from
Borrower to Senior Lender under that Business Loan Agreement dated September
, 1996 between Borrower and Senior Lender, as Lender, as amended from time
to time, and under the Financing Agreement dated September 27, 1996 between
Borrower, as Debtor, and Senior Lender as Secured Party (the "H&Q Financing
Agreement"), including, and any master lease agreement as may be entered into
between Borrower and Senior Lender, and including but not limited to, all
amounts that Borrower owes to Senior Lender, and any other Indebtedness from
Borrower to Senior Lender for any other financial accommodation for which Lender
has consented in writing, including all rent payments, interest and any other
charges for direct or indirect financial accommodation made by Senior Lender to
Borrower. Lender expressly consents to Indebtedness from Borrower to Senior
Lender under a master lease agreement in substantially the form attached to the
H&Q Financing Agreement.
"PERSON" means any entity, government, governmental agency or any other
entity and whether acting in an individual, fiduciary or other capacity.
"PROMISSORY NOTE" means that certain PROMISSORY NOTE, executed by Borrower
and dated as of even date herewith, including any amendment thereto.
"RELATED DOCUMENTS" means and includes without limitation the PROMISSORY
NOTE, the Security Agreement, all other promissory notes, credit agreements,
loan agreements, guaranties, security agreements, mortgages, deeds of trust, and
all other instruments and documents, whether now or hereafter existing, executed
in connection with any of the foregoing. and agreements between Debtor and
Hambrecht & Quist Guaranty Finance, LLC ("H&QGF") including without limitation
the Financing Agreement, the Business Loan Agreement, the Master Lease
Agreement, and the Security Agreement.
"SECURITY AGREEMENT" means that certain SECURITY AGREEMENT between
Borrower, as Debtor, and Lender, as Secured Party dated as of even date herewith
including any amendment thereto, granting a Security Interest in the Collateral
"SECURITY INTEREST" means and includes without limitation any type of
collateral security, whether in the form of a lien, charge, mortgage, deed of
trust, assignment, pledge, chattel mortgage, chattel trust, factor's lien,
equipment trust, conditional sale, trust receipt, lien or title retention
contract, lease or consignment intended as a security device, or any other
security or lien interest whatsoever, whether created by law contract or
otherwise.
"SENIOR LENDER" shall mean Hambrecht & Quist Guaranty Finance, LLC.
SECTION 2. TERM.
This Agreement shall be effective as of the 27 day of September, and
shall continue thereafter until all LOAN OBLIGATIONS of Borrower to Lender have
been performed in full and the parties terminate this Agreement in writing.
SECTION 3. REPRESENTATIONS AND WARRANTIES.
Except as set forth on Exhibit A Borrower represents and warrants to Lender as
of the date of this Agreement and as provided in Section 3.15.
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Business Loan Agreement, Page 2
<PAGE>
SECTION 3.1. CAPACITY.
Borrower is duly organized, validly existing and in good standing under the laws
of the State of Delaware. Borrower has full power, authority, and legal right
to own its properties and assets and to conduct its business as presently
conducted.
SECTION 3.2. AUTHORITY.
Borrower has full power, authority and legal right to execute and deliver, and
to perform and observe the provisions of this AGREEMENT and the RELATED
DOCUMENTS to be executed by Borrower. Borrower's execution, delivery and
performance of this AGREEMENT and the RELATED DOCUMENTS have been duly
authorized by all necessary corporate action. When duly executed and delivered
by Borrower, this AGREEMENT and the RELATED DOCUMENTS will be legal, valid, and
binding obligations of Borrower enforceable in accordance with their respective
terms, except as enforceability may be limited by the United States Bankruptcy
Code or other statutes affecting creditor's rights generally or by general
principles of equity.
SECTION 3.3. COMPLIANCE.
Borrower is not in violation of, conflict with or default under (i) any
provision of its amended and restated certificate of incorporation or bylaws, or
(ii) any contract, instrument, judgment, order writ or decree to which it or any
of its subsidiaries is a party or by which it or any of them is bound, or, to
the best of its knowledge, of any provision of any federal or state statute,
rule or regulation applicable to the Borrower or any of its subsidiaries, except
as would not have a material adverse effect on the assets, condition, affairs or
prospects of the Borrower and its subsidiaries taken as a whole, financial or
otherwise (a "MAE"). The execution, delivery, and performance of this Agreement
and the Related Documents, will not, with or without the passage of time and
giving of notice, result in any such violation, conflict or default, or an event
that results in the creation of any material lien, charge or encumbrance upon
any assets of the Borrower or any of its subsidiaries or the suspension,
revocation, impairment or forfeiture of any material permit, license,
authorization, or approval applicable to the Borrower or any of its
subsidiaries.
SECTION 3.4. FINANCIAL STATEMENTS.
The audited financial statements for Borrower for the year ending December 31,
1995 and the unaudited financial statement for Borrower for the quarter ending
June 30, 1996 that Borrower supplied to Lender are true and complete in all
material respects and fairly present Borrower's financial condition as of the
date of the statements. Borrower has no material contingent obligations except
as disclosed in such financial statements.
SECTION 3.5. MATERIAL ADVERSE EVENTS.
Since the most recent financial statements provided to Lender by Borrower, there
has been (i) no event or condition constituting a MAE, and (ii) no material
impairment of the prospect of repayment of any portion of the Loan Obligations
owing to Lender as they become due.
SECTION 3.6. TAXES.
Each of Borrower and any of its subsidiaries has filed or caused to be filed all
tax returns which are required to be filed by it. Each of Borrower and any of
its subsidiaries has paid all taxes which have or may have become due pursuant
to said returns or otherwise or pursuant to an assessment received by Borrower,
except such taxes, if any, as are being contested in good faith and as to which
adequate reserves have been created. The charges, accruals, and reserves in
respect of income taxes on the books of Borrower are adequate. Borrower knows
of no proposed tax assessment against it or any of its subsidiaries and no
extension of time for the assessment of federal, state, or local taxes of
Borrower or any of its subsidiaries is in effect or has been requested, except
as disclosed in the financial statements furnished to Lender.
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Business Loan Agreement, Page 3
<PAGE>
SECTION 3.7. PROPRIETARY INFORMATION AGREEMENTS
Each current and former employee of and consultant to Borrower has executed a
customary and reasonable proprietary information and inventions agreement. The
Borrower is not aware that any of its employees are in violation thereof.
SECTION 3.8. PATENTS AND TRADEMARKS
To the best of its knowledge, Borrower has sufficient title and ownership of all
patents, copyrights, trade secrets, information, proprietary rights and
processes necessary for its business as now conducted and as now proposed to be
conducted without any conflict with or infringement of the rights of others,
except that no representations is made with respect to noninfringement of
patents not issued as of the date hereof or to any exclusive rights to trade
secrets or know-how of the Borrower. To the best of its knowledge, there are
not outstanding options, licenses, or agreements of any kind relating to any
material use of the foregoing, nor is the Borrower bound by or a party to any
options, licenses or agreements of any kind with respect to the patents,
trademarks, service marks, tradenames, copyrights, trade secrets, licenses,
information, proprietary rights and processes of any other person or entity.
The Borrower has not received any communications alleging that he Borrower has
violated or, by conducting its business as proposed, would violate any of the
patents, trademarks, service marks, tradenames, copyrights or trade secrets or
other proprietary rights of any other person or entity. The Borrower is not
aware that any of its employees is obligated under any contract (including
licenses, covenants or commitments of any nature) or other agreement, or subject
to any judgment, decree to order of any court of administrative agency, that
would materially interfere with the use of his best efforts to promote the
interests of the Borrower or that would materially conflict with the Borrower's
business as proposed to be conducted.
SECTION 3.9. PRIORITY INTEREST IN COLLATERAL.
No Person other than Lender has any interest (by way of Security Interest, other
lien or charge, or otherwise) in the COLLATERAL except as permitted pursuant to
Section 5.1(a).
SECTION 3.10. ACCURATE INFORMATION.
All information supplied to Lender by or on behalf of Borrower is and shall be
true and correct in all material respects.
SECTION 3.11. TITLE TO PROPERTY.
Immediately prior to the grant of a Security Interest to the Lender of the
Collateral by the Borrower, Borrower owned the Collateral free and clear of all
encumbrances, except for any prior lien by Senior Lender or otherwise permitted
pursuant to Section 5.1(a).
SECTION 3.12. HAZARDOUS SUBSTANCES.
None of Borrower's properties or assets has ever been used by Borrower or, to
the best of Borrower's knowledge, by previous owners or operators in the
disposal of, or to produce, store, handle, treat, release, or transport, any
hazardous waste or hazardous substance other than in accordance with applicable
law; to the best of Borrower's knowledge none of Borrower's properties or assets
has ever been designated or identified in any manner pursuant to any
environmental protection statute as a hazardous waste or hazardous substance
disposal site, or a candidate for closure pursuant to any environmental
protection statute; no lien arising under any environmental protection state has
attached to any revenues or to any real or personal property owned by Borrower;
and Borrower has not received a summons, citation, notice, or directive from the
Environmental Protection Agency or any other federal or state governmental
agency concerning any action or omission by Borrower resulting in the releasing,
or otherwise disposing of hazardous waste or hazardous substances into the
environment.
SECTION 3.13. DEFAULTS.
Immediately following the closing Borrower will not be in default in the payment
of principal or interest on any INDEBTEDNESS and is not in default under any
instrument or agreement under or subject to which any INDEBTEDNESS has been
issued, and no event has occurred and is
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Business Loan Agreement, Page 4
<PAGE>
continuing which, with or without the lapse of time or the giving of notice, or
both, constitutes or would constitute a default under any such instrument or
agreement or an EVENT OF DEFAULT hereunder.
SECTION 3.14. LITIGATION; COMPLIANCE WITH LAWS AND AGREEMENTS.
Except as set forth on Exhibit A, there are no actions or proceedings pending,
or to the knowledge of Borrower threatened, against or affecting Borrower which,
if adversely determined, could have a material adverse effect on Borrower.
Borrower is not in default with respect to any writ, the breach of which may
have an material adverse affect on the operations or financial condition of
Borrower, nor is it in default under any indenture, agreement, or other
instrument to which Borrower is a party or by which Borrower may be bound, the
reach of which may have a material adverse effect on the operations or financial
condition of Borrower.
SECTION 3.15. SURVIVAL OF REPRESENTATION AND WARRANTIES.
Borrower understands and agrees that Lender is relying upon the above
representations and warranties in extending Loan advances to Borrower. Borrower
further agrees that except as disclosed to Lender in writing the foregoing
representations and warranties in Sections 3.1 through Section 3.12 shall be
continuing in nature and shall remain in full force and effect until such time
as Borrower's Loan and Note shall be paid in full, or until this Agreement shall
be terminated in the manner provided above, whichever is the last to occur.
SECTION 4 AFFIRMATIVE COVENANTS.
Until payment in full of the Loan Obligations Borrower agrees to do the
following:
SECTION 4.1. FINANCIAL STATEMENTS, REPORTS AND CERTIFICATIONS.
Borrower will furnish to Lender, in form and substance satisfactory to Lender:
(a) As soon as possible after the end of each fiscal year of
Borrower, and in any event within ninety (90) days after the end of
each fiscal year, a complete copy of its audited year-end financial
statements which shall include the balance sheet of Borrower as of
the close of the fiscal year, an income statement and a statement of
cash flows for such year, audited by certified public accounts
selected by Borrower and satisfactory to Lender.
(b) No later than thirty (30) days after the end of each month,
Borrower's balance sheet as of the close of that month and its income
statement and cash flow statement for that month certified as being
complete, correct, and fairly representing its financial condition and
results of operations by the chief financial officer of Borrower.
(c) No later than ninety (90) days after the end of each fiscal
year, Borrower's new budget or operating plan for the then current
fiscal year.
(d) No later than thirty (30) days after the end of each month,
a schedule of accounts payable and accounts receivable.
(e) No later than thirty (30) days after the end of each fiscal
quarter, a certificate of the Borrower's corporate controller, or
other equivalent officer, stating that there are no defaults by the
Borrower under any of its agreements with the Lender or under any
third party loan or lease agreements or describing any such existing
default(s) and specific action being taken to cure default(s). The
Borrower's corporate controller, or other equivalent officer, will,
within five days after the occurrence of an event of default under any
of the foregoing, issue a statement describing the default, and
specific action being taken to cure the default.
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Business Loan Agreement, Page 5
<PAGE>
(f) Promptly provide all audit reports prepared by the
Borrower's independent accountants, notice of any action or preceding
before any court or governmental agency, copies of all federal and
state patent, trademark or copy right applications and registrations
of the same, notice of any circumstance which may reasonably be
expected to have a material adverse effect on the Borrower, and such
other information as the Lender may reasonably request.
(g) Such other information concerning the COLLATERAL as Lender
may reasonably request.
(h) If Borrower becomes a company the stock of which is traded on a
nationally recognized public stock exchange, Borrower's obligations hereunder
shall be satisfied by providing Lessor with all financial information filed with
the Securities and Exchange Commission within five (5) days of such filing, and
by providing copies of all press releases as soon as they are published, and by
providing, if requested in writing by Lender, all of the information described
in paragraphs 4.1(a) and 4.1(b) within thirty (30) days of such written request.
SECTION 4.2 OTHER INFORMATION.
Borrower will (1) maintain accurate books and records concerning its business,
(2) upon request, furnish to Lender such information, statements, lists of
property and accounts, lists of assets and liabilities, agings of receivables
and payables, inventory schedules, budgets, forecasts, or reports as Lender may
reasonably request with respect to the business, affairs, and financial
condition of Borrower, and (3) permit Lender or representatives thereof, with
reasonable prior notice from time to time during normal business hours, to
inspect the properties of Borrower and any of its subsidiaries and to inspect,
audit, make copies of, and make extracts from, the books or accounts of Borrower
and any of its subsidiaries.
SECTION 4.3 EXPENSES.
Borrower will pay all reasonable out-of-pocket expenses of Lender (including,
but not limited to, fees and disbursements of Lender's counsel) incident to (1)
preparation and negotiation of this Agreement and the Related Documents,
including, but not limited to, the perfection of Lender's Security Interests in
Borrower's Collateral and any amendments, extensions and renewals thereof (2)
the protection of the rights of Lender under this Agreement and the Related
Documents, or (3) defense by Lender against all claims against Lender relating
to any of its acts of commission or omission directly or indirectly relating to
this Agreement and the Related Documents, all whether by judicial proceedings or
otherwise (other than claims which are (i) sustained by a court of competent
jurisdiction, (ii) non-appealable and (iii) predicated on Lender's gross
negligence or willful misconduct). Borrower will also pay and save Lender
harmless from any and all liability with respect to any stamp or other taxes
(other than transfer or income taxes or any taxes relating to any equity
securities issued by Borrower to Lender in connection herewith) which may be
determined to be payable in connection with the making of this Agreement and the
Related Documents or any action of Lender authorized under this Agreement or the
Related Documents with respect to the COLLATERAL, including, without limitation,
transfer of the COLLATERAL to Lender's name or that of its nominee or the
purchaser at a foreclosure sale.
SECTION 4.4. NOTICE OF EVENTS.
BORROWER will promptly give LENDER written notice of any EVENT OF DEFAULT or any
event which with the giving of notice or passage of time, or both, would become
an EVENT OF DEFAULT.
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Business Loan Agreement, Page 6
<PAGE>
SECTION 4.5 ERISA REPORTS.
Borrower will furnish to Lender (1) as soon as possible and in any event within
thirty (30) days after Borrower or any of its subsidiaries knows or has reason
to know of any REPORTABLE EVENT, with respect to any employee benefit PLAN
("PLAN") subject to ERISA and maintained by Borrower or any of its subsidiaries,
a statement of the chief financial officer of Borrower or the affected
subsidiary setting forth details as to such REPORTABLE EVENT and the actions
which Borrower or the affected subsidiary proposes to take with respect thereto,
together with a copy of the notice of such REPORTABLE EVENT given to the Pension
Benefit Guaranty Corporation, if a copy of such notice is available to Borrower,
and (2) prompt written notice of any decision by Borrower or any of its
subsidiaries to terminate or withdraw from any PLAN, and (3) promptly after
receipt thereof a copy of any notice of intent to terminate any PLAN or to
appoint a trustee to administer any PLAN which Borrower, any subsidiary or any
member of the Controlled Group may receive from the Pension Benefit Guaranty
Corporation or the Internal Revenue Service with respect to any PLAN.
SECTION 4.6 NOTICE OF LITIGATION.
Borrower will promptly give notice to Lender in writing of any proceedings
against Borrower involving amounts in excess of One Hundred Thousand Dollars
($100,000) not fully covered by insurance, any claim or dispute which may exist
between Borrower and any PERSON and which, if adjudicated adversely to Borrower,
would have a material adverse effect on Borrower's business or financial
condition, any labor controversy resulting in or threatening to result in a
strike against Borrower, or any proposal by any public authority to acquire a
material portion of the assets or business of Borrower.
SECTION 4.7 OTHER DEBT.
BORROWER will promptly pay and discharge when due any and all INDEBTEDNESS and
obligations, including, without limitation, all assessments, taxes, governmental
charges, levies and liens of every kind and nature, imposed upon Borrower or any
of its subsidiaries or its or their properties, income, or profits, prior to the
date on which penalties would attach, and lawful claims that, if unpaid, might
become a lien or charge upon the property of Borrower or any of its
subsidiaries, except such as may in good faith be contested or disputed or for
which arrangements for deferred payment have been made for a cumulative amount
of not more than One Hundred Twenty Five Thousand Dollars ($125,000), provided
appropriate reserves are maintained to the satisfaction of Lender for the
eventual payment thereof in the event it is found that such INDEBTEDNESS is an
INDEBTEDNESS payable by Borrower or any of its subsidiaries, and when such
dispute or contest is settled and determined, will promptly pay the full amount
then due.
SECTION 4.8 COOPERATION.
Borrower will execute and deliver to Lender any and all documents, and do or
cause to be done any and all other acts reasonably deemed necessary by Lender,
in its sole discretion, to effect the provisions and purposes of this AGREEMENT.
SECTION 4.9 NOTICE OF LOSS.
Borrower shall give Lender written notice of any loss with respect to the
COLLATERAL, including but not limited to theft, damage, destruction, and
disappearance, in excess of Fifty Thousand Dollars ($50,000) in each instance.
SECTION 4.10 LOCATION OF COLLATERAL.
Borrower will give Lender written notice at least thirty (30) days prior to
changing the location of its chief place of business or the location or any of
the COLLATERAL, including any change of location of any property located 3172
Porter Drive, Palo Alto, California 94304 or to any other of Borrower's
locations. Borrower will give Lender written notice of any property loaned to
others in the ordinary course of Borrower's business, including a description of
the property and the address where such property is to be temporarily located.
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Business Loan Agreement, Page 7
<PAGE>
SECTION 4.11 MAINTENANCE OF EXISTENCE.
Subject to Section 5.2 hereof, Borrower will preserve and maintain its legal
existence and all rights, privileges and franchises of it or any of its
subsidiaries necessary or desirable in the normal conduct of its or their
business, will conduct its or their business in an orderly, efficient and
regular manner, and will comply with all applicable laws and regulations and the
terms of any indenture, contract or other instrument to which it or any of its
subsidiaries may be a party or under which it or any of its subsidiaries or its
or their properties may be bound, the noncompliance with which would have MAE.
SECTION 4.12 MAINTENANCE OF INSURANCE.
Borrower will maintain public liability, property damage and workers'
compensation insurance. Borrower shall, at its own cost and expense, maintain
insurance with respect to the COLLATERAL against loss or damage by fire, theft,
explosion and all other hazards and risks ordinarily insured against by other
owners or users of such properties in similar business for the full insurable
value of the COLLATERAL, INCLUDING EARTHQUAKE INSURANCE IF REQUESTED BY
LENDER after October 1, 1997.
SECTION 4.13 INSURANCE REPORTS.
Furnish to Lender, upon request of Lender, reports on each existing insurance
policy showing such information as Lender may reasonably request, including
without limitation the following: (a) the name of the insurer; (b) the risks
insured; (c) the amount of the policy; (d) the properties insured; (e) the then
current property values on the basis of which insurance has been obtained, and
the manner of determining those values; and (f) the expiration date of the
policy.
SECTION 4.14 MAINTENANCE OF PROPERTIES, ETC.
Borrower will maintain and preserve all of the properties of it or any of its
subsidiaries, necessary or useful in the proper conduct of its or their business
in good working order and condition, ordinary wear and tear excepted.
SECTION 4.15 MATERIAL ADVERSE CHANGE.
Promptly inform Lender in writing of (i) an event or condition constituting an
MAE or (ii) any material impairment of the prospect of repayment of any portion
of the Loan Obligations owing to Lender as they become due.
SECTION 4.16 OTHER AGREEMENTS.
Other than as otherwise allowed, comply (and cause each of its subsidiaries to
comply) with all material terms and conditions of all other material agreements,
whether now or hereafter existing, between Borrower (and each of its
subsidiaries) and any other party and notify Lender immediately in writing of
any default in connection with any other such agreements. Perform and comply
with all terms, conditions and provisions set forth in this Agreement and in the
Related Documents in a timely manner.
SECTION 4.17 LOAN PROCEEDS.
Use all Loan proceeds solely for Borrower's business operations, unless
specifically consented to the contrary by Lender in writing.
SECTION 4.18 COMPLIANCE CERTIFICATE.
Unless waived in writing by Lender, provide Lender at least annually with a
certificate executed by Borrower's chief financial officer or person acceptable
to Lender, certifying that the representations and warranties in Sections 3.1
through 3.12 set forth in this Agreement are true and correct as of the date of
the certificate and further certifying that, as of the date of the certificate,
no Event of Default exists under this Agreement.
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<PAGE>
SECTION 4.19 ADDITIONAL ASSURANCES.
Make, execute and deliver to Lender such promissory notes, mortgages, deed of
trust, security agreements, financing statements, instruments, documents and
other agreements as Lender or its attorneys may reasonable request to evidence
and secure the Loan and to perfect Lender's Security Interests.
SECTION 5. NEGATIVE COVENANTS.
Borrower covenants and agrees with Lender that while this Agreement is in
effect, Borrower shall not without the prior written consent of Lender:
SECTION 5.1 INDEBTEDNESS AND LIENS.
(a) incur, assume or permit to exist any Indebtedness other than (i) Permitted
Senior Indebtedness, (ii) accounts payable to trade creditors for goods and
services and current operating liabilities (not the result of the borrowing of
money) incurred in the ordinary course of Borrower's business in accordance with
customary terms and that are not delinquent, and (iii) Indebtedness of Borrower
secured by liens permitted pursuant to clause (b)(ii) of this Section 5.1; (iv)
Indebtedness existing on the date hereof and disclosed in Exhibit A hereto, (v)
contingent obligations of Borrower consisting of guarantees (and other credit
support) of the obligations of vendors and suppliers of Borrower in respect of
transactions entered into in the ordinary course of business, (vi) other
Indebtedness of Borrower, provided that the total amount in the aggregate
outstanding INDEBTEDNESS at any time described in (iv), (v), and (vi) above not
to exceed $250,000; (vii) extensions, renewals, refundings, refinancings,
modifications, amendments and restatements of any of the items of Indebtedness
described in (i) through (vii) above, PROVIDED that the principal amount thereof
is not increased or the terms thereof are not modified to impose more burdensome
terms upon Borrower (b) create, incur, or assume any mortgage, pledge
encumbrance, lien or charge of any kind (including the charge upon property at
any time purchased or acquired under conditional sale or other title retention
agreement) upon any asset now owned or hereafter acquired, except for (i)
SECURITY INTEREST that are granted in favor of the SENIOR LENDER as security for
the PERMITTED SENIOR INDEBTEDNESS, (ii) other than as permitted pursuant to
clause (iii) hereof, SECURITY INTERESTS that are to secure Borrower's
Indebtedness incurred solely for the purpose of financing the acquisition or
lease of any specific items of equipment and granted in favor of a purchase
money lender or equipment lessor with respect to such Indebtedness, but only to
the extent that such lien is confined solely to the equipment so acquired and
such INDEBTEDNESS is limited to the purchase price or lease obligations the
respect to such equipment, and (iii) easements, reservations, rights of way,
restrictions, minor defects or irregularities in title and other similar liens,
(iv) liens in favor of customers and revenue authorities arising as a matter of
law to secure payments of customs duties in connection with the importation of
goods; (v) liens arising solely by virtue of any statutory or common law
provision relating to banker's liens, rights of setoff or similar rights and
remedies as to deposit accounts or other funds maintained with a creditor
depository institution; (vi) liens existing on the date hereof and disclosed on
Exhibit A hereto; (vii) liens not otherwise permitted, which liens do not in the
aggregate exceed $250,000 at any time (ix) liens incurred in connection with the
extension, renewal or refinancing of the indebtedness secured by liens of the
type described in clauses (i) through (ii) above, provided that any extension,
renewal or replacement lien shall be limited to the property encumbered by the
existing lien and the principal amount of the indebtedness being extended,
renewed or refinanced does not increase.
SECTION 5.2 CONSOLIDATION, MERGER, ETC.
Consolidate with, merge into, or sell (whether in one transaction or in a series
of transactions) all or substantially all of its assets to any PERSON without
the prior written consent of Lender except (i) to or with a successor in
interest to all or substantially all of the business of Borrower, provided that
such successor has a net worth or financial condition reasonably acceptable to
Lender, or (ii) the merger for purposes of reincorporating Borrower in another
state in the United States.
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Business Loan Agreement, Page 9
<PAGE>
SECTION 5.3 CONTINUITY OF OPERATIONS.
(a) Engage in any business activities substantially different than those in
which Borrower is presently engaged or presently proposes to be engaged, (b)
cease operations or, (c) pay any dividends on Borrower's stock, or purchase or
retire any of Borrower's outstanding shares (except for the repurchase of lost
or unvested shares upon termination of employment or consulting relationships).
SECTION 5.4 LOANS, ACQUISITIONS AND GUARANTIES.
(a) Loan money or assets, except for the loan of assets in the ordinary course
of business, and (i) travel advances, employee relocation loans and other
employee loans and advances in the ordinary course of business, (ii) loans to
employees, officers or directors relating to the purchase of equity securities
of Borrower, and (iii) other loans to officers, directors and employees approved
by the Board of Directors, (b) purchase or acquire any interest in any other
enterprise or entity, or (c) incur any obligation as surety or guarantor other
than in the ordinary course of business.
SECTION 5.5. DEFAULTS.
Fail to make any payment of principal or interest on any INDEBTEDNESS.
SECTION 6 EVENTS OF DEFAULT.
If one or more of the following events shall occur ("EVENTS OF DEFAULT" or an
"EVENT OF DEFAULT"):
(a) Borrower shall default in the payment of any of the LOAN
OBLIGATIONS within ten (10) days of when same is due, whether at
maturity, upon acceleration, or otherwise; or
(b) Any representation or warranty made by Borrower in, or
pursuant to, this AGREEMENT or any RELATED DOCUMENTS shall prove to
have been incorrect or misleading in any material respect when made;
or
(c) Borrower shall be in default in the performance of any of
the covenants in Section 4 or Section 5; or Borrower fails or neglects
to perform, keep, or observe any other term, provision, condition,
covenant, or agreement contained in this Agreement, in any of the
Related Documents and as to any default under such other term,
provision, condition, covenant or agreement that can be cured, has
failed to cure such default within ten (10) days after the Borrower
receives written notice thereof from Lender or any officer of Borrower
becomes aware thereof provided, however, that if the default cannot
by its nature be cured within the ten (10) day period and cannot after
diligent attempts by Borrower be cured within such ten (10) day
period; and such default is likely to be cured within a reasonable
time, then Borrower shall have an additional reasonable period (which
shall not in any case exceed thirty (30) days) to attempt to cure such
default, and within such reasonable time period the failure to have
cured such default shall not be deemed an Event of Default; or
(d) Borrower shall be in default under any agreement with Senior
Lender, provided however that if any default under any agreement with
Senior Lender shall be cured or waived, it shall be automatically
cured or waived under this Agreement; or
(e) An order for relief shall be entered against Borrower by any
United States Bankruptcy Court; or Borrower shall generally not pay
its debts as they become due (within the meaning of 11 U.S.C. 303(h)
as at any time amended or any successor statute thereto) or make an
assignment for the benefit of creditors; or Borrower shall apply for
or consent to the
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Business Loan Agreement, Page 10
<PAGE>
appointment of a custodian, receiver, trustee, or similar officer for
it or for all or any substantial part of its property; or such
custodian, receiver, trustee, or similar officer shall be appointed
without the application or consent of Borrower and such appointment
shall continue undischarged for a period of sixty (60) days; or
Borrower shall institute (by petition, application, answer, consent,
or otherwise) any bankruptcy, insolvency, reorganization, moratorium,
arrangement, readjustment of debt, dissolution, liquidation or similar
proceeding relating to it under the laws of any jurisdiction; or any
such proceeding shall be instituted (by petition, application, or
otherwise) against Borrower and shall remain undismissed for a period
of sixty (60) days; or any judgment, writ, warrant of attachment,
execution, or similar process shall be issued or levied against a
substantial part of the property of Borrower and such a judgment,
writ, or similar process shall not be released, vacated, or fully
bonded within sixty (60) days after its issue or levy; or
(f) This Agreement or any of the Related Documents ceases to be
in full force and effect (including failure of any collateral document
to create a valid and perfected security interest or lien at any time
and for any reason); or
(g) Commencement of foreclosure, whether by judicial proceeding,
self-help, repossession or any other method, by any creditor of
Borrower against any Collateral, or any creditor takes, attempts to
take or gives written or oral notice to Borrower of its intent to take
any action against the property of Borrower or any of its subsidiaries
on or in which Lender has a lien or security interest. This includes
a garnishment, attachment, or levy on or of any of Borrower's deposit
accounts. However, this Event of Default shall not apply if there is
a good faith dispute by Borrower or any of its subsidiaries as to the
validity or reasonableness of the claim which is the basis of the
creditor proceeding, and if Borrower gives Lender written notice of
the creditor proceeding and furnishes reserves or a surety bond for
the creditor proceeding satisfactory to Lender; or
(h) Any REPORTABLE EVENT, which Lender determines in good faith
constitutes grounds for the termination of any PLAN or PLANS by the
Pension Benefit Guaranty Corporation or for the appointment by the
appropriate United States District Court of a trustee to administer or
liquidate any PLAN or PLANS shall have occurred and be continuing
thirty (30) days after written notice of such determination by Lender
shall have been given to Borrower, or a decision shall have been made
by Borrower or any Subsidiary to terminate, file a notice of
termination with respect to, or withdraw from, any PLAN or PLANS, or a
trustee shall be appointed by the appropriate United States District
Court to administer any PLAN or PLANS, or the Pension Benefit Guaranty
Corporation shall institute proceedings to terminate any PLAN or PLANS
or to appoint a trustee to administer any PLAN or PLANS, and in the
case of the occurrence of any of the above, the aggregate amount of
Borrower's liability to the Pension Benefit Guaranty Corporation under
Sections 4062, 4063, and 4064 of ERISA as determined in good faith by
Lender could exceed 10% of Borrower's Consolidated Tangible Net Worth,
and such liability of Borrower is not covered in full, for the benefit
of Borrower, by insurance;
THEN, automatically, at the option of Lender, Lender's obligation to take any
action hereunder for Borrower's benefit shall terminate and all LOAN OBLIGATIONS
shall, without presentment, demand, protect, or notice of any kind, all of which
are hereby expressly waived, be forthwith due and payable, and Lender may,
immediately and without expiration of any period of grace, enforce payment of
all LOAN OBLIGATIONS and exercise any and all other
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Business Loan Agreement, Page 11
<PAGE>
remedies granted to it under any of the other RELATED DOCUMENTS, at law, in
equity, or otherwise.
SECTION 7. DEFAULT.
Upon and during the continuance of an Event of Default, including failure to pay
upon final maturity, Lender, at its option, may do one or both of the following:
(a) increase the interest rate on the Promissory Note up to fourteen percent
(14%) per annum, or, if lower, up to the maximum interest amount allowable by
applicable law, and (b) add any unpaid accrued interest to principal and such
sum will bear interest therefrom until paid at the rate provided in the
Promissory Note.
SECTION 8. OUT OF POCKET EXPENSES.
Borrower shall pay to Lender all of Lender's reasonable out-of-pocket expenses
as described in Section 4.3(i), which shall be due and payable in full on
acceptance of this Agreement.
SECTION 9. ADDITIONAL PROVISIONS.
Without the prior written consent of Lender, Borrower shall not sell, lend or
transfer title on its assets to its parent, subsidiaries or affiliated companies
except in the normal course of business.
SECTION 10. MISCELLANEOUS PROVISIONS.
The following miscellaneous provision are a part of this Agreement:
SECTION 10.1 AMENDMENTS.
This Agreement, together with any Related Documents, constitutes the entire
understanding and agreement of the parties as to the matters set forth in this
Agreement. No alteration of or amendment to this Agreement shall be effective
unless given in writing and signed by the party or parties sought to be charged
or bound by the alteration or amendment.
SECTION 10.2 APPLICABLE LAW.
This Agreement has been delivered to Lender and accepted by Lender in the State
of California. If there is a lawsuit, Borrower agrees upon Lender's request to
submit to the jurisdiction of the court of San Francisco County, the State of
California. This Agreement shall be governed by and construed in accordance
with the laws of the State of California.
SECTION 10.3. WAIVER OF JURY TRIAL.
Borrower and Lender each hereby waives, to the fullest extent permitted by
applicable law, any right it may have to a trial by jury in respect of any
litigation directly or indirectly arising out of, under or in connection with
this Agreement, any Related Agreement or any of the Loan Obligations. Borrower
and Lender hereby (a) certify that no representative, agent or attorney of the
other party hereto has represented, expressly or otherwise, that such other
party would not, in the event of litigation, seek to enforce the foregoing
waiver and (b) acknowledges that it and the other party hereto have been induced
to enter to this Agreement by, among other things, the mutual waivers and
certifications contained in this Section 10.3.
SECTION 10.4 CAPTION HEADINGS.
Caption headings in this Agreement are for convenience purposes only and are not
to be used to interpret or define the provisions of this Agreement.
SECTION 10.5 CONSENT TO LOAN PARTICIPATION.
Borrower agrees to and consents to Lender's sale or transfer, whether now or
later, of one or more participation interest in the Loans to one or more
purchasers, whether related or unrelated to Lender. Lender may provide, without
any limitation whatsoever, to any one or more purchasers, or potential
purchasers, any information or knowledge Lender may have about Borrower or about
any other matter relating to the Loan, and Borrower hereby waives any rights to
privacy it may have with respect to such matters; provided such purchasers agree
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Business Loan Agreement, Page 12
<PAGE>
to the confidentiality provisions hereof. Borrower additionally waives any and
all notices of sale of participation interest, as well as all notices of any
repurchase or such participation interest in the Loans and will have all the
rights granted under the participation agreement or agreements governing the
sale of such participation interests. Any costs associated with the attempt to
arrange any such participation interest will be borne by Lender.
SECTION 10.6 NOTICES.
All notices required to be given under this Agreement shall be given in writing
and shall be effective when actually received or five days after being
deposited in the United States mail, first class, postage prepaid, addressed to
the party to whom the notice is to be given at the address shown above. Any
party may change its address for notices under this Agreement by giving formal
written notice to the other parties, specifying that the purpose of the notice
is to change the party's address. To the extent permitted by applicable law, if
there is more than one Borrower, notice to any Borrower will constitute notice
to all Borrowers. For notice purposes, Borrower agrees to keep Lender informed
at all times of Borrower's current address(es).
SECTION 10.7. SEVERABILITY.
If a court of competent jurisdiction finds any provision of this Agreement to be
invalid or unenforceable as to any person or circumstances, such finding shall
not render that provision invalid or unenforceable as to any other persons or
circumstances. If feasible, any such offending provision shall be deemed to be
modified to be within the limits of enforceability or validity; however, if the
offending provision cannot be so modified, it shall be stricken and all other
provisions of this Agreement in all other respects shall remain valid and
enforceable.
SECTION 10.8 TIME IS OF THE ESSENCE.
Time is of the essence in the performance of this Agreement and the Related
Documents.
SECTION 10.9 WAIVER.
Lender shall not be deemed to have waived any rights under this Agreement,
unless such waiver is given in writing and signed by Lender. No delay or
omission on the part of Lender in exercising any right shall operate as a waiver
of such right or any other right. A waiver by Lender of a provision of this
Agreement shall not prejudice or constitute a waiver of Lender's right otherwise
to demand strict compliance with that provision or any other provision of this
Agreement. No prior waiver by Lender, nor any course of dealing between Lender
and Borrower, shall constitute a waiver of any of Lender's rights or of any
obligations of Borrower as to any future transactions. Whenever the consent of
Lender is required under this Agreement, the granting of such consent by Lender
in any instance shall not constitute continuing consent in subsequent instances
where such consent is required and in all cases such consent may be granted or
withheld in the sole discretion of Lender.
SECTION 10.10. CONFIDENTIALITY.
In handling any confidential information Lender shall exercise the same degree
of care that it exercises with respect to its own proprietary information of the
same types to maintain the confidentiality of any non-public information thereby
received or received pursuant to this Agreement except that disclosure of such
information may be made (i) to the subsidiaries of affiliates of Lender in
connection with their present or prospective business relations with Borrower,
(ii) to prospective transferees or purchasers of any interest in the Loans,
provided that they have entered into a comparable confidentiality agreement in
favor of Borrower and have delivered a copy to Borrower, (iii) as required by
law, regulations, rule or order, subpoena, judicial order or similar order and
(iv) as may be required in connection with the examination, audit or similar
investigation of Lender. Confidential information hereunder shall not include
information that either: (a) is in the public domain or in the knowledge or
possession of Lender when disclosed to Lender, or becomes part of the public
domain after disclosure to Lender through no fault of Lender; or (b) is
disclosed to Lender by third party,
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Business Loan Agreement, Page 13
<PAGE>
provided Lender does not have actual knowledge that such third party is
prohibited form disclosing such information.
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Business Loan Agreement, Page 14
<PAGE>
BORROWER ACKNOWLEDGES HAVING READ ALL THE PROVISION OF THIS BUSINESS LOAN
AGREEMENT, AND BORROWER AGREES TO ITS TERMS. THIS AGREEMENT IS DATED AS OF
SEPTEMBER 27, 1996.
BORROWER:
CV THERAPEUTICS, INC.
BY: /s/ Kathleen Stafford
-----------------------
TITLE: Chief Financial Officer
--------------------------
LENDER:
HAMBRECHT & QUIST TRANSITION CAPITAL, LLC:
BY: /s/ Donald M. Campbell
--------------------------
TITLE: Manager
--------------
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Business Loan Agreement, Page 15
<PAGE>
PROMISSORY NOTE
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- --------------------------------------------------------------------------------
BORROWER: LENDER:
CV THERAPEUTICS, INC. HAMBRECHT & QUIST GUARANTY FINANCE, LLC
3172 Porter Drive One Bush Street
Palo Alto, CA 94304 San Francisco, CA 94104
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- --------------------------------------------------------------------------------
Principal Amount: $ 2,000,000.00 Interest Rate: 9.0 %
Date of Note: September 27, 1996
PROMISE TO PAY CV THERAPEUTICS, INC. ("Borrower") promises to pay to HAMBRECHT &
QUIST GUARANTY FINANCE, LLC ("Lender"), or order, in lawful money of the United
States of America, the principal amount of Two Million Dollars ($2,000,000.00),
or so much as may be outstanding, together with interest on the unpaid
outstanding principal balances from September 27, 1996 until such balance is
paid in full.
PAYMENT OF ACCRUED INTEREST: Except as provided below, Borrower will pay all
interest accrued on this Note in arrears on the first day of each month
following a month in which any principal is outstanding (or October 1, 1996, in
the case of the first month). Interest will be computed on a 365/360 day basis
compounding monthly; that is in each month 1/360 of the Nine Percent annual
interest rate, will be multiplied by (I) the sum of (a) the outstanding
principal balance and (b) accumulated interest through the end of the prior
month and (II) the actual number of days that the principal was outstanding in
such month.
Beginning as of the Date of this Note first written above and continuing until
(but not including) January 1, 1997, Borrower may defer payment of all accrued
interest unless (a) after September 1, 1996 Borrower sells shares of its stock
(or options or other rights to acquire such shares) with aggregate gross
proceeds of at least Thirteen Million Dollars ($13,000,000) prior to March 1,
1998, or (b) there is an occurrence of any EVENT OF DEFAULT under BUSINESS LOAN
AGREEMENT (as defined below). When Borrower fails to qualify to defer interest
payments, all accrued unpaid interest will be due within ten (10) days of such
failure, except in the Event of Default in which case all accrued unpaid
interest will be immediately due.
PAYMENT OF PRINCIPAL: Subject to Borrower's right to prepay this outstanding
principal under this Note, on January 1, 1997 the entire amount of Principal
shall be due and payable.
Borrower will pay Lender at Lender's address shown above or at such other place
as Lender may designate in writing. Unless otherwise agreed or required by
applicable law, payments will be applied first to accrued unpaid interest, then
to principal, and any remaining amount to any unpaid collection costs and late
charges.
FIXED INTEREST RATE. The interest rate on this Note is nine percent (9.0%) per
annum, or, if lower, the maximum rate of interest allowed by applicable law.
PREPAYMENT. Borrower may prepay without penalty all or a portion of the amount
owed earlier than it is due, provided however that any principal amount repaid
shall not be available to Borrower for future advances.
DEFAULT. Borrower will be in default if any Event of Default occurs under the
Business Loan Agreement.
LENDER'S RIGHTS. Upon the occurrence and during the continuance of an Event of
Default, Lender may declare the entire unpaid principal balance on this Note and
all accrued unpaid interest immediately due and payable, without notice, and
then Borrower will pay that amount. Upon Borrower's failure to pay all amounts
declared due pursuant to this section, including failure to pay upon final
maturity, Lender at its option, may also, if permitted under
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Promissory Note, Page 1
<PAGE>
PROMISSORY NOTE
(Continued)
applicable law, do one or both of the following: (a) increase the interest rate
on this Note up to fourteen percent (14%) per annum, or, if lower, up to the
maximum interest amount allowable by applicable law, and (b) add any unpaid
accrued interest to principal and such sum will bear interest therefrom until
paid at the rate provided in this Note. Borrower agrees to pay all reasonable
out of pocket expenses of Lender in connection with the collection and
enforcement of this Note. This includes, subject to any limits under applicable
law, Lender's attorneys' fees and legal expenses whether or not there is a
lawsuit, including attorneys' fees and legal expenses for bankruptcy proceedings
(including efforts to modify or vacate any automatic stay or injunction),
appeals, and any anticipated post-judgment collections services. Borrower also
will pay any court costs, in addition to all other sums provided by law. This
Note has been delivered to Lender and accepted by Lender in the State of
California. If there is a lawsuit, Borrower agrees upon Lender's request to
submit to the jurisdiction of any federal or California state court located in
San Francisco, the State of California. This Note shall be governed by and
construed in accordance with the laws of the State of California.
LOAN AGREEMENT. This Note is subject to and shall be governed by all the terms
and conditions of the Business Loan Agreement, dated September 27, 1996,
between the Borrower and Lender, as amended from time to time (the "Business
Loan Agreement").
LOAN FEE. This Note is subject to a fee of Thirty Thousand dollars ($30,000.00)
(the "Loan Fee"), payable on January 1, 1997, unless the fee is waived as
provided in section 2.2 of the Financing Agreement between Borrower and Lender
dated as of even date hereof.
OUT-OF-POCKET EXPENSES. Borrower shall pay to Lender all of Lender's reasonable
out-of-pocket expenses, as described in Section 4.3 of the Business Loan
Agreement.
GENERAL PROVISIONS. Lender may delay or forgo enforcing any of its rights or
remedies under this Note without losing them. Borrower and any other person who
signs, guarantees or endorses this Note may, to the extent allowed by law, waive
any applicable statute of limitations, presentment, demand for payment, protest
and notice of dishonor. Upon any change in the terms of this Note, and unless
otherwise expressly stated in writing, no party who signs this Note whether as
maker, guarantor, accommodation maker or endorser, shall be released from
liability. All such parties agree that Lender may renew, extend (repeatedly and
for any length of time) or modify this Note, or release any party or guarantor;
or impair, fail to realize upon or perfect Lender's security interest in the
collateral; and take any other action deemed necessary by Lender without the
consent of or notice to anyone.
COLLATERAL: This Note is secured by certain personal property collateral of the
Borrower as more thoroughly described in the Security Agreement (as defined in
the Business Loan Agreement).
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Promissory Note, Page 2
<PAGE>
PROMISSORY NOTE
(Continued)
PRIOR TO SIGNING THIS NOTE BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF
THIS NOTE. BORROWER AGREES TO THE TERMS OF THE NOTE AND ACKNOWLEDGES RECEIPT OF
A COMPLETED COPY OF THE NOTE.
BORROWER:
CV THERAPEUTICS, INC.
By: Kathleen Stafford
-----------------------------------------
Name: /s/ Kathleen Stafford
--------------------------------
Title: Chief Financial Officer
------------------------------
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Promissory Note, Page 3
<PAGE>
<PAGE>
Payment of this Note is subordinate to the payment of all obligations of the
Borrower hereof to HAMBRECHT & QUIST GUARANTY FINANCE, LLC, pursuant to the
terms of a Subordination Agreement dated as of September 27, 1996.
PROMISSORY NOTE
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BORROWER: LENDER:
CV THERAPEUTICS, INC. HAMBRECHT & QUIST TRANSITION CAPITAL, LLC
3172 Porter Drive One Bush Street
Palo Alto, CA 94304 San Francisco, CA 94104
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- --------------------------------------------------------------------------------
Principal Amount: $ 3,000,000.00 Interest Rate: 9.0 %
Date of Note: September 27, 1996
PROMISE TO PAY CV THERAPEUTICS, INC. ("Borrower") promises to pay to HAMBRECHT &
QUIST TRANSITION CAPITAL, LLC ("Lender"), or order, in lawful money of the
United States of America, the principal amount of Three Million Dollars
($3,000,000.00), or so much as may be outstanding, together with interest on the
unpaid outstanding principal balances from September 27, 1996 until such
balance is paid in full.
PAYMENT OF ACCRUED INTEREST: Except as provided below, Borrower will pay all
interest accrued on this Note in arrears on the first day of each month
following a month in which any principal is outstanding (or October 1, 1996, in
the case of the first month). Interest will be computed on a 365/360 day basis
compounding monthly; that is in each month 1/360 of the Nine Percent (9.0%)
annual interest rate, will be multiplied by (I) the sum of (a) the outstanding
principal balance and (b) accumulated interest through the end of the prior
month and (II) the actual number of days that the principal was outstanding in
such month.
Beginning as of the Date of this Note first written above and continuing until
(but not including) March 1, 1998, Borrower may defer payment of all accrued
interest unless (a) after September 1, 1996 Borrower sells shares of its stock
(or options or other rights to acquire such shares) with aggregate gross
proceeds of at least Thirteen Million Dollars ($13,000,000) prior to March 1,
1998, or (b) there is an occurrence of any EVENT OF DEFAULT under BUSINESS LOAN
AGREEMENT (as defined below). When Borrower fails to qualify to defer interest
payments, all accrued unpaid interest will be due within ten (10) days of such
failure, except in the case of an Event of Default in which case all accrued
unpaid interest will be immediately due.
PAYMENT OF PRINCIPAL: Subject to Borrower's right to prepay this outstanding
principal under this Note, beginning on April 1, 1998 and continuing through and
including September 1, 1999, Borrower will make payment to Lender a principal
payment of One Hundred Sixty-Six Thousand Six Hundred Sixty-Six and 67/100s
Dollars ($166,666.67) on the first day of each month.
Borrower will pay Lender at Lender's address shown above or at such other place
as Lender may designate in writing. Unless otherwise agreed or required by
applicable law, payments will be applied first to accrued unpaid interest, then
to principal, and any remaining amount to any unpaid collection costs and late
charges.
FIXED INTEREST RATE. The interest rate on this Note is nine percent (9.0%) per
annum, or, if lower, the maximum rate of interest allowed by applicable law.
PREPAYMENT. Borrower may prepay without penalty all or a portion of the amount
owed earlier than it is due, provided however that any principal amount repaid
shall not be available to Borrower for future advances. Any prepayment of
principal shall be credited against the payments of principal set forth above in
the reverse order in which such payments would otherwise be required.
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Promissory Note, Page 1
<PAGE>
PROMISSORY NOTE
(Continued)
DEFAULT. Borrower will be in default if any Event of Default occurs under the
Business Loan Agreement.
LENDER'S RIGHTS. Upon the occurrence and during the continuance of an Event of
Default, Lender may declare the entire unpaid principal balance on this Note and
all accrued unpaid interest immediately due and payable, without notice, and
then Borrower will pay that amount. Upon Borrower's failure to pay all amounts
declared due pursuant to this section, including failure to pay upon final
maturity, Lender at its option, may also, if permitted under applicable law, do
one or both of the following: (a) increase the interest rate on this Note up to
fourteen percent (14%) per annum, or, if lower, up to the maximum interest
amount allowable by applicable law, and (b) add any unpaid accrued interest to
principal and such sum will bear interest therefrom until paid at the rate
provided in this Note. Borrower agrees to pay all reasonable out of pocket
expenses of Lender in connection with the collection and enforcement of this
Note. This includes, subject to any limits under applicable law, Lender's
attorneys' fees and legal expenses whether or not there is a lawsuit, including
attorneys' fees and legal expenses for bankruptcy proceedings (including efforts
to modify or vacate any automatic stay or injunction), appeals, and any
anticipated post-judgment collections services. Borrower also will pay any
court costs, in addition to all other sums provided by law. This Note has been
delivered to Lender and accepted by Lender in the State of California. If there
is a lawsuit, Borrower agrees upon Lender's request to submit to the
jurisdiction of any federal or California state court located in San Francisco,
the State of California. This Note shall be governed by and construed in
accordance with the laws of the State of California.
LOAN AGREEMENT. This Note is subject to and shall be governed by all the terms
and conditions of the Business Loan Agreement, dated September 27, 1996,
between the Borrower and Lender, as amended from time to time (the "Business
Loan Agreement").
OUT-OF-POCKET EXPENSES. Borrower shall pay to Lender all of Lender's reasonable
out-of-pocket expenses as described in Section 4.3 of the Business Loan
Agreement.
GENERAL PROVISIONS. Lender may delay or forgo enforcing any of its rights or
remedies under this Note without losing them. Borrower and any other person who
signs, guarantees or endorses this Note may, to the extent allowed by law, waive
any applicable statute of limitations, presentment, demand for payment, protest
and notice of dishonor. Upon any change in the terms of this Note, and unless
otherwise expressly stated in writing, no party who signs this Note whether as
maker, guarantor, accommodation maker or endorser, shall be released from
liability. All such parties agree that Lender may renew, extend (repeatedly and
for any length of time) or modify this Note, or release any party or guarantor;
or impair, fail to realize upon or perfect Lender's security interest in the
collateral; and take any other action deemed necessary by Lender without the
consent of or notice to anyone.
COLLATERAL: This Note is secured by certain personal property collateral of the
Borrower as more thoroughly described in the Security Agreement (as defined in
the Business Loan Agreement).
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Promissory Note, Page 2
<PAGE>
PROMISSORY NOTE
(Continued)
PRIOR TO SIGNING THIS NOTE BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF
THIS NOTE. BORROWER AGREES TO THE TERMS OF THE NOTE AND ACKNOWLEDGES RECEIPT OF
A COMPLETED COPY OF THE NOTE.
BORROWER:
CV THERAPEUTICS, INC.
By: /s/ Kathleen Stafford
------------------------------------
Name: Kathleen Stafford
-------------------------------
Title: Chief Financial Officer
------------------------------
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Promissory Note, Page 3
<PAGE>
SECURITY AGREEMENT
THIS SECURITY AGREEMENT (this "Agreement") is made as of this 27 day of
September, 1996, between CV THERAPEUTICS, INC., a Delaware corporation, having a
mailing address at 3172 Porter Drive, Palo Alto, CA 94304 ("Debtor"), and
HAMBRECHT & QUIST GUARANTY FINANCE, LLC, a California limited liability company,
having a mailing address at One Bush Street, San Francisco, CA 94104 ("Secured
Party").
WHEREAS,
A. Debtor and Secured Party have entered into a Business Loan
Agreement, dated as of the date hereof (as the same may hereafter be
amended, restated, or otherwise modified from time to time, the
"Business Loan Agreement"), pursuant to which Secured Party has
agreed to provide financing for Debtor's ongoing business operations
by providing Debtor with a loan, and Debtor and Secured Party have
entered into a Financing Agreement, dated as of the date hereof (as
the same may hereafter be amended, restated, or otherwise modified
from time to time, the "Financing Agreement"), pursuant to which
Secured Party has granted to Debtor an option to require Secured
Party under certain terms and conditions to provided financing for
Debtor's ongoing business operations by providing Debtor with a
lease under a master lease agreement (together the "FINANCING
ACCOMMODATIONS"). Debtor will derive substantial direct and
indirect benefit from the transactions contemplated by the BUSINESS
LOAN AGREEMENT and the FINANCING AGREEMENT.
B. It is a condition precedent to Secured Party's obligation to take
any action pursuant to the terms of the BUSINESS LOAN AGREEMENT and
the FINANCING AGREEMENT that this AGREEMENT be executed and
delivered by Debtor.
NOW THEREFORE, in consideration of the premises set forth herein and in order to
induce Secured Party to enter into the BUSINESS LOAN AGREEMENT and the FINANCING
AGREEMENT and to provide the FINANCING ACCOMMODATION to Debtor as provided
therein, Debtor hereby agrees with Secured Party for the benefit of Secured
Party as follows:
SECTION 1. DEFINED TERMS.
(a) TERMS DEFINED IN THE BUSINESS LOAN AGREEMENT AND THE FINANCING AGREEMENT.
All terms not otherwise defined herein that are capitalized and used herein
shall have the meanings assigned to such terms in the BUSINESS LOAN
AGREEMENT and the FINANCING AGREEMENT.
(b) OTHER DEFINED TERMS. As used in this AGREEMENT, the following terms
shall have the meanings indicated:
"COLLATERAL" means any and all right, title and interest of Debtor in and
to the following:
(i) all equipment, whether now owned or hereafter acquired or arising,
including, without limitation, all scientific instrumentation,
laboratory and test equipment, computers and computer peripherals
(including, without limitation, desk-top and network equipment, and
printers), vehicles (including motor vehicles and trailers), and
furniture and furnishings (including, without limitation, cubicles
and movable partitions) and all other goods of every kind;
(ii) all inventory comprised of finished goods held for sale, bulk
manufactured material prior to its processing into finished goods,
materials used or consumed in Debtor's business (and commonly
referred to as supplies), whether or not the same is in Debtor's
custody or possession or in transit, and including any and all such
inventory returned to or reclaimed by Debtor upon any accounts or
other proceeds, including insurance proceeds, resulting from the
sale or disposition of any of the foregoing and any documents of
title representing any of the above, and any books and records
relating to any of the foregoing.
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Security Agreement, Page 1
<PAGE>
(iii) all contract rights and general intangibles now or hereinafter
acquired, including, without limitation, any and all franchise
agreements, grants, purchase orders, warranties, customer lists,
computer software and programs, all governmental approvals, permits
and licenses, any and all rights to insurance proceeds or
condemnation awards or compensation; and any and all books and
records relating to any of the foregoing;
(iv) any and all copyrights, patents and trademarks (and related
goodwill), whether registered or unregistered, foreign or domestic,
and all applications and recordings in the United States Copyright
Office, the United States Patent and Trademark Office or any similar
office or agency of the United States, any state thereof or any
other country, and all continuations, renewals or extensions of the
same, and all trade secrets, inventions (whether or not patentable),
scientific processes, technologies, procedures, models and designs
(in whatever form maintained or recorded, including, without
limitation, computer software and programs) (any of the foregoing
property, and any and all books and records relating to the
foregoing, being hereinafter referred to as "INTELLECTUAL
PROPERTY"), and any and all contracts, including rights to payment
thereunder which are included as COLLATERAL under clause (v) below,
including, without limitation, license agreements, joint venture
agreements and other collaborative agreements, in each case
providing for the use or license of any INTELLECTUAL PROPERTY (the
Collateral referred to in this clause (iv) is hereinafter called the
"IP Collateral");
(v) all accounts (including accounts receivable and deposit accounts),
reserves, refunds, deposits, and all royalties, distributions, fees,
payments and other monetary obligations owing to Debtor and arising
out of the sale, transfer or licensing of goods and/or services,
including, without limitation, INTELLECTUAL PROPERTY, whether or not
earned by performance, and whether now existing or hereinafter
arising, and any and all claims for damages by way of any past,
present or future infringement of any INTELLECTUAL PROPERTY, and any
and all books and records relating to any of the foregoing;
(vi) all documents of title, cash, deposit accounts, securities, letters
of credit, certificates of deposit, instruments and chattel paper
now owned or hereafter acquired by Debtor or in which Debtor has an
interest and Debtor's books and records relating to the foregoing;
(vii) any and all claims, rights and interests in any of the above and all
substitutions and replacements for, all additions and accessions to,
any of the above, and all proceeds thereof.
At any time and from time to time, upon the request of Debtor, Secured Party
shall promptly and duly execute and deliver any and all such further instruments
and documents and take such further actions, including without limitation, the
filing of an amendment or partial release of COLLATERAL, as Debtor may
reasonably deem necessary to evidence and confirm the scope of the security
interest granted by Debtor to Secured Party under this AGREEMENT.
"CONTRACTS AND AGREEMENTS" means any and all manufacturer's warranties or
guaranties, service manuals, service and maintenance logs, user manuals and
similar materials, books and AGREEMENTs with respect to the acquisition,
use, operation, or maintenance of any piece or unit of COLLATERAL.
"DEBTOR LOCATIONS" means 3172 Porter Drive, Palo Alto, CA 94304.
"EQUIPMENT" means the types of COLLATERAL described in clause (i) of the
defined term COLLATERAL.
"FINANCING STATEMENTS" shall have the meaning given to the term in Section
4(b) of this AGREEMENT.
"JUNIOR LENDER" shall mean Hambrecht & Quist Transition Capital, LLC
"TC LOAN AGREEMENT" means the Business Loan Agreement and Promissory Note
between Borrower and Junior Lender dated as of even date hereof.
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Security Agreement, Page 2
<PAGE>
"PERSON" means any natural person, corporation, partnership, joint
venture, firm, association, trust, unincorporated organization, government
or governmental agency or political subdivision or any other entity,
whether acting in an individual, fiduciary or other capacity.
"RELATED DOCUMENTS" means and includes without limitation the BUSINESS
LOAN AGREEMENT and FINANCING AGREEMENT, any and all other promissory notes,
lease agreements and any and all equipment schedules attached thereto,
credit agreements, loan agreements, guaranties, security agreements,
mortgages, deeds of trust, and all other instruments and documents, whether
now or hereafter existing, executed in connection with the BUSINESS LOAN
AGREEMENT and FINANCING AGREEMENT.
"SECURED OBLIGATIONS" shall have the meaning given the term in Section 2 of
this AGREEMENT.
(c) TERMS DEFINED IN UNIFORM COMMERCIAL CODE. All other terms used in
this AGREEMENT that are not specifically defined herein or the
definitions of which are not incorporated herein by reference shall
have the meaning assigned to such terms in the Uniform Commercial Code
in effect in the State of California as of the date first above
written to the extent such other terms are defined therein.
(d) SINGULAR/PLURAL. Unless the context of this AGREEMENT otherwise
clearly requires, references to the plural include the singular, the
plural, and "or" has the inclusive meaning represented by the phrase
"and/or". The words "hereof", "herein", "hereunder", and similar
terms in this AGREEMENT refer to this AGREEMENT as a whole and not to
any particular provision of this AGREEMENT. References to Sections
are references to Sections in this SECURITY AGREEMENT unless otherwise
provided.
SECTION 2. GRANT OF SENIOR SECURITY INTEREST.
Debtor hereby assigns and pledges to Secured Party, and hereby grants
to Secured Party a security interest in and to the COLLATERAL to secure the
payment and performance of all obligations of Debtor to Secured Party under any
and all of the FINANCING ACCOMMODATIONS, however and when arising, including
under the BUSINESS LOAN AGREEMENT, the FINANCING AGREEMENT, any master lease
agreement entered into as described in the FINANCING AGREEMENT, and the RELATED
DOCUMENTS (the "Secured Obligations"). The Debtor agrees that the security
interest herein granted has attached and shall continue until all SECURED
OBLIGATIONS have been satisfied.
Notwithstanding the foregoing, Secured Party agrees to release its
security interest in the IP Collateral when the following condition has been
satisfied: Debtor shall have pledged to Secured Party as security to ensure
payment and performance of (a) all Secured Obligations (as defined in this
AGREEMENT) and (b) all Secured Obligations (as defined in the Security Agreement
dated as of the date hereof between Debtor and Junior Lender (the "H&QTC
Security Agreement") a cash security deposit equal to the fifty percent (50%) of
the sum of (i) the sum of the unpaid principal balance and unpaid accrued
interest due to Junior Lender under the H&QTC Security Agreement whether or not
due at the time each security deposit is created and (ii) unless Debtor has
repaid all obligations under the Business Loan Agreement and has not exercised,
or no longer has available, the Lease Option as defined in the Financing
Agreement, the sum of all rent payments payable or that would be payable under
the Master Lease Agreement and Related Documents in the event that the Lease
Option as defined in the Financing Agreement were exercised whether or not due
at the time each security deposit is created (the sum referred to in this clause
(ii) is hereinafter called the "GF Potential Obligation Amount").
The amount of such deposit shall not be adjusted until the sum of (a)
the GF Potential Obligation Amount and (b) all Secured Obligations (as defined
in the H&QTC Security Agreement) is less than or equal to the amount of the
cash security deposit, at which time the deposit will be applied to the Secured
Obligations as they become due. Secured Party, Junior Lender and Debtor shall
enter into a security deposit agreement and execute and deliver such other
documents, in form and substance reasonably satisfactory to each such party, to
effect the release of the IP Collateral and the cash security deposit as
provided in this Section 2.
SECTION 3. DEBTOR REMAINS LIABLE.
Anything herein to the contrary notwithstanding, (a) Debtor shall remain liable
under the Contracts and Agreements included in the COLLATERAL to the extent set
forth therein to perform all of its duties and obligations thereunder to the
same extent as if this AGREEMENT had not been executed, (b) the
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Security Agreement, Page 3
<PAGE>
exercise by Secured Party of any of the rights hereunder shall not release
Debtor from any of its duties or obligations under the Contracts and Agreements
included in the COLLATERAL, and Secured Party shall have no obligation or
liability under the Contracts and AGREEMENTS included in the COLLATERAL by
reason of this AGREEMENT, nor shall Secured Party be obligated to perform any of
the obligations or duties of Debtor thereunder.
SECTION 4. REPRESENTATIONS AND WARRANTIES.
Debtor represents and warrants as follows:
(a) All of the COLLATERAL of Debtor is located at the Debtor's Locations,
or as described on Exhibit A hereto.
(b) Debtor is the legal and beneficial owner of the COLLATERAL free and
clear of any lien except for (i) the security interests created by
this AGREEMENT and (ii) Security interest created by the H&QTC
Security Agreement and (iii) any lien in favor of equipment lessors
which lien is extinguished simultaneously with the execution of this
document, and (iv) liens permitted under Section 5.1 of the Business
Loan Agreement. No effective financing statement or other similar
document used to perfect and preserve a security interest under the
laws of any jurisdiction (a "FINANCING STATEMENT") covering all or any
part of the COLLATERAL is on file in any recording office, except such
as may have been filed in favor of Secured Party relating to this
AGREEMENT or in favor of (i) Junior Lender relating to the TC Loan
Agreement and (ii) any existing equipment lessors for whom that
security interest is extinguished simultaneously with the execution of
this document, or as otherwise described on Exhibit A hereto,
(c) Debtor has exclusive possession and control of the COLLATERAL, except
for the Collateral that is in transit or is being repaired,
maintained, or modified by other Persons, or Collateral that has been
loaned to others in the ordinary course of business and Debtor has
notified Secured Party in writing, including a description of the
Collateral and the address where such Collateral is to be temporarily
located, or as otherwise described on Exhibit A hereto.
(d) This AGREEMENT creates a valid security interest in the COLLATERAL in
accordance with the terms of the BUSINESS LOAN AGREEMENT and FINANCING
AGREEMENT securing the payment and performance of the Secured
Obligations.
(e) A true and correct list of all of the Collateral consisting of U.S.
patents and/or registrations owned by the Debtor, in whole or in part,
is set forth in SCHEDULE I.
(f) A true and correct list of all of the Collateral consisting of U.S.
patent applications and/or registrations owned by the Debtor, in whole
or in part, is set forth in SCHEDULE II.
(g) A true and correct list of all of the Collateral consisting of foreign
patent and patent applications and/or registrations owned by the
Debtor, in whole or in part, is set forth in SCHEDULE III.
(h) A true and correct list of all of the Collateral consisting of U.S.,
State and Federal trademarks, trademark registrations owned by the
Debtor, in whole or in part, is set forth in SCHEDULE IV.
(i) A true and correct list of all of the Collateral consisting of U.S.,
State pending trademarks owned by the Debtor, in whole or in part, is
set forth in SCHEDULE V.
(j) A true and correct list of all of the Collateral consisting of
unregistered trademarks owned by the Debtor, in whole or in part, is
set forth in SCHEDULE VI.
SECTION 5. FURTHER ASSURANCES.
(a) Debtor agrees that from time to time, at the expense of Debtor, Debtor
will promptly execute and deliver all further instruments and
documents, and take all further action, that may be necessary or that
Secured Party may reasonably request, in order to perfect and protect
the security interests granted hereby or to enable Secured Party to
exercise and enforce its rights and remedies hereunder with respect to
any COLLATERAL and/or the Contracts and AGREEMENTs. Without limiting
the generality of the foregoing, Debtor will upon Secured Party's
request execute and file such Financing Statements or continuation
statements in respect thereof, or amendments thereto, and such other
instruments or notices, as may be necessary or desirable, or as
Secured Party may request, in order to perfect, preserve, and enhance
the security interests granted or purported to be granted hereby.
(b) Debtor hereby authorizes Secured Party to file one or more FINANCING
STATEMENTS or continuation statements in respect thereof, and
amendments thereto, relating to all or any part of the COLLATERAL
without the signature of Debtor where permitted by law, and names
Secured Party as its attorney in fact and authorized it to execute any
and all Financing Statements on Debtor's behalf where necessary or
advisable to perfect, continue or give notice of the
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Security Agreement, Page 4
<PAGE>
security interest granted to Security Party hereunder in any of the
Collateral. A photocopy or other reproduction of this AGREEMENT or
any FINANCING STATEMENT covering the COLLATERAL or any part thereof
shall be sufficient as a Financing Statement where permitted by law.
(c) Debtor will furnish to Secured Party from time to time statements and
schedules further identifying and describing the COLLATERAL and such
other reports in connection with the COLLATERAL as Secured Party may
reasonably request, all in reasonable detail and in form and substance
reasonably satisfactory to Secured Party.
(d) Debtor agrees to give Secured Party at least thirty (30) days prior
written notice before changing its name from that set forth on the
signature page hereof, before moving its chief executive office or
principal place of business from the address set forth on the
signature page hereof, or before using any trade names or styles in
its business in California other than the use of those trade names and
styles listed in EXHIBIT A hereto.
SECTION 6. COVENANTS REGARDING USE OF COLLATERAL.
(a) Debtor shall keep the COLLATERAL located and installed at the DEBTOR'S
LOCATIONS, except for the Collateral that has been loaned to others in
the ordinary course of business and about such arrangement Debtor has
notified Secured Party in writing including a description of the
Collateral and the address where such Collateral is to be temporarily
located.
(b) Except as otherwise provided in the BUSINESS LOAN AGREEMENT and
FINANCING AGREEMENT, Debtor shall cause the EQUIPMENT to be maintained
and preserved in the same condition, repair and working order as when
new, ordinary wear and tear excepted, and in accordance with any
manufacturer's manual, and shall forthwith, or in the case of any loss
or damage to any of such EQUIPMENT as quickly as practicable after the
occurrence thereof, make or cause to be made all repairs,
replacements, and other improvements in connection therewith which are
necessary or desirable to such end. Debtor shall promptly furnish to
Secured Party a statement respecting any material loss or damage to
any of the EQUIPMENT.
SECTION 7. INSURANCE
Debtor shall, at its own cost and expense, maintain insurance with respect to
the COLLATERAL against loss or damage by fire, theft, explosion and all other
hazards and risks ordinarily insured against by other owners or users of such
properties in similar business for the full insurable value of the COLLATERAL,
INCLUDING EARTHQUAKE INSURANCE IF REQUESTED BY SECURED PARTY after October 1,
1997. All such policies of insurance shall be in form and substance
reasonable satisfactory to, and shall be with insurers reasonably acceptable
to, Secured Party, and shall include a loss payable endorsement naming
Secured Party as loss payee, all in form and substance reasonably
satisfactory to Secured Party. Debtor shall, if so requested by Secured
Party, deliver to Secured Party original or duplicate policies of such
insurance and, as often as Secured Party may reasonably request, a report of
a reputable insurance broker with respect to such insurance.
SECTION 8. TRANSFERS AND OTHER LIENS.
Debtor shall not:
(a) sell, assign (by operation of law or otherwise), convey, or otherwise
dispose of, or grant any option with respect to, any of the COLLATERAL
other than (i) to replace, in the ordinary course of business, any
EQUIPMENT that have broken or become unuseable or obsolete or (ii) the
sale of inventory in the ordinary course of business, or (iii)
transfers of non-exclusive licenses (and exclusive licenses within
certain geographic regions) and other similar arrangements for the use
of Debtor's property or (iv) licenses and sub-licenses granted as part
of joint ventures, strategic alliances and other similar arrangements
customary in Borrower's industry for businesses similar to Borrower;
or
(b) create or permit to exist any lien upon or with respect to any of the
COLLATERAL, except for (i) the security interests created by this
AGREEMENT and (ii) any lien in favor Junior Lender and (iii) any lien
permitted under Section 5.1 of the Loan Agreement
SECTION 9. SECURED PARTY APPOINTED ATTORNEY-IN-FACT.
Debtor hereby irrevocably appoints Secured Party as Debtor's attorney-in-fact,
with full authority in the place and stead of Debtor and in the name of Debtor
or otherwise, from time to time in Secured
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Security Agreement, Page 5
<PAGE>
Party's good-faith discretion, at any time that Debtor is in default under this
AGREEMENT or under any of the Related Documents, to take any action and to
execute any instrument that Secured Party may reasonably deem necessary or
advisable to accomplish the purposes of this AGREEMENT, in a manner consistent
with the terms hereof, including, without limitation:
(a) to obtain and adjust insurance required to be paid to Secured Party
pursuant to Section 7 hereof;
(b) to ask, demand, collect, sue for, recover, compromise, receive, and
give acquittance and receipts for moneys due and to become due under
or in connection with the COLLATERAL; and
(c) to file any claims or take any action or institute any proceedings
that Secured Party may deem necessary or desirable for the collection
or perfection of any of the COLLATERAL or otherwise to enforce the
rights of Secured Party with respect to any of the COLLATERAL;
(d) to execute any and all applications, documents, papers and instruments
for Secured Party to use any of the Collateral, to grant or issue any
exclusive or nonexclusive license with respect to any of the
Collateral, and to assign, convey or otherwise transfer title to or
dispose of any of the Collateral.
The foregoing power of attorney is coupled with an interest and is irrevocable
so long as this Agreement shall not have terminated pursuant to Section 20
hereof.
SECTION 10. SECURED PARTY MAY PERFORM.
If Debtor fails to perform any agreement contained herein, Secured Party may
itself perform, or cause the performance of, such agreement, and the reasonable
expenses of Secured Party incurred in connection therewith shall be payable by
Debtor under Section 13 hereof. Upon the occurrence of an Event of Default and
during the continuance thereof, Secured Party and any representatives of Secured
Party shall have, in addition to all its other rights under this AGREEMENT, the
right to obtain access to Debtor's data processing equipment, computer hardware
and software relating to the COLLATERAL and to use all of the foregoing and the
information contained therein in any manner Secured Party deems necessary for
the purpose of effectuating its rights under this AGREEMENT, the BUSINESS LOAN
AGREEMENT and FINANCING AGREEMENT and any other of the RELATED DOCUMENTS.
Debtor agrees that Secured Party has no obligation to preserve rights to the
COLLATERAL against any other parties, provided Secured Party complies with the
obligations of a Secured Party under Section 9207 of the CUCC.
SECTION 11. SECURED PARTY'S DUTIES.
The powers conferred on Secured Party hereunder are solely to protect its
interest in the COLLATERAL and shall not impose any duty upon Secured Party to
exercise any such powers. Except for the safe custody of any COLLATERAL in the
possession of Secured Party, and the accounting for moneys and for other
properties actually received by Secured Party hereunder, Secured Party shall
have no duty as to any COLLATERAL or as to the taking of any necessary steps to
preserve rights against prior parties or any other rights pertaining thereto,
provided Secured Party complies with the obligations of a Secured Party under
Section 9207 of the CUCC.
SECTION 12. REMEDIES; APPLICATION OF PROCEEDS OF COLLATERAL.
If any EVENT OF DEFAULT as defined in the BUSINESS LOAN AGREEMENT and FINANCING
AGREEMENT shall have occurred and be continuing Secured Party may exercise in
respect of the COLLATERAL, in addition to other rights and remedies provided for
herein or otherwise available, all the rights and remedies of a secured party on
default under the Uniform Commercial Code of the State of California (the
"CODE") in effect at that time (whether or not the Code then applies to the
affected COLLATERAL), and also may (i) require Debtor to, and Debtor hereby
agrees that it will at its expense and upon request of Secured Party forthwith,
assemble all or part of the COLLATERAL of Debtor as directed by Secured Party
and make it available to Secured Party at a place to be designated by Secured
Party that is reasonably convenient to both Secured Party and Debtor; (ii)
without notice except as specified below, sell the COLLATERAL of Debtor or any
part thereof in one or more parcels at public or private sale, at any of Secured
Party's offices or elsewhere, for cash, on credit, or for future delivery, and
upon such other terms as Secured Party may reasonably believe are commercially
reasonable; (iii) occupy any premises owned or leased by Debtor where the
COLLATERAL or part thereof is assembled
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Security Agreement, Page 6
<PAGE>
for a reasonable period in order to effectuate Secured Party's rights and
remedies hereunder or under applicable law, without obligation to Debtor in
respect of such occupation; and (iv) exercise any and all rights and remedies of
Debtor under or in connection with the COLLATERAL of Debtor. Debtor agrees
that, to the extent notice of sale shall be required by law, at least ten (10)
days prior written notice to Debtor (which Debtor agrees is reasonable
notification within the meaning of Section 9504(3) of the Code) of the time and
place of any public sale or the time after which any private sale is to be made
shall constitute reasonable notification. Secured Party shall not be obligated
to make any sale of COLLATERAL regardless of notice of sale having been given.
Secured Party may adjourn any public or private sale from time to time by
announcement at the time and place fixed therefor, and such sale may, without
further notice, be made at the time and place to which it was so adjourned.
SECTION 13. EXPENSES.
Debtor will upon demand pay to Secured Party the amount of any and all
reasonable expenses, including the reasonable fees and expenses of its counsel
and of any experts and agents, that Secured Party may incur in respect of Debtor
in connection with (i) the custody, preservation, use, or operation of, or the
sale of, collection from, or other realization upon, any of the COLLATERAL, (ii)
the exercise or enforcement of any of the rights of Secured Party hereunder, or
(iii) the failure by Debtor to perform or observe any of the provisions hereof.
SECTION 14. SECURITY INTEREST ABSOLUTE.
The obligations of Debtor under this AGREEMENT are independent of the Secured
Obligations, and a separate action or actions may be brought and prosecuted
against Debtor to enforce this AGREEMENT. Debtor waives any right to require
Secured Party (a) to proceed against any third party other than Debtor, (b) to
proceed against or exhaust any security or collateral granted by any other third
party grantor of a security interest rather than Debtor, or to pursue any other
remedy in Secured Party's power whatsoever. All rights of Secured Party and
security interests granted hereunder, and all obligations of Debtor hereunder,
shall be absolute and unconditional, irrespective of:
(i) any lack of validity or enforceability of the BUSINESS LOAN
AGREEMENT and FINANCING AGREEMENT or any of the other RELATED
DOCUMENTS;
(ii) any change in the time, manner or place of payment of, or in any
other term of, all or any of the Secured Obligations, or any other
amendment or waiver of or any consent to any departure from the
BUSINESS LOAN AGREEMENT and FINANCING AGREEMENT or any other of the
RELATED DOCUMENTS, including, without limitation, any increase in
the Secured Obligations resulting from the extension of additional
credit to Debtor, or any of its AFFILIATES, or otherwise;
(iii) any taking, exchange, release, or non-perfection of any other
collateral, or any taking, release, or amendment or waiver of or
consent to departure from any guaranty, for all or any of the
Secured Obligations;
(iv) any manner of application of COLLATERAL, or proceeds thereof, to all
or any of the SECURED OBLIGATIONS, or any manner of sale or other
disposition of any COLLATERAL for all or any of the SECURED
OBLIGATIONS or any other assets of Debtor or any of its AFFILIATES;
(v) any change, restructuring or termination of the corporate structure
or existence of Debtor or any of its AFFILIATES;
(vi) any equitable or legal defense of a surety or guarantor, other than
the defense of payment in full of the SECURED OBLIGATIONS; or
(vii) any other circumstance that might otherwise constitute a defense
available to, or a discharge of, Debtor or any third party grantor
of a security interest.
SECTION 15. INDEMNIFICATION.
Debtor hereby indemnifies and saves and holds Secured Party (or any persons,
employees, officers or agents designated by Secured Party) harmless from and
against any and all claims, damages, loss, liability or judgments which may be
incurred or sustained by Secured Party and such designees or asserted against
Secured Party and such designees, directly or indirectly, in connection with the
existence of or the exercise of any of the rights of Secured Party under this
SECURITY AGREEMENT or any of the of the RELATED DOCUMENTS except to the extent
the same arises by reason of the gross negligence or willful misconduct of the
PERSON seeking indemnification.
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Security Agreement, Page 7
<PAGE>
SECTION 16. LIMITATIONS ON RESPONSIBILITY OF SECURED PARTY.
Secured Party makes no representation as to the value or condition of the
COLLATERAL or any part thereof, as to the title of Debtor to the COLLATERAL, and
Secured Party shall incur no liability or responsibility in respect of any such
matters. Secured Party shall not be responsible for insuring the COLLATERAL,
for the payment of taxes, charges, assessments or liens upon the COLLATERAL or
otherwise as to the maintenance of the COLLATERAL, except as provided in the
immediately following sentence when Secured Party has possession of the
COLLATERAL. Secured Party shall have no duty to Debtor as to any COLLATERAL in
its possession or control or in the possession or control of any agent or
nominee of Secured Party or any collections thereon or proceeds thereof or as to
the preservation of rights against prior parties or any other rights pertaining
thereto, except the duty to accord such of the COLLATERAL as may be in its
possession substantially the same care as it accords its own assets and the duty
to account for moneys received by it and, notwithstanding the foregoing, the
duty not to engage in willful misconduct or gross negligence with respect to
COLLATERAL in its possession. Secured Party shall not be required to ascertain
or inquire as to the performance by Debtor of any of the covenants or agreements
contained herein or in any of the RELATED DOCUMENTS. Neither Secured Party nor
any officer, agent or representative thereof shall be personally liable for any
action taken or omitted to be taken by any such person in connection with this
AGREEMENT or any of the RELATED DOCUMENTS except for such person's own gross
negligence or willful misconduct. Secured Party may execute any of the powers
granted under this AGREEMENT or any RELATED DOCUMENTS and perform any duty
hereunder or thereunder either directly or by or through agents or attorneys-in-
fact, and shall not be responsible for the negligence or misconduct of any
agents or attorneys-in-fact selected by it without gross negligence or willful
misconduct.
SECTION 17. MARSHALING; REINSTATEMENT OF THIS AGREEMENT IF PAYMENTS SET ASIDE.
Secured Party shall be under no obligation to marshal any assets in favor of
Debtor or any other PERSON or against or in payment of any or all of the SECURED
OBLIGATIONS. This AGREEMENT shall continue to be effective or be reinstated, as
the case may be, if at any time any payment of any of the SECURED OBLIGATIONS is
rescinded or must otherwise be returned by Secured Party or any other Person
upon the insolvency, bankruptcy, or reorganization of Debtor, or otherwise, all
as though such payment had not been made.
SECTION 18. AMENDMENTS; ETC.
No amendment or waiver of any provision of this AGREEMENT, and no consent to any
departure by Debtor herefrom, shall in any event be effective unless the same
shall be in writing and signed by Secured Party.
SECTION 19. NOTICES.
All notices and other communications provided for hereunder shall be given
pursuant to Section 10.6 of the BUSINESS LOAN AGREEMENT.
SECTION 20. CONTINUING SECURITY INTEREST.
This AGREEMENT shall create a continuing security interest in the COLLATERAL and
shall other than as set forth in Section 2 hereof (i) remain in full force and
effect until payment in full of the SECURED OBLIGATIONS and for so long as any
of the covenants or agreements of Debtor under the RELATED DOCUMENTS remain
unfulfilled, (ii) be binding upon Debtor, its successors and assigns, and (iii)
inure to the benefit of, and be enforceable by, Secured Party, its successors
and assigns. Upon payment in full of the SECURED OBLIGATIONS and performance by
Debtor of all of its covenants and agreements contained in the RELATED DOCUMENTS
the security interest granted hereby shall terminate and all rights to the
COLLATERAL shall revert to Debtor, SUBJECT, HOWEVER to the provisions of the
second sentence of Section 17 hereof. Upon any such termination, Secured Party
will execute and deliver to Debtor such documents as Debtor shall reasonably
request to evidence such termination.
SECTION 21. SEVERABILITY.
If any term or provision of this AGREEMENT is or shall become illegal, invalid,
or unenforceable in any jurisdiction, all other terms and provisions of this
AGREEMENT shall remain legal, valid and enforceable in such jurisdiction and
such illegal, invalid, or unenforceable provision shall be legal, valid, and
enforceable in any other jurisdiction. Whenever possible, each provision of
this AGREEMENT and any other statement, instrument, or transaction contemplated
thereby or relating thereto shall be interpreted in such manner as to be
effective and valid under such applicable law, but if any provision of this
AGREEMENT or any other statement, instrument, or transaction contemplated
- --------------------------------------------------------------------------------
Security Agreement, Page 8
<PAGE>
thereby or relating thereto shall be held to be prohibited or invalid under such
applicable law, such provision shall be ineffective only to the extent of such
prohibition or invalidity, without invalidating the remainder of such provision
or the remaining provisions of this AGREEMENT or any other statement,
instrument, or transaction contemplated thereby or relating thereto.
SECTION 22. CAPTION HEADINGS.
CAPTION HEADINGS IN THIS AGREEMENT ARE FOR CONVENIENCE PURPOSES ONLY AND ARE NOT
TO BE USED TO INTERPRET OR DEFINE THE PROVISIONS OF THIS AGREEMENT.
SECTION 23. GOVERNING LAW; TERMS.
THE VALIDITY, CONSTRUCTION AND ENFORCEABILITY OF THIS AGREEMENT SHALL BE
GOVERNED BY THE INTERNAL LAWS OF THE STATE OF CALIFORNIA WITHOUT GIVING EFFECT
TO CONFLICT OF LAWS PRINCIPLES THEREOF.
SECTION. 24. WAIVER OF JURY TRIAL.
DEBTOR AND SECURED PARTY EACH HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY
APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY
LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER OR IN CONNECTION WITH
THIS AGREEMENT. DEBTOR AND SECURED PARTY HEREBY (A) CERTIFY THAT NO
REPRESENTATIVE, AGENT OR ATTORNEY OF THE OTHER PARTY HERETO HAS REPRESENTED,
EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF
LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT
AND THE OTHER PARTY HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY,
AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS CONTAINED IN THIS
SECTION 23.
SECTION 25. WAIVER OF NOTICE AND HEARING.
Debtor hereby waives all rights to a judicial hearing of any kind prior to the
exercise by Secured Party of its rights to possession of the COLLATERAL without
judicial process or to replevy, attach, or levy upon the COLLATERAL without
prior notice or hearing. Debtor acknowledges that it has been advised by
counsel of its choice with respect to this provision and this AGREEMENT.
SECTION 26. CONSENT TO JURISDICTION.
DEBTOR HEREBY IRREVOCABLY SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF ANY
CALIFORNIA STATE OR FEDERAL COURT SITTING IN SAN FRANCISCO OVER ANY ACTION OR
PROCEEDING ARISING OUT OF OR RELATING IN ANY WAY TO THIS AGREEMENT AND/OR THE
SECURED OBLIGATIONS, AND HEREBY IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT OF
ANY SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN ANY SUCH CALIFORNIA
STATE OR FEDERAL COURT. DEBTOR IRREVOCABLY WAIVES, TO THE FULLEST EXTENT
PERMITTED BY LAW, ANY OBJECTION WHICH DEBTOR MAY NOW OR HEREAFTER HAVE TO THE
LAYING OF THE VENUE OF ANY SUCH ACTION OR PROCEEDING BROUGHT IN SUCH COURT AND
ANY CLAIM THAT SUCH ACTION OR PROCEEDING BROUGHT IN SUCH A COURT HAS BEEN
BROUGHT IN AN INCONVENIENT FORUM. DEBTOR UNDERSTANDS AND AGREES THAT A FINAL
JUDGMENT IN ANY SUCH ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE
ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER
PROVIDED BY LAW.
SECTION 27. COUNTERPARTS.
This AGREEMENT may be executed in any number of counterparts, each of which when
so executed and delivered shall be deemed an original, but all such counterparts
together shall constitute but one and the same instrument.
SECTION 28. CONFIDENTIALITY.
The confidentiality provisions of Section 10.10 of the Business Loan Agreement
shall apply.
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Security Agreement, Page 9
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.:
CV THERAPEUTICS, INC.
By: /s/ Kathleen A. Stafford
------------------------------------
Name: Kathleen A. Stafford
-------------------------------
Title: Chief Financial Officer
--------------------------------
HAMBRECHT & QUIST GUARANTY FINANCE, LLC
By:
By: /s/ Donald M. Campbell
------------------------------------
Its Chief Executive Officer
Hereunto duly authorized
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Security Agreement, Page 10
<PAGE>
SECURITY AGREEMENT
THIS SECURITY AGREEMENT (this "Agreement") is made as of this 27 day of
September, 1996, between CV THERAPEUTICS, INC., a Delaware corporation,
having a mailing address at 3172 Porter Drive, Palo Alto, CA 94304
("Debtor"), AND HAMBRECHT & QUIST TRANSITION CAPITAL, LLC, a Delaware limited
liability company having a mailing address at One Bush Street, San Francisco,
CA 94104, ("Secured Party").
WHEREAS,
A.Debtor and Secured Party have entered into a Business Loan Agreement,
dated as of the date hereof (as the same may hereafter be amended,
restated, or otherwise modified from time to time, the "Loan Agreement"),
pursuant to which Secured Party has agreed to provide financing for
Debtor's ongoing business operations by providing Debtor with a loan (the
"FINANCING ACCOMMODATION") . Debtor will derive substantial direct and
indirect benefit from the transactions contemplated by the LOAN AGREEMENT.
B.It is a condition precedent to Secured Party's obligation to take any
action pursuant to the terms of the LOAN AGREEMENT that this AGREEMENT be
executed and delivered by Debtor.
NOW THEREFORE, in consideration of the premises set forth herein and in order
to induce Secured Party to enter into the LOAN AGREEMENT and to provide the
FINANCING ACCOMMODATION to Debtor as provided therein, Debtor hereby agrees
with Secured Party for the benefit of Secured Party as follows:
SECTION 1. DEFINED TERMS.
(a) TERMS DEFINED IN THE LOAN AGREEMENT. All terms not otherwise
defined herein that are capitalized and used herein shall have the
meanings assigned to such terms in the LOAN AGREEMENT.
(b) OTHER DEFINED TERMS. As used in this AGREEMENT, the following
terms shall have the meanings indicated:
"COLLATERAL" means any and all right, title and interest of Debtor in and
to the following:
(i) all equipment, whether now owned or hereafter acquired or arising,
including, without limitation, all scientific instrumentation,
laboratory and test equipment, computers and computer peripherals
(including, without limitation, desk-top and network equipment, and
printers), vehicles (including motor vehicles and trailers), and
furniture and furnishings (including, without limitation, cubicles
and movable partitions) and all other goods of every kind;
(ii) all inventory comprised of finished goods held for sale, bulk
manufactured material prior to its processing into finished goods,
materials used or consumed in Debtor's business (and commonly
referred to as supplies), whether or not the same is in Debtor's
custody or possession or in transit, and including any and all such
inventory returned to or reclaimed by Debtor upon any accounts or
other proceeds, including insurance proceeds, resulting from the sale
or disposition of any of the foregoing and any documents of title
representing any of the above, and any books and records relating to
any of the foregoing.
(iii) all contract rights and general intangibles now or hereinafter
acquired, including, without limitation, any and all franchise
agreements, grants, purchase orders, warranties, customer lists,
computer software and programs, all governmental approvals, permits
and licenses, any and all rights to insurance proceeds or
condemnation awards or compensation; and any and all books and
records relating to any of the foregoing;
(iv) any and all copyrights, patents and trademarks (and related
goodwill), whether registered or unregistered, foreign or domestic,
and all applications and recordings in the United States Copyright
Office, the United States Patent and Trademark Office or
Security Agreement, Page 1
<PAGE>
any similar office or agency of the United States, any state
thereof or any other country, and all continuations, renewals or
extensions of the same, and all trade secrets, inventions (whether
or not patentable), scientific processes, technologies,
procedures, models and designs (in whatever form maintained or
recorded, including, without limitation, computer software and
programs) (any of the foregoing property, and any and all books
and records relating to the foregoing, being hereinafter referred
to as "INTELLECTUAL PROPERTY"), and any and all contracts,
including rights to payment thereunder which are included as
COLLATERAL under clause (v) below, including, without limitation,
license agreements, joint venture agreements and other
collaborative agreements, in each case providing for the use or
license of any INTELLECTUAL PROPERTY (the Collateral referred to
in this clause (iv) is hereinafter called the "IP Collateral");
(v) all accounts (including accounts receivable and deposit accounts),
reserves, refunds, deposits, and all royalties, distributions, fees,
payments and other monetary obligations owing to Debtor and arising
out of the sale, transfer or licensing of goods and/or services,
including, without limitation, INTELLECTUAL PROPERTY, whether or not
earned by performance, and whether now existing or hereinafter
arising, and any and all claims for damages by way of any past,
present or future infringement of any INTELLECTUAL PROPERTY, and any
and all books and records relating to any of the foregoing;
(vi) all documents of title, cash, deposit accounts, securities, letters
of credit, certificates of deposit, instruments and chattel paper now
owned or hereafter acquired by Debtor or in which Debtor has an
interest and Debtor's books and records relating to the foregoing;
(vii) any and all claims, rights and interests in any of the above and
all substitutions and replacements for, all additions and accessions
to, any of the above, and all proceeds thereof.
At any time and from time to time, upon the request of Debtor, Secured Party
shall, promptly and duly execute and deliver any and all such further
instruments and documents and take such further actions, including without
limitation, the filing of an amendment or partial release of COLLATERAL, as
Debtor may reasonably deem necessary to evidence and confirm the scope of the
security interest granted by Debtor to Secured Party under this AGREEMENT.
"CONTRACTS AND AGREEMENTS" means any and all manufacturer's warranties or
guaranties, service manuals, service and maintenance logs, user manuals and
similar materials, books and AGREEMENTs with respect to the acquisition, use,
operation, or maintenance of any piece or unit of COLLATERAL.
"DEBTOR LOCATIONS" means 3172 Porter Drive, Palo Alto, California 94304.
"EQUIPMENT" means the types of COLLATERAL described in clause (i) of the
defined term COLLATERAL.
"FINANCING STATEMENTS" shall have the meaning given to the term in Section
4(b) of this AGREEMENT.
"PERSON" means any natural person, corporation, partnership, joint venture,
firm, association, trust, unincorporated organization, government or
governmental agency or political subdivision or any other entity, whether
acting in an individual, fiduciary or other capacity.
"RELATED DOCUMENTS" means and includes without limitation the LOAN
AGREEMENT, the PROMISSORY NOTE, all other promissory notes, credit
agreements, loan agreements, guaranties, security agreements, mortgages,
deeds of trust, and all other instruments and documents, whether now or
hereafter existing, executed in connection with the LOAN AGREEMENT.
"SECURED OBLIGATIONS" shall have the meaning given the term in Section 2 of
this AGREEMENT.
"SENIOR LENDER" shall mean Hambrecht & Quist Guaranty Finance, LLC
(c) TERMS DEFINED IN UNIFORM COMMERCIAL CODE. All other terms used in
this AGREEMENT that are not specifically defined herein or the definitions
of which are not incorporated herein by reference shall have the meaning
assigned to such terms in the Uniform Commercial Code in
Security Agreement, Page 2
<PAGE>
effect in the State of California as of the date first above written to
the extent such other terms are defined therein.
(d) SINGULAR/PLURAL. Unless the context of this AGREEMENT otherwise
clearly requires, references to the plural include the singular, the
plural, and "or" has the inclusive meaning represented by the phrase
"and/or". The words "hereof", "herein", "hereunder", and similar terms in
this AGREEMENT refer to this AGREEMENT as a whole and not to any
particular provision of this AGREEMENT. References to Sections are
references to Sections in this SECURITY AGREEMENT unless otherwise
provided.
SECTION 2. GRANT OF SECURITY INTEREST.
Debtor hereby assigns and pledges to Secured Party, and hereby grants to
Secured Party a security interest in and to the COLLATERAL to secure the
payment and performance of all obligations of Debtor to Secured Party, however
and when arising, including under the LOAN AGREEMENT and the RELATED DOCUMENTS
(the "Secured Obligations"). The Debtor agrees that the security interest
herein granted has attached and shall continue until all SECURED OBLIGATIONS
have been satisfied.
Notwithstanding the foregoing, Secured Party agrees to release its
security interest in the IP Collateral when the following condition has been
satisfied: Debtor shall have pledged to Senior Lender as security to ensure
payment and performance of (a) all Secured Obligations (as defined in this
AGREEMENT) and (b) all Secured Obligations (as defined in the Security
Agreement dated as of the date hereof between Debtor and Senior Lender (the
"H&QGF Security Agreement") a cash security deposit equal to the fifty percent
(50%) of the sum of (i) the sum of the unpaid principal balance and unpaid
accrued interest due to Lender under this Security Agreement whether or not due
at the time each security deposit is created and (ii) unless Debtor has repaid
all obligations under the Business Loan Agreement dated as of the date hereof
between Debtor and Senior Lender (the H&QGF BLA") and has not exercised, or no
longer has available, the Lease Option as defined in the Financing Agreement
dated as of the date hereof between Debtor and Senior Lender (the H&QGF
Financing Agreement"), the sum of all rent payments payable or that would be
payable under the Master Lease Agreement and Related Document as defined in the
H&QGF Financing Agreements in the event that the Lease Option were exercised
whether or not due at the time each security deposit is created (the sum
referred to in this clause (ii) is hereinafter called the "GF Potential
Obligation Amount").
The amount of such deposit shall not be adjusted until the sum of (a) the
GF Potential Obligation Amount and (b) all Secured Obligations (as defined in
this AGREEMENT) is less than or equal to the amount of the cash security
deposit, at which time the deposit will be applied to the Secured Obligations
as they become due. Secured Party, Senior Lender and Debtor shall enter into a
security deposit agreement and execute and deliver such other documents, in
form and substance reasonably satisfactory to each such party, to effect the
release of the IP Collateral and the cash security deposit as provided in
clause (a) above.
SECTION 3. DEBTOR REMAINS LIABLE.
Anything herein to the contrary notwithstanding, (a) Debtor shall remain liable
under the Contracts and Agreements included in the COLLATERAL to the extent set
forth therein to perform all of its duties and obligations thereunder to the
same extent as if this AGREEMENT had not been executed, (b) the exercise by
Secured Party of any of the rights hereunder shall not release Debtor from any
of its duties or obligations under the Contracts and Agreements included in the
COLLATERAL, and Secured Party shall have no obligation or liability under the
Contracts and AGREEMENTS included in the COLLATERAL by reason of this
AGREEMENT, nor shall Secured Party be obligated to perform any of the
obligations or duties of Debtor thereunder.
SECTION 4. REPRESENTATIONS AND WARRANTIES.
Debtor represents and warrants as follows:
(a) All of the COLLATERAL of Debtor is located at the Debtor's Locations,
or as described on Exhibit A hereto.
(b) Debtor is the legal and beneficial owner of the COLLATERAL free and
clear of any lien except for (i) the security interests created by this
AGREEMENT and (ii) Security interest created by the H&QGF Security
Agreement and (iii) any lien in favor of equipment lessors which lien is
extinguished simultaneously with the execution of this document, and (iv)
liens permitted
Security Agreement, Page 3
<PAGE>
under Section 5.1 of the Business Loan Agreement. No effective
financing statement or other similar document used to perfect and
preserve a security interest under the laws of any jurisdiction (a
"FINANCING STATEMENT") covering all or any part of the COLLATERAL is on
file in any recording office, except such as may have been filed in
favor of Secured Party relating to this AGREEMENT or in favor of (i)
Senior Lender relating to the Master Lease Agreement and (ii) any
existing equipment lessors for whom that security interest is
extinguished simultaneously with the execution of this document, or as
otherwise described on Exhibit A hereto.
(c) Debtor has exclusive possession and control of the COLLATERAL, except
for the Collateral that is in transit or is being repaired, maintained, or
modified by other Persons, or Collateral that has been loaned to others in
the ordinary course of business and Debtor has notified Secured Party in
writing, including a description of the Collateral and the address where
such Collateral is to be temporarily located, or as otherwise described on
Exhibit A hereto.
(d) This AGREEMENT creates a valid security interest in the COLLATERAL in
accordance with the terms of the LOAN AGREEMENT securing the payment and
performance of the Secured Obligations.
(e) A true and correct list of all of the Collateral consisting of U.S.
patents and/or registrations owned by the Debtor, in whole or in part, is
set forth in SCHEDULE I.
(f) A true and correct list of all of the Collateral consisting of U.S.
patent applications and/or registrations owned by the Debtor, in whole or
in part, is set forth in SCHEDULE II.
(g) A true and correct list of all of the Collateral consisting of foreign
patent and patent applications and/or registrations owned by the Debtor,
in whole or in part, is set forth in SCHEDULE III.
(h) A true and correct list of all of the Collateral consisting of U.S.,
State and Federal trademarks, trademark registrations owned by the Debtor,
in whole or in part, is set forth in SCHEDULE IV.
(i) A true and correct list of all of the Collateral consisting of U.S.,
State pending trademarks owned by the Debtor, in whole or in part, is set
forth in SCHEDULE V.
(j) A true and correct list of all of the Collateral consisting of
unregistered trademarks owned by the Debtor, in whole or in part, is set
forth in SCHEDULE VI.
SECTION 5. FURTHER ASSURANCES.
(a) Debtor agrees that from time to time, at the expense of Debtor,
Debtor will promptly execute and deliver all further instruments and
documents, and take all further action, that may be necessary or that
Secured Party may reasonably request, in order to perfect and protect the
security interests granted hereby or to enable Secured Party to exercise
and enforce its rights and remedies hereunder with respect to any
COLLATERAL and/or the Contracts and AGREEMENTs. Without limiting the
generality of the foregoing, Debtor will upon Secured Party's request
execute and file such Financing Statements or continuation statements in
respect thereof, or amendments thereto, and such other instruments or
notices, as may be necessary or desirable, or as Secured Party may
request, in order to perfect, preserve, and enhance the security interests
granted or purported to be granted hereby.
(b) Debtor hereby authorizes Secured Party to file one or more FINANCING
STATEMENTS or continuation statements in respect thereof, and amendments
thereto, relating to all or any part of the COLLATERAL without the
signature of Debtor where permitted by law, and names Secured Party as its
attorney in fact and authorized it to execute any and all Financing
Statements on Debtor's behalf where necessary or advisable to perfect,
continue or give notice of the security interest granted to Security Party
hereunder in any of the Collateral. A photocopy or other reproduction of
this AGREEMENT or any FINANCING STATEMENT covering the COLLATERAL or any
part thereof shall be sufficient as a Financing Statement where permitted
by law.
(c) Debtor will furnish to Secured Party from time to time statements and
schedules further identifying and describing the COLLATERAL and such other
reports in connection with the COLLATERAL as Secured Party may reasonably
request, all in reasonable detail and in form and substance reasonably
satisfactory to Secured Party.
(d) Debtor agrees to give Secured Party at least thirty (30) days prior
written notice before changing its name from that set forth on the
signature page hereof, before moving its chief executive office or
principal place of business from the address set forth on the signature
page hereof, or before using any trade names or styles in its business in
California other than the use of those trade names and styles listed in
EXHIBIT A hereto.
Security Agreement, Page 4
<PAGE>
SECTION 6. COVENANTS REGARDING USE OF COLLATERAL.
(a) Debtor shall keep the COLLATERAL located and installed at the
DEBTOR'S LOCATIONS, except for the Collateral that has been loaned to
others in the ordinary course of business and about such arrangement
Debtor has notified Secured Party in writing including a description of
the Collateral and the address where such Collateral is to be temporarily
located.
(b) Except as otherwise provided in the LOAN AGREEMENT, Debtor shall
cause the EQUIPMENT to be maintained and preserved in the same condition,
repair and working order as when new, ordinary wear and tear excepted, and
in accordance with any manufacturer's manual, and shall forthwith, or in
the case of any loss or damage to any of such EQUIPMENT as quickly as
practicable after the occurrence thereof, make or cause to be made all
repairs, replacements, and other improvements in connection therewith
which are necessary or desirable to such end. Debtor shall promptly
furnish to Secured Party a statement respecting any material loss or
damage to any of the EQUIPMENT.
SECTION 7. INSURANCE
Debtor shall, at its own cost and expense, maintain insurance with respect to
the COLLATERAL against loss or damage by fire, theft, explosion and all other
hazards and risks ordinarily insured against by other owners or users of such
properties in similar business for the full insurable value of the COLLATERAL,
INCLUDING EARTHQUAKE INSURANCE IF REQUESTED BY SECURED PARTY after October 1,
1997. All such policies of insurance shall be in form and substance
reasonable satisfactory to, and shall be with insurers reasonably acceptable
to, Secured Party, and shall include a loss payable endorsement naming
Secured Party loss payee, all in form and substance reasonably satisfactory
to Secured Party. Debtor shall, if so requested by Secured Party, deliver to
Secured Party original or duplicate policies of such insurance and, as often
as Secured Party may reasonably request, a report of a reputable insurance
broker with respect to such insurance.
SECTION 8. TRANSFERS AND OTHER LIENS.
Debtor shall not:
(a) sell, assign (by operation of law or otherwise), convey, or otherwise
dispose of, or grant any option with respect to, any of the COLLATERAL
other than (i) to replace, in the ordinary course of business, any
EQUIPMENT that have broken or become unuseable or obsolete, or (ii) the
sale of inventory in the ordinary course of business, or (iii) transfers
of non-exclusive licenses (and exclusive licenses within certain
geographic regions) and other similar arrangements for the use of Debtor's
property, or (iv) licenses and sub-licenses granted as part of joint
ventures, strategic alliances and other similar arrangements customary in
Borrower's industry for businesses similar to Borrower; or
(b) create or permit to exist any lien upon or with respect to any of the
COLLATERAL, except for (i) the security interests created by this
AGREEMENT and (ii) any lien in favor Senior Lender and (iii) any lien
permitted under Section 5.1 of the Loan Agreement.
SECTION 9. SECURED PARTY APPOINTED ATTORNEY-IN-FACT.
Debtor hereby irrevocably appoints Secured Party as Debtor's attorney-in-fact,
with full authority in the place and stead of Debtor and in the name of Debtor
or otherwise, from time to time in Secured Party's good-faith discretion, at
any time that Debtor is in default under this AGREEMENT or under any of the
Related Documents, to take any action and to execute any instrument that
Secured Party may reasonably deem necessary or advisable to accomplish the
purposes of this AGREEMENT, in a manner consistent with the terms hereof,
including, without limitation:
(a) to obtain and adjust insurance required to be paid to Secured Party
pursuant to Section 7 hereof;
(b) to ask, demand, collect, sue for, recover, compromise, receive, and
give acquittance and receipts for moneys due and to become due under or in
connection with the COLLATERAL; and
(c) to file any claims or take any action or institute any proceedings
that Secured Party may deem necessary or desirable for the collection or
perfection of any of the COLLATERAL or otherwise to enforce the rights of
Secured Party with respect to any of the COLLATERAL;
(d) to execute any and all applications, documents, papers and
instruments for Secured Party to use any of the Collateral, to grant or
issue any exclusive or nonexclusive license with respect
Security Agreement, Page 5
<PAGE>
to any of the Collateral, and to assign, convey or otherwise transfer
title to or dispose of any of the Collateral.
The foregoing power of attorney is coupled with an interest and is irrevocable
so long as this Agreement shall not have terminated pursuant to Section 20
hereof.
SECTION 10. SECURED PARTY MAY PERFORM.
If Debtor fails to perform any agreement contained herein, Secured Party may
itself perform, or cause the performance of, such agreement, and the reasonable
expenses of Secured Party incurred in connection therewith shall be payable by
Debtor under Section 13 hereof. Upon the occurrence of an Event of Default and
during the continuance thereof, Secured Party and any representatives of
Secured Party shall have, in addition to all its other rights under this
AGREEMENT, the right to obtain access to Debtor's data processing equipment,
computer hardware and software relating to the COLLATERAL and to use all of the
foregoing and the information contained therein in any manner Secured Party
deems necessary for the purpose of effectuating its rights under this
AGREEMENT, the LOAN AGREEMENT and any other of the RELATED DOCUMENTS. Debtor
agrees that Secured Party has no obligation to preserve rights to the
COLLATERAL against any other parties provided Secured Party complies with the
obligations of a Secured Party under Section 9207 of the CUCC.
SECTION 11. SECURED PARTY'S DUTIES.
The powers conferred on Secured Party hereunder are solely to protect its
interest in the COLLATERAL and shall not impose any duty upon Secured Party to
exercise any such powers. Except for the safe custody of any COLLATERAL in the
possession of Secured Party, and the accounting for moneys and for other
properties actually received by Secured Party hereunder, Secured Party shall
have no duty as to any COLLATERAL or as to the taking of any necessary steps to
preserve rights against prior parties or any other rights pertaining thereto
provided Secured Party complies with the obligations of a Secured Party under
Section 9207 of the CUCC.
SECTION 12. REMEDIES; APPLICATION OF PROCEEDS OF COLLATERAL.
If any EVENT OF DEFAULT as defined in the LOAN AGREEMENT shall have occurred
and be continuing Secured Party may exercise in respect of the COLLATERAL, in
addition to other rights and remedies provided for herein or otherwise
available, all the rights and remedies of a secured party on default under the
Uniform Commercial Code of the State of California (the "CODE") in effect at
that time (whether or not the Code then applies to the affected COLLATERAL),
and also may (i) require Debtor to, and Debtor hereby agrees that it will at
its expense and upon request of Secured Party forthwith, assemble all or part
of the COLLATERAL of Debtor as directed by Secured Party and make it available
to Secured Party at a place to be designated by Secured Party that is
reasonably convenient to both Secured Party and Debtor; (ii) without notice
except as specified below, sell the COLLATERAL of Debtor or any part thereof in
one or more parcels at public or private sale, at any of Secured Party's
offices or elsewhere, for cash, on credit, or for future delivery, and upon
such other terms as Secured Party may reasonably believe are commercially
reasonable; (iii) occupy any premises owned or leased by Debtor where the
COLLATERAL or part thereof is assembled for a reasonable period in order to
effectuate Secured Party's rights and remedies hereunder or under applicable
law, without obligation to Debtor in respect of such occupation; and (iv)
exercise any and all rights and remedies of Debtor under or in connection with
the COLLATERAL of Debtor. Debtor agrees that, to the extent notice of sale
shall be required by law, at least ten (10) days prior written notice to Debtor
(which Debtor agrees is reasonable notification within the meaning of Section
9504(3) of the Code) of the time and place of any public sale or the time after
which any private sale is to be made shall constitute reasonable notification.
Secured Party shall not be obligated to make any sale of COLLATERAL regardless
of notice of sale having been given. Secured Party may adjourn any public or
private sale from time to time by announcement at the time and place fixed
therefor, and such sale may, without further notice, be made at the time and
place to which it was so adjourned.
SECTION 13. EXPENSES.
Debtor will upon demand pay to Secured Party the amount of any and all
reasonable expenses, including the reasonable fees and expenses of its counsel
and of any experts and agents, that Secured
Security Agreement, Page 6
<PAGE>
Party may incur in respect of Debtor in connection with (i) the custody,
preservation, use, or operation of, or the sale of, collection from, or other
realization upon, any of the COLLATERAL, (ii) the exercise or enforcement of
any of the rights of Secured Party hereunder, or (iii) the failure by Debtor
to perform or observe any of the provisions hereof.
SECTION 14. SECURITY INTEREST ABSOLUTE.
The obligations of Debtor under this AGREEMENT are independent of the Secured
Obligations, and a separate action or actions may be brought and prosecuted
against Debtor to enforce this AGREEMENT. Debtor waives any right to require
Secured Party (a) to proceed against any third party other than Debtor, (b) to
proceed against or exhaust any security or collateral granted by any other
third party grantor of a security interest rather than Debtor, or to pursue any
other remedy in Secured Party's power whatsoever. All rights of Secured Party
and security interests granted hereunder, and all obligations of Debtor
hereunder, shall be absolute and unconditional, irrespective of:
(i) any lack of validity or enforceability of the LOAN AGREEMENT or any of
the other RELATED DOCUMENTS;
(ii) any change in the time, manner or place of payment of, or in any other
term of, all or any of the Secured Obligations, or any other amendment
or waiver of or any consent to any departure from the LOAN AGREEMENT
or any other of the RELATED DOCUMENTS, including, without limitation,
any increase in the Secured Obligations resulting from the extension
of additional credit to Debtor, or any of its AFFILIATES, or
otherwise;
(iii) any taking, exchange, release, or non-perfection of any other
collateral, or any taking, release, or amendment or waiver of or
consent to departure from any guaranty, for all or any of the Secured
Obligations;
(iv) any manner of application of COLLATERAL, or proceeds thereof, to all
or any of the SECURED OBLIGATIONS, or any manner of sale or other
disposition of any COLLATERAL for all or any of the SECURED
OBLIGATIONS or any other assets of Debtor or any of its AFFILIATES;
(v) any change, restructuring or termination of the corporate structure or
existence of Debtor or any of its AFFILIATES;
(vi) any equitable or legal defense of a surety or guarantor, other than
the defense of payment in full of the SECURED OBLIGATIONS; or
(vii) any other circumstance that might otherwise constitute a defense
available to, or a discharge of, Debtor or any third party grantor of
a security interest.
SECTION 15. INDEMNIFICATION.
Debtor hereby indemnifies and saves and holds Secured Party (or any persons,
employees, officers or agents designated by Secured Party) harmless from and
against any and all claims, damages, loss, liability or judgments which may be
incurred or sustained by Secured Party and such designees or asserted against
Secured Party and such designees, directly or indirectly, in connection with
the existence of or the exercise of any of the rights of Secured Party under
this SECURITY AGREEMENT or any of the of the RELATED DOCUMENTS except to the
extent the same arises by reason of the gross negligence or willful misconduct
of the PERSON seeking indemnification.
SECTION 16. LIMITATIONS ON RESPONSIBILITY OF SECURED PARTY.
Secured Party makes no representation as to the value or condition of the
COLLATERAL or any part thereof, as to the title of Debtor to the COLLATERAL,
and Secured Party shall incur no liability or responsibility in respect of any
such matters. Secured Party shall not be responsible for insuring the
COLLATERAL, for the payment of taxes, charges, assessments or liens upon the
COLLATERAL or otherwise as to the maintenance of the COLLATERAL, except as
provided in the immediately following sentence when Secured Party has
possession of the COLLATERAL. Secured Party shall have no duty to Debtor as to
any COLLATERAL in its possession or control or in the possession or control of
any agent or nominee of Secured Party or any collections thereon or proceeds
thereof or as to the preservation of rights against prior parties or any other
rights pertaining thereto, except the duty to accord such of the COLLATERAL as
may be in its possession substantially the same care as it accords its own
assets and the duty to account for moneys received by it and, notwithstanding
the foregoing, the duty not to engage in willful misconduct or gross negligence
with respect to COLLATERAL. Secured Party shall not be required to ascertain
or inquire as to the performance by Debtor of any of the covenants or
agreements contained herein or in any of the RELATED DOCUMENTS. Neither
Secured Party nor any officer, agent or representative thereof shall be
personally liable for any action taken or omitted to be
Security Agreement, Page 7
<PAGE>
taken by any such person in connection with this AGREEMENT or any of the
RELATED DOCUMENTS except for such person's own gross negligence or willful
misconduct. Secured Party may execute any of the powers granted under this
AGREEMENT or any RELATED DOCUMENTS and perform any duty hereunder or
thereunder either directly or by or through agents or attorneys-in-fact, and
shall not be responsible for the negligence or misconduct of any agents or
attorneys-in-fact selected by it without gross negligence or willful
misconduct.
SECTION 17. MARSHALING; REINSTATEMENT OF THIS AGREEMENT IF PAYMENTS SET ASIDE.
Secured Party shall be under no obligation to marshal any assets in favor of
Debtor or any other PERSON or against or in payment of any or all of the
SECURED OBLIGATIONS. This AGREEMENT shall continue to be effective or be
reinstated, as the case may be, if at any time any payment of any of the
SECURED OBLIGATIONS is rescinded or must otherwise be returned by Secured Party
or any other Person upon the insolvency, bankruptcy, or reorganization of
Debtor, or otherwise, all as though such payment had not been made.
SECTION 18. AMENDMENTS; ETC.
No amendment or waiver of any provision of this AGREEMENT, and no consent to
any departure by Debtor herefrom, shall in any event be effective unless the
same shall be in writing and signed by Secured Party.
SECTION 19. NOTICES.
All notices and other communications provided for hereunder shall be given
pursuant to Section 10.6 of the LOAN AGREEMENT.
SECTION 20. CONTINUING SECURITY INTEREST.
This AGREEMENT shall create a continuing security interest in the COLLATERAL
and shall other than as set forth in Section 2 hereof (i) remain in full force
and effect until payment in full of the SECURED OBLIGATIONS and for so long as
any of the covenants or agreements of Debtor under the RELATED DOCUMENTS remain
unfulfilled, (ii) be binding upon Debtor, its successors and assigns, and (iii)
inure to the benefit of, and be enforceable by, Secured Party, its successors
and assigns. Upon payment in full of the SECURED OBLIGATIONS and performance
by Debtor of all of its covenants and agreements contained in the RELATED
DOCUMENTS the security interest granted hereby shall terminate and all rights
to the COLLATERAL shall revert to Debtor, SUBJECT, HOWEVER to the provisions of
the second sentence of Section 17 hereof. Upon any such termination, Secured
Party will execute and deliver to Debtor such documents as Debtor shall
reasonably request to evidence such termination.
SECTION 21. SEVERABILITY.
If any term or provision of this AGREEMENT is or shall become illegal, invalid,
or unenforceable in any jurisdiction, all other terms and provisions of this
AGREEMENT shall remain legal, valid and enforceable in such jurisdiction and
such illegal, invalid, or unenforceable provision shall be legal, valid, and
enforceable in any other jurisdiction. Whenever possible, each provision of
this AGREEMENT and any other statement, instrument, or transaction contemplated
thereby or relating thereto shall be interpreted in such manner as to be
effective and valid under such applicable law, but if any provision of this
AGREEMENT or any other statement, instrument, or transaction contemplated
thereby or relating thereto shall be held to be prohibited or invalid under
such applicable law, such provision shall be ineffective only to the extent of
such prohibition or invalidity, without invalidating the remainder of such
provision or the remaining provisions of this AGREEMENT or any other statement,
instrument, or transaction contemplated thereby or relating thereto.
SECTION 22. CAPTION HEADINGS.
CAPTION HEADINGS IN THIS AGREEMENT ARE FOR CONVENIENCE PURPOSES ONLY AND ARE
NOT TO BE USED TO INTERPRET OR DEFINE THE PROVISIONS OF THIS AGREEMENT.
SECTION 23. GOVERNING LAW; TERMS.
THE VALIDITY, CONSTRUCTION AND ENFORCEABILITY OF THIS AGREEMENT SHALL BE
GOVERNED BY THE INTERNAL LAWS OF THE STATE OF CALIFORNIA WITHOUT GIVING EFFECT
TO CONFLICT OF LAWS PRINCIPLES THEREOF.
Security Agreement, Page 8
<PAGE>
SECTION. 24. WAIVER OF JURY TRIAL.
DEBTOR AND SECURED PARTY EACH HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY
APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY
LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER OR IN CONNECTION WITH
THIS AGREEMENT. DEBTOR AND SECURED PARTY HEREBY (A) CERTIFY THAT NO
REPRESENTATIVE, AGENT OR ATTORNEY OF THE OTHER PARTY HERETO HAS REPRESENTED,
EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF
LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT
AND THE OTHER PARTY HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY,
AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS CONTAINED IN THIS
SECTION 23.
SECTION 25. WAIVER OF NOTICE AND HEARING
Debtor hereby waives all rights to a judicial hearing of any kind prior to the
exercise by Secured Party of its rights to possession of the COLLATERAL without
judicial process or to replevy, attach, or levy upon the COLLATERAL without
prior notice or hearing. Debtor acknowledges that it has been advised by
counsel of its choice with respect to this provision and this AGREEMENT.
SECTION 26. CONSENT TO JURISDICTION.
DEBTOR HEREBY IRREVOCABLY SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF ANY
CALIFORNIA STATE OR FEDERAL COURT SITTING IN SAN FRANCISCO OVER ANY ACTION OR
PROCEEDING ARISING OUT OF OR RELATING IN ANY WAY TO THIS AGREEMENT AND/OR THE
SECURED OBLIGATIONS, AND HEREBY IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT
OF ANY SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN ANY SUCH
CALIFORNIA STATE OR FEDERAL COURT. DEBTOR IRREVOCABLY WAIVES, TO THE FULLEST
EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH DEBTOR MAY NOW OR HEREAFTER HAVE
TO THE LAYING OF THE VENUE OF ANY SUCH ACTION OR PROCEEDING BROUGHT IN SUCH
COURT AND ANY CLAIM THAT SUCH ACTION OR PROCEEDING BROUGHT IN SUCH A COURT HAS
BEEN BROUGHT IN AN INCONVENIENT FORUM. DEBTOR UNDERSTANDS AND AGREES THAT A
FINAL JUDGMENT IN ANY SUCH ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE
ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER
PROVIDED BY LAW.
SECTION 27 COUNTERPARTS.
This AGREEMENT may be executed in any number of counterparts, each of which
when so executed and delivered shall be deemed an original, but all such
counterparts together shall constitute but one and the same instrument.
SECTION 28. CONFIDENTIALITY
The confidentiality provisions of Section 10.10 of the Business Loan Agreement
shall apply.
Security Agreement, Page 9
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.:
CV THERAPEUTICS, INC.
By: /s/ Kathleen A. Stafford
----------------------------------------
Name: Kathleen A. Stafford
----------------------------
Title: Chief Financial Officer
----------------------------
HAMBRECHT & QUIST TRANSITION CAPITAL, LLC
By:
By: /s/ Donald M. Campbell
------------------------------------------
Its Manager
Hereunto duly authorized
Security Agreement, Page 10
<PAGE>
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR APPLICABLE STATE SECURITIES LAWS AND MAY NOT BE SOLD, PLEDGED OR
OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT
AND APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN EXEMPTION FROM SUCH
REGISTRATION REQUIREMENTS FOR SUCH LAWS AS MAY THEN BE IN EFFECT, OR AN OPINION
OF COUNSEL, REASONABLY SATISFACTORY TO THE COMPANY AND ITS COUNSEL, THAT SUCH
REGISTRATION IS NOT REQUIRED.
WARRANT TO PURCHASE SHARES
OF COMMON STOCK
Company: CV Therapeutics, Inc., a Delaware corporation (the
"Company"), and any corporation that shall succeed to
the obligations of the Company under this Warrant.
Number of Shares:
Class of Stock: Common Stock
Initial Warrant Price: per share
Expiration Date: September 27, 2001
Date of Grant: September 27, 1996
---------------------------
THIS CERTIFIES THAT, for value received, __________________________________
or nominees, is entitled to purchase the above number (as adjusted pursuant to
Section 5 hereof) of fully paid and nonassessable shares of the above Class of
Stock of the Company at the Initial Warrant Price above (as adjusted pursuant
to Section 5 hereof), subject to the provisions and upon the terms and
conditions set forth herein.
1. DEFINITIONS.
As used herein, the following terms, unless the context otherwise requires,
shall have the following meanings:
(a) "Act" shall mean the Securities Act of 1933, as amended, or any
similar federal statute, and the rules and regulations thereunder, as shall be
in effect at the time.
(b) "Common Stock" shall mean shares of the presently authorized
common stock of the Company and any stock into which such common stock may
hereafter by exchanged.
(c) "Holder" shall mean any person who shall at the time be the
holder of this Warrant.
(d) "Shares" shall mean the shares of the Class of Stock that the
Holder is entitled to purchase upon exercise of this Warrant, as adjusted
pursuant to Section 5 hereof.
(e) "Warrant Price" shall mean the Initial Warrant Price at which
this Warrant may be exercised, as adjusted pursuant to Section 5 hereof.
<PAGE>
2. TERM.
The purchase right represented by this Warrant is exercisable, in whole or
in part, at any time on or before the Expiration Date.
3. EXERCISE OF WARRANT; PAYMENT; ISSUANCE OF NEW WARRANT
3.1. Subject to Section 2 hereof, the purchase rights represented by
this Warrant may be exercised by the Holder, in whole or in part, by the
surrender of this Warrant (with the notice of exercise form attached hereto as
Appendix A duly executed) at the principal office of the Company and by the
payment to the Company, by check made payable to the Company drawn on a United
States bank and for United States dollars, or by wire transfer to an account of
the Company, of an amount equal to the then applicable Warrant Price per share
multiplied by the number of Shares then being purchased. In the event of any
exercise of the purchase right represented by this Section 3, certificates for
the Shares so purchased shall be delivered to the Holder within thirty (30) days
of receipt of such payment and, unless this Warrant has been fully exercised or
expired, a new Warrant (dated as of the date hereof) representing the portion of
the Shares, if any, with respect to which this Warrant shall not then have been
exercised shall also be issued to the Holder within such thirty (30) day period.
3.2 The Company may require that such certificate or certificates
contain on the face thereof a legend substantially as follows:
"The securities evidenced by this certificate have not been registered
under the Securities Act of 1933, as amended, or applicable state
securities laws and rules. No sale, offer to sell or transfer of the
shares represented by this certificate shall be made unless a
registration statement under such act, and applicable state securities
laws with respect to such shares is then in effect, or an exemption
from such registration requirements for such laws is then in effect."
4. EXERCISE PRICE. The Warrant Price at which this Warrant may be
exercised shall be the Initial Warrant Price, as adjusted from time to time
pursuant to Section 5 hereof.
5. ADJUSTMENT OF NUMBER AND KIND OF SHARES AND ADJUSTMENT OF WARRANT
PRICE.
5.1 CERTAIN DEFINITIONS. As used in this Section 5 the following
terms shall have the following respective meanings:
(a) OPTIONS: rights, options or warrants to subscribe for,
purchase or otherwise acquire shares of Common Stock or Convertible
Securities.
(b) CONVERTIBLE SECURITIES: any evidence of indebtedness,
shares of stock or other securities directly or indirectly convertible into
or exchangeable for Common Stock.
5.2 ADJUSTMENTS. The number and kind of securities purchasable upon
the exercise of this Warrant and the Warrant Price shall be subject to
adjustment from time to time upon the occurrence of certain events, as follows:
<PAGE>
(a) RECLASSIFICATION, REORGANIZATION, CONSOLIDATION OR MERGER.
In the case of any reclassification of the Common Stock, or any
reorganization, consolidation or merger of the Company with or into another
corporation (other than a merger or reorganization with respect to which
the Company is the continuing corporation and which does not result in any
reclassification of the Common Stock), the Company, or such successor
corporation, as the case may be, shall execute a new warrant, providing
that the Holder shall have the right to exercise such new warrant and upon
such exercise to receive, in lieu of each share of the Class of Stock
theretofore issuable upon exercise of this Warrant, the number and kind of
securities receivable upon such reclassification, reorganization,
consolidation or merger by a holder of shares of the same Class of Stock of
the Company for each such share of such Class of Stock. The aggregate
Warrant Price of the new warrant shall be the aggregate Warrant Price in
effect immediately prior to the reclassification, reorganization,
consolidation or merger and the Warrant Price per share shall be
appropriately increased or decreased. Such new warrant shall provide for
adjustments which shall be as nearly equivalent as may be practicable to
the adjustments provided for in this Section 5 including, without
limitation, adjustments to the Warrant Price and to the number of share
issuable upon exercise of this Warrant. The provisions of this subsection
(a) shall similarly apply to successive reclassification, reorganizations,
consolidations or mergers.
(b) SPLIT, SUBDIVISION OR COMBINATION OF SHARES. If the Company
at any time while this Warrant remains outstanding and unexpired shall
split, subdivide or combine the Class of Stock for which this Warrant is
then exercisable, the Warrant Price shall be proportionately decreased in
the case of a split or subdivision or proportionately increased in the case
of a combination. Any adjustment under this subsection (b) shall become
effective when the split, subdivision or combination becomes effective.
(c) STOCK DIVIDENDS. If the Company at any time while this
Warrant remains outstanding and unexpired shall pay a dividend with respect
to the Class of Stock for which this Warrant is then exercisable, payable
in shares of that Class of Stock, Options, or Convertible Securities, the
Warrant Price shall be adjusted, from and after the date of determination
of the shareholders entitled to receive such dividend or distributions, to
that price determined by multiplying the Warrant Price in effect
immediately prior to such date of determination by a fraction (i) the
numerator of which shall be the total number of shares of that Class of
Stock outstanding immediately prior to such dividend or distribution, and
(ii) the denominator of which shall be the total number of shares of the
same Class of Stock outstanding immediately after such dividend or
distribution (including shares of that Class of Stock issuable upon
exercise, conversion or exchange of any Option or Convertible Securities
issued as such dividend or distribution). If the Options or Convertible
Securities issued as such dividend or distribution by their terms provide,
with the passage of time or otherwise, for any decrease in the
consideration payable to the Company, or any increase by the number of
shares issuable upon exercise, conversion or exchange thereof (by change of
rate or otherwise), the Warrant Price shall, upon any such decrease or
increase becoming effective, be reduced to reflect such decrease or
increase as if such decrease or increase became effective immediately prior
to the issuance of the Options or Convertible Securities as the dividend or
distribution. Any adjustment under this subsection (c) shall become
effective on the record date.
<PAGE>
(d) OTHER SECURITIES. In the event the Company at any time or
from time to time after the issuance of this Warrant 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
Company other than shares of Common Stock, then, and in each such event,
provision shall be made so that the Holder shall receive, upon exercise
hereof, in addition to the number of shares of Common Stock receivable
thereupon, the amount of securities of the Company which the Holder would
have received had this Warrant been exercised for such Common Stock on
the date of such event and had the Holder thereafter, during the period
from the date of such event to and including the date of exercise,
retained such securities receivable by such Holder as aforesaid during
such period, subject to all other adjustments called for during such
period under this Section 5 with respect to the rights of the Holder.
5.3 ADJUSTMENT OF NUMBER OF SHARES. Upon each adjustment in the Warrant
Price pursuant to subsection 9(b) and (c) of this Article 5, the number of
Shares issuable upon exercise of this warrant shall be adjusted to the product
obtained by multiplying the number of Shares issuable immediately prior to such
adjustment in the Warrant Price by a fraction (i) the numerator of which shall
be the Warrant Price immediately prior to such adjustment, and (ii) the
denominator of which shall be the Warrant Price immediately after such
adjustment.
6. NOTICE OF ADJUSTMENTS. Whenever the Warrant Price shall be adjusted
pursuant to Section 5 hereof, the Company shall issue a certificate signed by
its chief financial officer or chief executive officer setting forth, in
reasonable detail, the event requiring the adjustment, the amount of the
adjustment, the method by which such adjustment was calculated and the Warrant
Price after giving effect to such adjustment and shall cause a copy of such
certificate to be mailed (by first class mail, postage prepaid) to the Holder.
7. RIGHT TO CONVERT WARRANT INTO STOCK.
7.1 RIGHT TO CONVERT. In addition to the rights granted under
Section 3 of this Warrant, the Holder shall have the right to require the
Company to convert (the "Conversion Right") into shares of the Class of Stock
for which the Warrant is then exercisable, as provided in this Section 7. Upon
exercise of the Conversion Right, the Company shall deliver to the Holder
(without payment by the Holder of any Warrant Price) that number of shares of
stock equal to the quotient obtained by dividing (x) the value of this Warrant
at the time of the Conversion Right is exercised (determined by subtracting the
aggregate Warrant Price immediately prior to the exercise of the Conversion
Right from the aggregate Conversion Price (as hereinafter determined) by (y) the
Conversion Price.
7.2 METHOD OF EXERCISE. The Conversion Right may be exercised at any
time by the Holder by the surrender of this Warrant at the principal office of
the Company together with a written statement specifying that the Holder thereby
intends to exercise the Conversion Right. Certificates of the shares of stock
issuable upon exercise of the Conversion Right shall be delivered to the Holder
within thirty (30) days following the Company's receipt of this Warrant together
with the aforesaid written statement.
<PAGE>
7.3 AUTOMATIC CONVERSION PRIOR TO EXPIRATION. To the extent this
Warrant is not previously exercised, and if the fair market of one share of the
Class of Stock issuable upon exercise of this Warrant is greater than the
Warrant Price per share, this Warrant shall be deemed automatically exercised in
accordance with Section 7.1 hereof (even if not surrendered) immediately before
its expiration. To the extent this Warrant or any portion thereof is deemed
automatically exercised pursuant to this Section 7.3, the Company agrees to
notify Holder within a reasonable period of time of the number of shares of
the Class of Stock, if any, Holder is to receive by reason of such automatic
exercise. The Company shall issue to the Holder certificates for the Shares
issued upon such automatic conversion in accordance with Section 7.2 above,
although the Company may condition receipt of the certificate upon surrender
of the Warrant to the Company.
7.4 CONVERSION PRICE. The Conversion is determined as, for the three months
prior to any conversion of the Warrant into Common Stock:
(a) The highest closing sale price or, if no closing sale price
is reported, the highest value that is the average between the ask and bid
prices of the Common Stock quoted on any exchange or over the-counter
market on which the Common Stock is listed, whichever is applicable, as
published in the Western Edition of THE WALL STREET JOURNAL, if the Common
Stock is publicly traded; or,
(b) if the Common Stock is not traded in an over-the-counter
market or on an exchange, the highest fair market value of a single share
of Common Stock shall be as determined in good faith by the Company's Board
of Directors' provided; however, that if the Holder disputes in writing the
fair market value determined by the Board of Directors within thirty (30)
days of being informed of such fair market value, the fair market value
shall be determined by an independent appraiser, appointed in good faith by
the Company's Board of Directors.
8. TRANSFERABILITY AND NON-NEGOTIABILITY OF WARRANTS AND SHARES. This
Warrant and the Shares issued upon exercise thereof may not be transferred or
assigned in whole or in part without compliance with applicable federal and
state securities laws by the transferor and the transferee (including, without
limitation, the delivery of investment representation letters and legal opinions
reasonably satisfactory to the Company, if reasonably requested by the Company).
Subject to the provisions of this Section 8, title to the Warrant may be
transferred in the same manner as a negotiable instrument transferable by
endorsement and delivery.
9. NOTICES. The Company shall mail to the registered Holder of the
Warrant, at its last known post office address appearing on the books of the
Company, not less than twenty (20) days prior to the date on which (a) a record
will be taken for the purpose of determining the Holders of Common Stock
entitled to dividends or subscription rights, or (b) a record will be taken (or
in lieu thereof, the transfer books will be closed) for the purpose of
determining the Holders of Common Stock entitled to notice of and to vote at a
meeting of shareholders at which any capital reorganization, reclassification of
shares of Common Stock, consolidation, merger, dissolution, liquidation, winding
up or sales of substantially all of the Company's assets shall be considered and
acted upon.
<PAGE>
10. MISCELLANEOUS. No fractional shares of the Shares shall be issued in
connection with any exercise hereunder, but in lieu of such fractional shares
the Company shall make a cash payment therefor upon the basis of the Warrant
Price then in effect. The terms and provisions of this Warrant shall inure to
the benefit of, and be binding upon, the Company and the Holders hereof and
their respective successors and assigns. This Warrant shall be governed by and
construed under the laws of the State of California as applied to contracts
entered into between residents of the State of California to wholly performed in
the State of California. The representations, warranties and agreements herein
contained shall survive the exercise of the Warrant. References to the "holder
of" include the immediate Holder of shares purchased on the exercise of this
Warrant, and the word "Holder" shall include the plural thereof. The titles of
the section and the subscriptions of this Warrant are for convenience only and
are not to be considered in construing this Warrant. All pronouns used in the
Warrant shall be deemed to include masculine, feminine and neuter forms.
All shares of Common Stock or other securities issued upon the exercise of
this Warrant shall be validly issued, fully paid and nonassessable, and the
Company will pay all taxes in respect of the issuance thereof (other than any
income or capital gain taxes payable by the Holder)
IN WITNESS WHEREOF, the Warrant has been duly executed by the undersigned,
as of the 27th day of September, 1996.
CV THERAPEUTICS
By: /s/ Kathleen Stafford
-----------------------------------
(Signature)
Name: Kathleen Stafford
---------------------------------
(Printed)
Title: Chief Financial Officer
--------------------------------
<PAGE>
APPENDIX A
NOTICE OF EXERCISE
The undersigned, the Holder of the foregoing Warrant, hereby irrevocably
elects, pursuant to Section 3 of the Warrant, to exercise purchase rights
represented by such Warrant for, and to purchase thereunder, ____shares of the
Common Stock of CV Therapeutics, Inc. (the "Company") to which such Warrant
relates and herewith makes payment of $________ therefor in cash, wire transfer
or by certified check and requests to be delivered to the undersigned, the
address for which is set forth below the signature of the undersigned.
Dated:
--------------------------
Name of Holder:
---------------------------------------
By:
------------------------------------
(Signature of Authorized Officer)
Title:
---------------------------------
<PAGE>
APPENDIX B
NOTICE OF EXCHANGE
The undersigned, the Holder of the foregoing Warrant, hereby elects
pursuant to Section 7 of the Warrant, to exchange the purchase rights to
purchase ________ shares of the Common Stock covered by such Warrant and
herewith makes payment in full therefor by surrender of such ____________
Warrant, and requests that certificates for such shares (and any other
securities or property deliverable upon such exchange including a revised
warrant) be issued in the name of the undersigned and delivered to its address
as set forth in the Warrant.
Dated:
-------------------------
Name of Holder:
-------------------------------------------
By:
----------------------------------------
(Signature of Authorized Officer)
Title:
-------------------------------------
<PAGE>
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR APPLICABLE STATE SECURITIES LAWS AND MAY NOT BE SOLD, PLEDGED OR
OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT
AND APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN EXEMPTION FROM SUCH
REGISTRATION REQUIREMENTS FOR SUCH LAWS AS MAY THEN BE IN EFFECT, OR AN OPINION
OF COUNSEL, REASONABLY SATISFACTORY TO THE COMPANY AND ITS COUNSEL, THAT SUCH
REGISTRATION IS NOT REQUIRED.
WARRANT TO PURCHASE SHARES
OF COMMON STOCK
Company: CV Therapeutics, Inc., a Delaware corporation (the
"Company"), and any corporation that shall succeed to the
obligations of the Company under this Warrant.
Number of Shares:
Class of Stock: Common Stock
Initial Warrant Price: per share
Expiration Date: September 27, 2001
Date of Grant: September 27, 1996
---------------------
THIS CERTIFIES THAT, for value received, _______________________________
or nominees, is entitled to purchase the above number (as adjusted pursuant
to Section 5 hereof) of fully paid and nonassessable shares of the above
Class of Stock of the Company at the Initial Warrant Price above (as adjusted
pursuant to Section 5 hereof), subject to the provisions and upon the terms
and conditions set forth herein.
1. DEFINITIONS.
As used herein, the following terms, unless the context otherwise
requires, shall have the following meanings:
(a) "Act" shall mean the Securities Act of 1933, as amended, or any
similar federal statute, and the rules and regulations thereunder, as shall be
in effect at the time.
(b) "Common Stock" shall mean shares of the presently
authorized common stock of the Company and any stock into which such common
stock may hereafter by exchanged.
(c) "Holder" shall mean any person who shall at the time be the
holder of this Warrant.
(d) "Shares" shall mean the shares of the Class of Stock that the
Holder is entitled to purchase upon exercise of this Warrant, as adjusted
pursuant to Section 5 hereof.
(e) "Warrant Price" shall mean the Initial Warrant Price at which
this Warrant may be exercised, as adjusted pursuant to Section 5 hereof.
<PAGE>
2. TERM.
The purchase right represented by this Warrant is exercisable, in whole or
in part, at any time on or before the Expiration Date.
3. EXERCISE OF WARRANT; PAYMENT; ISSUANCE OF NEW WARRANT
3.1. Subject to Section 2 hereof, the purchase rights represented by
this Warrant may be exercised by the Holder, in whole or in part, by the
surrender of this Warrant (with the notice of exercise form attached hereto as
Appendix A duly executed) at the principal office of the Company and by the
payment to the Company, by check made payable to the Company drawn on a United
States bank and for United States dollars, or by wire transfer to an account of
the Company, of an amount equal to the then applicable Warrant Price per share
multiplied by the number of Shares then being purchased. In the event of any
exercise of the purchase right represented by this Section 3, certificates for
the Shares so purchased shall be delivered to the Holder within thirty (30)
days of receipt of such payment and, unless this Warrant has been fully
exercised or expired, a new Warrant (dated as of the date hereof) representing
the portion of the Shares, if any, with respect to which this Warrant shall not
then have been exercised shall also be issued to the Holder within such thirty
(30) day period.
3.2 The Company may require that such certificate or certificates
contain on the face thereof a legend substantially as follows:
"The securities evidenced by this certificate have not been
registered under the Securities Act of 1933, as amended, or
applicable state securities laws and rules. No sale, offer to sell
or transfer of the shares represented by this certificate shall be
made unless a registration statement under such act, and applicable
state securities laws with respect to such shares is then in effect,
or an exemption from such registration requirements for such laws is
then in effect."
4. EXERCISE PRICE. The Warrant Price at which this Warrant may be
exercised shall be the Initial Warrant Price, as adjusted from time to time
pursuant to Section 5 hereof.
5. ADJUSTMENT OF NUMBER AND KIND OF SHARES AND ADJUSTMENT OF WARRANT
PRICE.
5.1 CERTAIN DEFINITIONS. As used in this Section 5 the following
terms shall have the following respective meanings:
(a) OPTIONS: rights, options or warrants to subscribe for,
purchase or otherwise acquire shares of Common Stock or Convertible
Securities.
(b) CONVERTIBLE SECURITIES: any evidence of indebtedness, shares
of stock or other securities directly or indirectly convertible into or
exchangeable for Common Stock.
5.2 ADJUSTMENTS. The number and kind of securities purchasable upon
the exercise of this Warrant and the Warrant Price shall be subject to
adjustment from time to time upon the occurrence of certain events, as follows:
<PAGE>
(a) RECLASSIFICATION, REORGANIZATION, CONSOLIDATION OR MERGER.
In the case of any reclassification of the Common Stock, or any
reorganization, consolidation or merger of the Company with or into
another corporation (other than a merger or reorganization with respect to
which the Company is the continuing corporation and which does not result
in any reclassification of the Common Stock), the Company, or such
successor corporation, as the case may be, shall execute a new warrant,
providing that the Holder shall have the right to exercise such new
warrant and upon such exercise to receive, in lieu of each share of the
Class of Stock theretofore issuable upon exercise of this Warrant, the
number and kind of securities receivable upon such reclassification,
reorganization, consolidation or merger by a holder of shares of the same
Class of Stock of the Company for each such share of such Class of Stock.
The aggregate Warrant Price of the new warrant shall be the aggregate
Warrant Price in effect immediately prior to the reclassification,
reorganization, consolidation or merger and the Warrant Price per share
shall be appropriately increased or decreased. Such new warrant shall
provide for adjustments which shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Section 5 including,
without limitation, adjustments to the Warrant Price and to the number of
share issuable upon exercise of this Warrant. The provisions of this
subsection (a) shall similarly apply to successive reclassification,
reorganizations, consolidations or mergers.
(b) SPLIT, SUBDIVISION OR COMBINATION OF SHARES. If the
Company at any time while this Warrant remains outstanding and unexpired
shall split, subdivide or combine the Class of Stock for which this
Warrant is then exercisable, the Warrant Price shall be proportionately
decreased in the case of a split or subdivision or proportionately
increased in the case of a combination. Any adjustment under this
subsection (b) shall become effective when the split, subdivision or
combination becomes effective.
(c) STOCK DIVIDENDS. If the Company at any time while this
Warrant remains outstanding and unexpired shall pay a dividend with
respect to the Class of Stock for which this Warrant is then exercisable,
payable in shares of that Class of Stock, Options, or Convertible
Securities, the Warrant Price shall be adjusted, from and after the date
of determination of the shareholders entitled to receive such dividend or
distributions, to that price determined by multiplying the Warrant Price
in effect immediately prior to such date of determination by a fraction
(i) the numerator of which shall be the total number of shares of that
Class of Stock outstanding immediately prior to such dividend or
distribution, and (ii) the denominator of which shall be the total number
of shares of the same Class of Stock outstanding immediately after such
dividend or distribution (including shares of that Class of Stock issuable
upon exercise, conversion or exchange of any Option or Convertible
Securities issued as such dividend or distribution). If the Options or
Convertible Securities issued as such dividend or distribution by their
terms provide, with the passage of time or otherwise, for any decrease in
the consideration payable to the Company, or any increase by the number of
shares issuable upon exercise, conversion or exchange thereof (by change
of rate or otherwise), the Warrant Price shall, upon any such decrease or
increase becoming effective, be reduced to reflect such decrease or
increase as if such decrease or increase became effective immediately
prior to the issuance of the Options or Convertible Securities as the
dividend or distribution. Any adjustment under this subsection (c) shall
become effective on the record date.
<PAGE>
(d) OTHER SECURITIES. In the event the Company at any time
or from time to time after the issuance of this Warrant 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 Company other than shares of Common Stock, then, and in each such
event, provision shall be made so that the Holder shall receive, upon
exercise hereof, in addition to the number of shares of Common Stock
receivable thereupon, the amount of securities of the Company which the
Holder would have received had this Warrant been exercised for such
Common Stock on the date of such event and had the Holder thereafter,
during the period from the date of such event to and including the date
of exercise, retained such securities receivable by such Holder as
aforesaid during such period, subject to all other adjustments called
for during such period under this Section 5 with respect to the rights
of the Holder.
5.3 ADJUSTMENT OF NUMBER OF SHARES. Upon each adjustment in the Warrant
Price pursuant to subsection 9(b) and (c) of this Article 5, the number of
Shares issuable upon exercise of this warrant shall be adjusted to the product
obtained by multiplying the number of Shares issuable immediately prior to such
adjustment in the Warrant Price by a fraction (i) the numerator of which shall
be the Warrant Price immediately prior to such adjustment, and (ii) the
denominator of which shall be the Warrant Price immediately after such
adjustment.
6. NOTICE OF ADJUSTMENTS. Whenever the Warrant Price shall be
adjusted pursuant to Section 5 hereof, the Company shall issue a certificate
signed by its chief financial officer or chief executive officer setting
forth, in reasonable detail, the event requiring the adjustment, the amount
of the adjustment, the method by which such adjustment was calculated and the
Warrant Price after giving effect to such adjustment and shall cause a copy
of such certificate to be mailed (by first class mail, postage prepaid) to
the Holder.
7. RIGHT TO CONVERT WARRANT INTO STOCK.
7.1 RIGHT TO CONVERT. In addition to the rights granted under
Section 3 of this Warrant, the Holder shall have the right to require the
Company to convert (the "Conversion Right") into shares of the Class of Stock
for which the Warrant is then exercisable, as provided in this Section 7. Upon
exercise of the Conversion Right, the Company shall deliver to the Holder
(without payment by the Holder of any Warrant Price) that number of shares of
stock equal to the quotient obtained by dividing (x) the value of this Warrant
at the time of the Conversion Right is exercised (determined by subtracting the
aggregate Warrant Price immediately prior to the exercise of the Conversion
Right from the aggregate Conversion Price (as hereinafter determined) by (y)
the Conversion Price.
7.2 METHOD OF EXERCISE. The Conversion Right may be exercised at
any time by the Holder by the surrender of this Warrant at the principal office
of the Company together with a written statement specifying that the Holder
thereby intends to exercise the Conversion Right. Certificates of the shares
of stock issuable upon exercise of the Conversion Right shall be delivered to
the Holder within thirty (30) days following the Company's receipt of this
Warrant together with the aforesaid written statement.
<PAGE>
7.3 AUTOMATIC CONVERSION PRIOR TO EXPIRATION. To the extent this
Warrant is not previously exercised, and if the fair market of one share of the
Class of Stock issuable upon exercise of this Warrant is greater than the
Warrant Price per share, this Warrant shall be deemed automatically exercised
in accordance with Section 7.1 hereof (even if not surrendered) immediately
before its expiration. To the extent this Warrant or any portion thereof is
deemed automatically exercised pursuant to this Section 7.3, the
Company agrees to notify Holder within a reasonable period of time of the
number of shares of the Class of Stock, if any, Holder is to receive by
reason of such automatic exercise. The Company shall issue to the Holder
certificates for the Shares issued upon such automatic conversion in
accordance with Section 7.2 above, although the Company may condition receipt
of the certificate upon surrender of the Warrant to the Company.
7.4 CONVERSION PRICE. The Conversion is determined as, for the three months
prior to any conversion of the Warrant into Common Stock:
(a) The highest closing sale price or, if no closing sale price
is reported, the highest value that is the average between the ask and bid
prices of the Common Stock quoted on any exchange or over the-counter
market on which the Common Stock is listed, whichever is applicable, as
published in the Western Edition of THE WALL STREET JOURNAL, if the Common
Stock is publicly traded; or,
(b) if the Common Stock is not traded in an over-the-counter
market or on an exchange, the highest fair market value of a single share
of Common Stock shall be as determined in good faith by the Company's
Board of Directors' provided; however, that if the Holder disputes in
writing the fair market value determined by the Board of Directors within
thirty (30) days of being informed of such fair market value, the fair
market value shall be determined by an independent appraiser, appointed in
good faith by the Company's Board of Directors.
8. TRANSFERABILITY AND NON-NEGOTIABILITY OF WARRANTS AND SHARES. This
Warrant and the Shares issued upon exercise thereof may not be transferred or
assigned in whole or in part without compliance with applicable federal and
state securities laws by the transferor and the transferee (including, without
limitation, the delivery of investment representation letters and legal
opinions reasonably satisfactory to the Company, if reasonably requested by the
Company). Subject to the provisions of this Section 8, title to the Warrant
may be transferred in the same manner as a negotiable instrument transferable
by endorsement and delivery.
9. NOTICES. The Company shall mail to the registered Holder of the
Warrant, at its last known post office address appearing on the books of the
Company, not less than twenty (20) days prior to the date on which (a) a record
will be taken for the purpose of determining the Holders of Common Stock
entitled to dividends or subscription rights, or (b) a record will be taken (or
in lieu thereof, the transfer books will be closed) for the purpose of
determining the Holders of Common Stock entitled to notice of and to vote at a
meeting of shareholders at which any capital reorganization, reclassification
of shares of Common Stock, consolidation, merger, dissolution, liquidation,
winding up or sales of substantially all of the Company's assets shall be
considered and acted upon.
<PAGE>
10. MISCELLANEOUS. No fractional shares of the Shares shall be issued in
connection with any exercise hereunder, but in lieu of such fractional shares
the Company shall make a cash payment therefor upon the basis of the Warrant
Price then in effect. The terms and provisions of this Warrant shall inure to
the benefit of, and be binding upon, the Company and the Holders hereof and
their respective successors and assigns. This Warrant shall be governed by and
construed under the laws of the State of California as applied to contracts
entered into between residents of the State of California to wholly performed
in the State of California. The representations, warranties and agreements
herein contained shall survive the exercise of the Warrant. References to the
"holder of" include the immediate Holder of shares purchased on the exercise
of this Warrant, and the word "Holder" shall include the plural thereof. The
titles of the section and the subscriptions of this Warrant are for convenience
only and are not to be considered in construing this Warrant. All pronouns
used in the Warrant shall be deemed to include masculine, feminine and neuter
forms.
All shares of Common Stock or other securities issued upon the exercise of
this Warrant shall be validly issued, fully paid and nonassessable, and the
Company will pay all taxes in respect of the issuance thereof (other than any
income or capital gain taxes payable by the Holder)
IN WITNESS WHEREOF, the Warrant has been duly executed by the undersigned, as
of the 27th day of September, 1996.
CV THERAPEUTICS, INC.
By: /s/ Kathleen Stafford
---------------------------------
(Signature)
Name: Kathleen Stafford
---------------------------------
(Printed)
Title: Chief Financial Officer
---------------------------------
<PAGE>
APPENDIX A
NOTICE OF EXERCISE
The undersigned, the Holder of the foregoing Warrant, hereby irrevocably
elects, pursuant to Section 3 of the Warrant, to exercise purchase rights
represented by such Warrant for, and to purchase thereunder, ______ shares
of the Common Stock of CV Therapeutics, Inc. (the "Company") to which such
Warrant relates and herewith makes payment of $_______ therefor in cash, wire
transfer or by certified check and requests to be delivered to the undersigned,
the address for which is set forth below the signature of the undersigned.
Dated:
----------------------
Name of Holder:
-------------------------------------------
By:
---------------------------------------
(Signature of Authorized Officer)
Title:
------------------------------------
<PAGE>
APPENDIX B
NOTICE OF EXCHANGE
The undersigned, the Holder of the foregoing Warrant, hereby elects
pursuant to Section 7 of the Warrant, to exchange the purchase rights to
purchase ________ shares of the Common Stock covered by such Warrant and
herewith makes payment in full therefor by surrender of such ____________
Warrant, and requests that certificates for such shares (and any other
securities or property deliverable upon such exchange including a revised
warrant) be issued in the name of the undersigned and delivered to its address
as set forth in the Warrant.
Dated:
----------------------
Name of Holder:
---------------------------------------------
By:
-----------------------------------------
(Signature of Authorized Officer)
Title:
--------------------------------------
<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.............................................. 796 796 796 796 796
--------- --------- --------- --------- ---------
Total shares used in calculating net loss per share......... 1,371 1,384 1,471 1,456 1,522
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Net loss.................................................... $ (5,517) $ (11,367) $ (16,724) $ (12,754) $ (8,367)
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Net loss per share.......................................... $ (4.02) $ (8.21) $ (11.37) $ (8.76) $ (5.50)
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Pro forma:
Shares used in calculating net loss per share (per
above)................................................... 1,471 1,456 1,522
Preferred Stock if-converted:............................. 2,221 2,155 3,017
--------- --------- ---------
Total shares used in calculating pro forma net loss
per share.................................................. 3,692 3,611 4,539
--------- --------- ---------
--------- --------- ---------
Net loss.................................................... $ (16,724) $ (12,754) $ (8,367)
--------- --------- ---------
--------- --------- ---------
Pro forma net loss per share................................ $ (4.53) $ (3.53) $ (1.84)
--------- --------- ---------
--------- --------- ---------
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 6,478,000
<SECURITIES> 4,006,000
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 10,720,000
<PP&E> 6,050,000
<DEPRECIATION> 2,718,000
<TOTAL-ASSETS> 15,661,000
<CURRENT-LIABILITIES> 2,031,000
<BONDS> 0
0
50,130,000
<COMMON> 2,663,000
<OTHER-SE> (44,885,000)
<TOTAL-LIABILITY-AND-EQUITY> 15,661,000
<SALES> 0
<TOTAL-REVENUES> 250,000
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 8,020,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 980,000
<INCOME-PRETAX> (8,367,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (8,367,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (8,367,000)
<EPS-PRIMARY> (1.84)
<EPS-DILUTED> 0
</TABLE>
