-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PgsISFP0WYHQOrTd741o9PkYXeWGrHBE4vma4mW03r2DyfrmXC0i8uxtHLa4scrP rMBEaKm5wDa+no2pjMGHBw== 0000912057-96-024912.txt : 19961108 0000912057-96-024912.hdr.sgml : 19961108 ACCESSION NUMBER: 0000912057-96-024912 CONFORMED SUBMISSION TYPE: S-1/A PUBLIC DOCUMENT COUNT: 5 FILED AS OF DATE: 19961107 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: CV THERAPEUTICS INC CENTRAL INDEX KEY: 0000921506 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMMERCIAL PHYSICAL & BIOLOGICAL RESEARCH [8731] IRS NUMBER: 431570294 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-1/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-12675 FILM NUMBER: 96655636 BUSINESS ADDRESS: STREET 1: 3172 PORTER DR CITY: PALO ALTO STATE: CA ZIP: 94304 BUSINESS PHONE: 4158129300 MAIL ADDRESS: STREET 1: 3172 PORTER DRIVE CITY: PALO ALTO STATE: CA ZIP: 94304 S-1/A 1 S-1/A AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 7, 1996 REGISTRATION NO. 333-12675 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------------ AMENDMENT NO. 4 TO FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------------------ CV THERAPEUTICS, INC. (Exact name of registrant as specified in its charter) DELAWARE 8731 43-1570294 (State or other (Primary Standard (I.R.S. Employer jurisdiction of Industrial Identification Number) incorporation or Classification Code organization) Number)
------------------------------ 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: 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
------------------------------ 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
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 Common Stock, $.001 par value......... 2,875,000 $14.00 $40,250,000 $13,639(3)
(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. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 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. PROSPECTUS SUBJECT TO COMPLETION DATED NOVEMBER 7, 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. - --------------------------------------------------------------------------------
PRICE TO UNDERWRITING PROCEEDS TO PUBLIC DISCOUNT(1) COMPANY(2) - --------------------------------------------------------------------------------- Per Share $ $ $ - --------------------------------------------------------------------------------- Total (3) $ $ $ - ---------------------------------------------------------------------------------
(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 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 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." 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
PAGE 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 PAGE 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
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 PROSPECTUS SUMMARY THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED INFORMATION AND THE CONSOLIDATED FINANCIAL STATEMENTS AND NOTES THERETO APPEARING ELSEWHERE IN THIS PROSPECTUS. THE DISCUSSION IN THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES INCLUDING, BUT NOT LIMITED TO, THOSE SPECIFICALLY IDENTIFIED HEREIN. THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE DISCUSSED HERE. FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED IN "RISK FACTORS," "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" AND "BUSINESS," AS WELL AS THOSE DISCUSSED ELSEWHERE IN THIS PROSPECTUS. UNLESS OTHERWISE INDICATED, ALL INFORMATION IN THIS PROSPECTUS ASSUMES (I) A 1-FOR-10 REVERSE SPLIT OF THE COMPANY'S OUTSTANDING COMMON STOCK EFFECTED IN OCTOBER 1996; (II) THE ISSUANCE OF 792,898 SHARES OF COMMON STOCK UPON THE NET EXERCISE OF CERTAIN WARRANTS UPON THE CLOSING OF THE OFFERING; (III) THE CONVERSION OF ALL OUTSTANDING SHARES OF PREFERRED STOCK INTO SHARES OF COMMON STOCK TO BE EFFECTED UPON THE CLOSING OF THE OFFERING; AND (IV) NO EXERCISE OF THE UNDERWRITERS' OVER-ALLOTMENT OPTION. THE COMPANY The Company is a biopharmaceutical company focused exclusively on the application of molecular cardiology to the discovery, development and commercialization of novel, small molecule drugs for the treatment of chronic cardiovascular diseases. Molecular cardiology was developed, in part, by CVT scientists and their academic collaborators and is based upon the application of molecular biology and genetics to cardiovascular diseases. This discipline has yielded new insights into the mechanisms underlying chronic cardiovascular diseases and has enhanced the search for innovative cardiovascular drugs by providing an increasing number of new molecular targets for drug discovery. To date, CVT has discovered five compounds and completed the strategic in-license of a sixth compound for treatment of chronic cardiovascular diseases. Cardiovascular disease is the leading cause of death in the United States, claiming more than 950,000 lives in 1993. The American Heart Association projects the total cost of cardiovascular medications in the United States for 1996 at $11 billion. Two of the Company's drug candidates, CVT-124 and ranolazine, are in clinical trials. CVT-124 is an adenosine A(1) receptor antagonist discovered by CVT. Adenosine A(1) receptor antagonists block certain actions of adenosine, a hormone that modulates different functions of the cardiovascular system. CVT-124 has potential applications in the treatment of edema (fluid accumulation) associated with congestive heart failure ("CHF") and in the prevention and treatment of acute renal failure. A Phase I/II study completed by the Company in the United States indicated that CVT-124 is generally well tolerated and produces diuretic activity in healthy volunteers. Approximately one-quarter of the 875,000 patients in the United States hospitalized with a primary diagnosis of CHF exhibit resistance to current intravenous diuretic treatments. The Company believes that these patients would represent the initial target market for CVT-124 in this indication. The Company's second compound in clinical trials, ranolazine, is a novel compound for the treatment of angina. Ranolazine was licensed from Syntex (U.S.A.), Inc. ("Syntex"), an indirect subsidiary of Roche Holding Limited ("Roche"), in March 1996. Its novel metabolic mechanism of action was discovered, in part, by cardiovascular researchers now at or associated with CVT. In Phase I and Phase II clinical trials conducted by Syntex, an immediate release formulation of ranolazine ("ranolazine IR") was administered to over 1,200 patients. These clinical trials have indicated that ranolazine IR improved exercise tolerance in angina patients without adversely affecting heart rate or decreasing blood pressure, a clinical profile absent from currently available drugs. Based on these data, as well as Syntex pilot Phase II data from a sustained release formulation of ranolazine ("ranolazine SR") for intermittent claudication (pain in the legs due to insufficient blood flow), the Company intends to commence further clinical trials of ranolazine SR. The Company believes ranolazine could particularly benefit angina patients who also suffer from CHF or remain symptomatic despite maximal doses of currently available anti-anginal drugs. In the United States, approximately 6.7 million patients are currently diagnosed with angina. Based on published studies, approximately one-third, or 2.2 million, are either diagnosed with both angina and CHF or are resistant to currently available treatments. The Company believes these patients would represent the initial target market for ranolazine. 4 The four other compounds discovered by the Company are in preclinical studies. CVT-313 is a selective inhibitor of the cell cycle enzyme, cyclin-dependent kinase 2 ("CDK2"). The Company believes that CVT-313 may be useful in a variety of cellular proliferative disorders, including the prevention of restenosis, as an adjunct to coronary artery bypass surgery and as a treatment for cardiomyopathy (heart muscle damage). CVT-634, an inhibitor of another cell cycle regulating enzyme, is also being evaluated in animal models of chronic cardiovascular disease. CVT-609 and CVT-429 are highly selective adenosine A(1) receptor agonists which the Company believes may have potential activity in treating certain common cardiac arrhythmias. The Company believes that compared to current therapies, these compounds may offer an improved clinical profile for immediate treatment of these arrhythmias including avoiding unwanted blood pressure lowering effects. In addition, the Company has discovered a novel inflammatory factor found in human cardiovascular diseases, which it partnered to Bayer AG for continued development. BUSINESS STRATEGY The Company's strategy is to become a leader in the development of novel, cost-effective treatments for chronic cardiovascular diseases by leveraging its expertise in molecular cardiology. The Company is developing products based on small molecules designed to (i) utilize novel mechanisms of action, (ii) address segments of the cardiovascular patient population which are either underserved or not treatable by existing therapies, and (iii) offer the currently served cardiovascular patient population the potential for improved efficacy with fewer side effects than currently available drugs. The Company believes that it can best utilize its internal resources by concentrating its activities on discovery, preclinical evaluation and early clinical phases of drug development. The Company intends to establish partnerships with pharmaceutical companies for later stage clinical trials and marketing and sales activities for its products. The Company believes that such partnerships will enable the Company to more effectively and economically develop and market its initial products. DRUG DISCOVERY PLATFORM CVT's drug discovery platform supports several programs, including those focused on the adenosine A(1) receptor, the cell cycle and chronic inflammation in the cardiovascular system. These programs have produced compounds currently in clinical or preclinical development or outlicensed for use in third party drug discovery programs. CVT's expertise in molecular cardiology and drug development has been critical to the identification of these drug candidates. The Company believes that its drug discovery platform allows it to efficiently select novel, clinically relevant drug candidates that have a significant probability of commercial potential. CVT first evaluates new targets with respect to clinical relevance and suitability for small molecule inhibition. CVT then utilizes a highly integrated, multidisciplinary approach to produce novel small molecules as drug candidates for these targets. The Company combines molecular modeling and combinatorial chemistry to assemble targeted libraries of new chemical entities, an approach which the Company believes expedites the identification of potential drug leads. The Company has developed a comprehensive proprietary database correlating biological activity of candidate drugs with their structures. From this database, CVT identifies final lead compounds based on predetermined development criteria including potency, specificity, manufacturability, and pharmacologic activity in animal and IN VITRO models. The Company determines the proper selection of cell-based assays and animal models of disease to enhance development of the drug candidate based on its projected use in the clinical setting. RISK FACTORS The Common Stock offered hereby involves a high degree of risk. The principal risks of the Offering include uncertainties related to the Company's early stage of development, including the fact that the Company has no commercially available products primarily due to the lack of marketing approval from regulatory authorities, uncertainties related to clinical trials of ranolazine and CVT-124 and has incurred significant losses to date. See "Risk Factors." 5 THE OFFERING COMMON STOCK OFFERED........................ 2,500,000 shares COMMON STOCK OUTSTANDING AFTER THE 6,949,166 shares (1) OFFERING................................... USE OF PROCEEDS............................. Research and development, including preclinical testing, clinical trials and certain milestone payments; repayment of certain indebtedness; and working capital and general corporate purposes. PROPOSED NASDAQ NATIONAL MARKET SYMBOL...... "CVTX"
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
---------------------------------------------------------------------------- NINE MONTHS ENDED INCEPTION (DEC. YEAR ENDED DECEMBER 31, SEPTEMBER 30, IN THOUSANDS, EXCEPT PER SHARE 11, 1990) TO DEC. --------------------------------- --------------------- DATA 31, 1992 1993 1994 1995 1995 1996 ------------------ --------- ---------- ---------- ---------- --------- (UNAUDITED) CONSOLIDATED STATEMENTS OF OPERATIONS DATA: License revenue.................. $ - $ - $ - $ - $ - $ 250 Operating expenses: Research and development....... 1,167 4,731 8,823 12,856 10,099 5,834 General and administrative..... 429 947 2,802 3,402 2,367 2,186 ------- --------- ---------- ---------- ---------- --------- Total operating expenses......... 1,596 5,678 11,625 16,258 12,466 8,020 ------- --------- ---------- ---------- ---------- --------- Loss from operations............. (1,596) (5,678) (11,625) (16,258) (12,466) (7,770) Interest (income) expense, net... 34 (161) (258) 466 288 597 ------- --------- ---------- ---------- ---------- --------- Net loss....................... $ (1,630) $ (5,517) $ (11,367) $ (16,724) $ (12,754) $ (8,367) ------- --------- ---------- ---------- ---------- --------- ------- --------- ---------- ---------- ---------- --------- Pro forma net loss per share (2)............................. $ (4.33) $ (3.37) $ (1.78) ---------- ---------- --------- ---------- ---------- --------- Shares used in computing pro forma net loss per share (2).... 3,861 3,780 4,708 ---------- ---------- --------- ---------- ---------- ---------
-------------------------- 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
- ------------------------ (1) Based on shares outstanding as of September 30, 1996. Includes 792,898 shares to be issued upon the net exercise of certain outstanding warrants upon the closing of this Offering. Excludes as of September 30, 1996: (i) 803,338 shares of Common Stock issuable upon exercise of outstanding stock options at a weighted average exercise price of $2.16 per share; (ii) 574,504 shares of Common Stock issuable upon exercise of outstanding warrants at exercise prices ranging from $2.50 to $25.00 per share and a weighted average exercise price of $17.00; and (iii) 612,328 shares of Common Stock available for future grant under the Company's 1992 Stock Option Plan, 1994 Equity Incentive Plan, Non-Employee Directors' Stock Option Plan and Employee Stock Purchase Plan (the "Stock Plans"). See "Management - Stock Plans", "- Director Compensation" and "Description of Capital Stock." (2) See Note 1 of Notes to Consolidated Financial Statements for a description of the shares used in calculating pro forma net loss per share. (3) Adjusted to give effect to the receipt of the estimated net proceeds from the sale of 2,500,000 shares of Common Stock offered by the Company hereby at an assumed initial public offering price of $13.00 per share and the repayment of a $2.0 million portion of a debt financing with entities associated with Hambrecht & Quist Group. See "Use of Proceeds." 6 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 complications that may arise in any phase of the clinical trial program, there can be no assurance that the proposed schedules for IND and clinical protocol submissions to the FDA, initiations of studies and completions of clinical trials can be maintained. Any delays in the Company's clinical trials would have a material adverse effect on the Company's business, financial condition and results of operations. See "Business - Government Regulation." DEPENDENCE ON COLLABORATIVE AND LICENSING ARRANGEMENTS The Company's strategy for the research, development and commercialization of its product candidates has required, and will continue to require, the Company to enter into various arrangements with corporate and academic collaborators, licensors, licensees and others, and the Company will therefore be dependent upon the success of these parties in performing their responsibilities. The Company is currently seeking a corporate partner for ranolazine prior to conducting Phase III studies for treatment of angina. The Company may also seek a corporate partner for CVT-124. There can be no assurance that the Company will be able to enter into collaborative arrangements or license agreements on acceptable terms, or at all, or that any or all of the contemplated benefits from such collaborative arrangements or license agreements will be realized. Failure to obtain such arrangements or agreements would result in delays in the development of the Company's proposed products or the inability to proceed with the development, manufacture or sale of products, or the loss of third party licenses or could require the Company to fund development internally. If the Company were required to fund development internally, its future capital requirements would increase substantially. There can be no assurance that the Company could obtain additional funds to meet such increased capital requirements on acceptable terms, or at all. Certain of the collaborative arrangements that the Company may enter into in the future may place responsibility on the collaborative partner for preclinical testing and clinical trials, for manufacturing and for preparation and submission of applications for regulatory approval of potential pharmaceutical products. The Company cannot control the amount and timing of resources which its collaborative partners devote to the Company's programs or potential products. Should a collaborative partner fail to develop or commercialize successfully any product candidate to which it has rights, the Company's business may be materially and adversely affected. There can be no assurance that collaborators will not pursue other technologies or product candidates either on their own or in collaboration with others. Collaborative arrangements may also require the Company to expend funds and to meet certain milestones, and there can be no assurance that the Company will be successful in doing so. The Company's agreement with the University of Florida Research Foundation, Inc. in the area of adenosine receptors requires the Company to reach certain preclinical and clinical milestones within defined time periods to maintain exclusive rights under the license. The Company's agreement with Syntex for ranolazine requires it to make certain payments based on the time and progress of development activities. Failure of the Company to meet its obligations under its collaborative arrangements could result in a termination of those arrangements and the loss of rights to the compounds under development and could have a material adverse effect on the Company's business, financial condition and results of operations. There can be no assurance that disputes will not arise in the future with respect to the ownership of rights to any technology developed with or by third parties. These and other possible disagreements between collaborators and the Company could lead to delays in the collaborative research, development or commercialization of certain product candidates or could require or result in litigation or arbitration, which would be time consuming and expensive, and would have a material adverse effect on the Company's business, financial condition and results of operations. See "Business - Licenses and Collaborations." HISTORY OF LOSSES AND EXPECTATION OF FUTURE LOSSES; UNCERTAINTY OF FUTURE PROFITABILITY; ACCUMULATED DEFICIT Since its inception, the Company has been engaged in research and development activities and has generated no product revenues. As of September 30, 1996, the Company had an accumulated deficit of approximately $43.6 million. The process of developing the Company's products will require significant additional research and development, preclinical testing and clinical trials, as well as regulatory approval. These activities, together with the Company's general and administrative expenses, are expected to result in operating losses for the foreseeable 8 future. The Company will not receive product revenues unless and until it completes clinical trials with respect to one or more products and successfully commercializes such products. There can be no assurance that the Company will generate revenues or achieve and sustain profitability in the future. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." NEED FOR ADDITIONAL FUTURE CAPITAL; UNCERTAINTY OF ADDITIONAL FUNDING The Company will require substantial additional funding after this Offering in order to complete its research and development activities and commercialize any potential products. The Company has financed its operations primarily through the sale of preferred equity securities, equipment and leasehold improvement financing and other debt financing. The Company has generated no product revenue, and none is expected for at least several years. The Company anticipates that its existing resources, including the proceeds of this Offering and projected interest income, will enable the Company to maintain its current and planned operations through 1998. However, there can be no assurance that the Company will not require additional funding prior to such time. If the Company is unable to establish and maintain additional corporate partnerships for the development of CVT-124 and ranolazine, the Company's future capital requirements will increase substantially. In addition, the Company's future capital requirements will depend on many other factors, including scientific progress in its research and development programs, the size and complexity of such programs, the scope and results of preclinical studies and clinical trials, the ability of the Company to establish and maintain corporate partnerships, the time and costs involved in obtaining regulatory approvals, the costs involved in filing, prosecuting and enforcing patent claims, competing technological and market developments, the cost of manufacturing preclinical and clinical material and other factors not within the Company's control. There can be no assurance that such additional financing to meet the Company's capital requirements will be available on acceptable terms or at all. Insufficient funds may require the Company to delay, scale back or eliminate some or all of its research or development programs or to lose rights under existing licenses or to relinquish greater or all rights to product candidates at an earlier stage of development or on less favorable terms than the Company would otherwise seek or may adversely affect the Company's ability to operate as a going concern. If additional funds are raised by issuing equity securities, substantial dilution to existing stockholders may result. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." UNCERTAINTY OF MARKET ACCEPTANCE The Company's future profitability is dependent on commercial acceptance of its potential products. The Company believes that market acceptance of its potential products will depend on the Company's ability to provide acceptable evidence of the safety, efficacy and cost-effectiveness of its products, as well as the marketing strength of the Company's corporate partners. In addition, third party payors can indirectly affect the demand for the Company's potential products by regulating the maximum amount of reimbursement that will be provided. There can be no assurance that potential products developed by the Company will achieve market acceptance among patients, physicians or third party payors, even if necessary regulatory and reimbursement approvals are obtained. Failure to achieve market acceptance would have a material adverse effect on the Company's business, financial condition and results of operations. See "Business - Marketing and Sales" and "- Government Regulation." INTENSE COMPETITION; RAPID TECHNOLOGICAL CHANGE The pharmaceutical and biopharmaceutical industries are subject to intense competition and significant, rapid technological change. If regulatory approvals are received, certain of the Company's potential products will compete with well established, FDA approved proprietary and generic therapies that have generated substantial sales over a number of years and which are reimbursed from government health administration authorities and private health insurers. In addition, CVT is aware of companies which are developing products that will compete for the same disease markets as its potential products. Many of the Company's competitors and potential competitors have substantially greater product development capabilities and financial, scientific, marketing and sales resources than the Company. Other companies may succeed in developing products earlier than the Company, obtaining approvals for such products from the FDA more rapidly than the Company and its corporate partners, or developing products that are safer or more effective than those under development or proposed to be developed by the Company and its corporate partners. There can be no assurance that research and development by others will not render the Company's technology or its potential products obsolete or non-competitive. In 9 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 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 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 regulatory action or regulatory approval with respect to the Company or its competitors, announcements of new products by the Company or its competitors, developments related to patent or other proprietary rights by the Company or its competitors, changes in the position of securities analysts with respect to the Common Stock, and market conditions for biopharmaceutical or biotechnology stocks in general, may cause the market price of the Common Stock to fluctuate, perhaps substantially. In addition, in recent years the stock market in general, and the shares of biopharmaceutical, biotechnology and healthcare companies in particular, have experienced extreme price fluctuations. These broad market and industry fluctuations may materially adversely affect the market price of the Common Stock. In some future quarter the Company's operating results may be below the expectations of public market analysts and investors, and, as a result, the price of the Common Stock would likely be materially adversely affected. CONTROL BY EXISTING STOCKHOLDERS; ANTI-TAKEOVER EFFECTS OF CERTAIN CHARTER PROVISIONS AND DELAWARE LAW After this Offering, the Company's officers, directors and principal stockholders will beneficially own approximately 17.96% of the outstanding shares of Common Stock. As a result, such persons may have the ability to effectively control the Company and direct its affairs and business. Such concentration of ownership may also have the effect of delaying, deferring or preventing a change in control of the Company. In addition, the Company's Board of Directors will have the authority to issue up to 5,000,000 shares of Preferred Stock and to determine the price, rights, preferences and privileges of those shares without any further vote or action by the stockholders. The rights of the holders of Common Stock will be subject to, and may be materially adversely affected by, the rights of the holders of any Preferred Stock that may be issued in the future. The issuance of Preferred Stock could have the effect of making it more difficult for a third party to acquire a majority of the outstanding voting stock of the Company. Furthermore, certain provisions of the Company's Certificate of Incorporation may have the effect of delaying or preventing changes in control or management of the Company, which could adversely affect the market price of the Company's Common Stock. In addition, the Company will be subject to the provisions of Section 203 of the Delaware General Corporation Law (the "Delaware Law"), an anti-takeover law. See "Principal Stockholders" and "Description of Capital Stock." SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS Sales of substantial shares of Common Stock in the public market after the Offering could adversely affect the market price of the Common Stock. Upon completion of the Offering, the Company will have outstanding 6,949,166 shares of Common Stock. All of the 2,500,000 shares sold in the Offering will be freely transferable as of the date of this Prospectus by persons other than "affiliates" of the Company without restriction or further registration under the Securities Act of 1933, as amended (the "Securities Act"). The remaining 4,449,166 shares of Common Stock that will be outstanding upon completion of the Offering (the "Restricted Shares") will be held by officers, directors, employees, consultants and other stockholders of the Company. The Restricted Shares were sold by the Company in reliance upon exemptions from the registration requirements of the Securities Act of 1933, as amended (the "Securities Act") and are "restricted securities" under the Securities Act. Certain holders of Restricted Shares have agreed not to sell their shares without the prior written consent of J.P. Morgan Securities Inc. for a period of 180 days from the date of this Prospectus. Upon completion of the Offering, 92,785 shares will be eligible for sale in the public market immediately following the Offering. Beginning 180 days after commencement of the Offering, 2,481,313 Restricted Shares that are subject to lock-up agreements will become eligible for sale in the public markets subject to Rule 144 and Rule 701 under the Securities Act. The remaining 1,875,068 Restricted Shares, which are also subject to such lock-up agreements, will become eligible for sale under Rule 144 at various dates thereafter as the holding period provisions of Rule 144 are satisfied. As of September 30, 1996, 803,338 shares were issuable upon exercise of currently outstanding options, all of which are subject to the lock-up agreements described above. Of these shares, 317,093 will be vested 180 days after commencement of the Offering. As of September 30, 1996, 574,504 shares were issuable upon exercise of currently outstanding warrants, of which 490,004 shares are subject to the lock-up agreements described above. Of these shares, 186,926 will become eligible for sale in the public markets subject to Rule 144 beginning 180 days after commencement of the Offering and 303,078 shares will become eligible for sale subject to Rule 144 at various dates thereafter as the holding provisions of Rule 144 are satisfied. In addition, 84,500 shares issuable upon exercise of warrants which are not subject to lock-up agreements, will 13 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." 14 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. 15 CAPITALIZATION The following table sets forth as of September 30, 1996, (i) the pro forma capitalization of the Company giving effect to the conversion of all outstanding shares of Preferred Stock into Common Stock and the issuance of 792,898 shares of Common Stock upon the net exercise of certain outstanding warrants upon the closing of this Offering, and (ii) the pro forma capitalization as adjusted to give effect to the receipt by the Company of the estimated net proceeds from the sale of the shares of Common Stock offered hereby at an assumed initial public offering price of $13.00 per share, after deducting the estimated underwriting discount and estimated offering expenses payable by the Company, and the repayment of the $2.0 million term loan portion of a debt financing with entities associated with Hambrecht & Quist Group:
---------------------- SEPTEMBER 30, 1996 ---------------------- AS IN THOUSANDS, EXCEPT PER SHARE DATA PRO FORMA ADJUSTED ---------- ---------- (UNAUDITED) Total debt and capital lease obligations, less current portion...... $ 5,000 $ 3,000 Stockholders' equity: Preferred stock, $0.001 par value; 5,000,000 shares authorized; no shares issued and outstanding, pro forma and as adjusted.................................................. - - Common stock, $0.001 par value; 30,000,000 shares authorized; 4,449,166 shares issued and outstanding, pro forma; 6,949,166 shares issued and outstanding, as adjusted (1)......... 52,793 82,093 Warrants to purchase Common Stock................................. 1,225 1,225 Notes receivable issued for stock................................. (171) (171) Deferred compensation............................................. (2,311) (2,311) Deficit accumulated during the development stage.................. (43,628) (43,628) ---------- ---------- Total stockholders' equity.......................................... 7,908 37,208 ---------- ---------- Total capitalization.............................................. $12,908 $40,208 ---------- ---------- ---------- ----------
- ------------------------ (1) Excludes as of September 30, 1996: (i) 803,338 shares of Common Stock issuable upon exercise of outstanding stock options at a weighted average exercise price of $2.16 per share; (ii) 574,504 shares of Common Stock issuable upon exercise of outstanding warrants at exercise prices ranging from $2.50 to $25.00 per share and a weighted average exercise price of $17.00 per share; and (iii) 612,328 shares of Common Stock available for future grant under the Stock Plans. See "Management - Stock Plans", "- Director Compensation" and "Description of Capital Stock." 16 DILUTION The pro forma net tangible book value of the Company as of September 30, 1996 was approximately $7,908,000, or $1.78 per share of Common Stock. Pro forma net tangible book value per share is determined by dividing the net tangible book value (tangible assets less total liabilities) of the Company by the number of shares of Common Stock outstanding at that date, after giving effect to the issuance of 792,898 shares of Common Stock upon the net exercise of certain outstanding warrants upon closing of this Offering. Without taking into account any other changes in the net tangible book value after September 30, 1996, other than to give effect to the receipt by the Company of the estimated net proceeds from the sale of the 2,500,000 shares of Common Stock offered by the Company hereby at an assumed initial public offering price of $13.00 per share, the pro forma net tangible book value of the Company as of September 30, 1996 would have been $37,208,000, or $5.35 per share. This represents an immediate increase in the pro forma net tangible book value of $3.57 per share to existing stockholders and an immediate dilution of $7.65 per share to new investors. The following table illustrates this per share dilution: 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 ---------- ----------
The following table summarizes, on a pro forma basis as of September 30, 1996, after giving effect to the issuance of 792,898 shares of Common Stock upon the net exercise of certain outstanding warrants upon closing of this Offering, the difference between existing stockholders and purchasers of shares in the Offering (at an assumed initial public offering price of $13.00 per share and before deducting the underwriting discount and estimated offering expenses payable by the Company) with respect to the number of shares of Common Stock purchased from the Company, the total consideration paid and the average price per share paid:
---------------------------------------------------------- SHARES PURCHASED TOTAL CONSIDERATION AVERAGE ---------------------- ---------------------- PRICE PER NUMBER PERCENT AMOUNT PERCENT SHARE ---------- ---------- ---------- ---------- ---------- Existing stockholders 4,449,166 64.0% $52,037,000 61.6% $11.69 New investors 2,500,000 36.0 32,500,000 38.4 13.00 ---------- ---------- ---------- ---------- Total 6,949,166 100.0% $84,537,000 100.0% ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
The foregoing computations exclude as of September 30, 1996: (i) 803,338 shares of Common Stock issuable upon exercise of outstanding stock options, at a weighted average exercise price of $2.16 per share; (ii) 574,504 shares of Common Stock issuable upon exercise of outstanding warrants, at exercise prices ranging from $2.50 to $25.00 per share and a weighted average exercise price of $17.00 per share; and (iii) 612,328 shares of Common Stock available for future grant under the Stock Plans. To the extent that options or warrants are exercised and shares of Common Stock are issued, there will be further dilution to new investors. See "Management - Stock Plans", "- Director Compensation" and "Description of Capital Stock." 17 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.
-------------------------------------------------------------------------------------------- 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) CONSOLIDATED STATEMENTS OF OPERATIONS DATA: License revenue...................... $ - $ - $ - $ - $ - $ 250 $ 250 Operating expenses: Research and development........... 1,167 4,731 8,823 12,856 10,099 5,834 33,411 General and administrative......... 429 947 2,802 3,402 2,367 2,186 9,766 ----------- ----------- ----------- ----------- ----------- ----------- -------------- Total operating expenses............. 1,596 5,678 11,625 16,258 12,466 8,020 43,177 ----------- ----------- ----------- ----------- ----------- ----------- -------------- Loss from operations................. (1,596) (5,678) (11,625) (16,258) (12,466) (7,770) (42,927) Interest (income) expense, net....... 34 (161) (258) 466 288 597 678 ----------- ----------- ----------- ----------- ----------- ----------- -------------- Net loss......................... $ (1,630) $ (5,517) $ (11,367) $ (16,724) $ (12,754) $ (8,367) $ (43,605) ----------- ----------- ----------- ----------- ----------- ----------- -------------- ----------- ----------- ----------- ----------- ----------- ----------- -------------- Pro forma net loss per share (1)..... $ (4.33) $ (3.37) $ (1.78) ----------- ----------- ----------- ----------- ----------- ----------- Shares used in computing pro forma net loss per share (1).............. 3,861 3,780 4,708 ----------- ----------- ----------- ----------- ----------- -----------
------------------------------------------------------------ DECEMBER 31, ---------------------------------------------- IN THOUSANDS 1992 1993 1994 1995 ---------- ---------- ---------- ---------- SEPTEMBER 30, 1996 ------------ (UNAUDITED) CONSOLIDATED BALANCE SHEET DATA: 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
- ------------------------ (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 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This Management's Discussion and Analysis of Financial Condition and Results of Operations and other parts of this Prospectus contain forward-looking statements which involve risks and uncertainties. The Company's actual results may differ materially from the results discussed in the forward-looking statements. Factors that might cause such a difference include, but are not limited to, those discussed in "Risk Factors." OVERVIEW CVT is a development stage biopharmaceutical company focused exclusively on the application of molecular cardiology to the discovery, development and commercialization of novel small molecule drugs for the treatment of chronic cardiovascular disease. Since its inception in December 1990, substantially all of the Company's resources have been dedicated to research and development. To date, CVT has not generated any product revenue and does not expect to generate any such revenues for at least several years. As of September 30, 1996, the Company has an accumulated deficit of approximately $43.6 million. The Company expects its sources of revenue, if any, for the next several years to consist of payments under future corporate partnerships and interest income. The process of developing the Company's products will require significant additional research and development, preclinical testing and clinical trials, as well as regulatory approval. These activities, together with the Company's general and administrative expenses, are expected to result in operating losses for the foreseeable future. The Company will not receive product revenue unless it completes clinical trials and successfully commercializes one or more of its products. CVT is subject to risks common to biopharmaceutical companies, including risks inherent in its research and development efforts and clinical trials, reliance on collaborative partners, enforcement of patent and proprietary rights, the need for future capital, potential competition and uncertainty of regulatory approval. In order for a product to be commercialized, it will be necessary for CVT and its collaborators to conduct preclinical tests and clinical trials, demonstrate efficacy and safety of the Company's product candidates, obtain regulatory clearances and enter into manufacturing, distribution and marketing arrangements, as well as obtain market acceptance. There can be no assurance that the Company will generate revenues or achieve and sustain profitability in the future. RESULTS OF OPERATIONS NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995 REVENUES. The Company recognized revenues of $250,000 for the nine months ended September 30, 1996, compared to no revenues for the nine months ended September 30, 1995. The revenue in 1996 was attributed to a non-refundable, up-front fee earned from a license agreement with Bayer AG. RESEARCH AND DEVELOPMENT EXPENSES. The Company's research and development expenses decreased to $5.8 million for the nine months ended September 30, 1996, compared to $10.1 million for the nine months ended September 30, 1995. The higher expenses in 1995 were largely due to higher development expenditures associated with the CVT-1 hypercholesterolemia program, which was terminated in late 1995 and for which minimal costs were incurred in 1996. In addition, research and development expenses decreased in 1996 as a result of a decrease in research personnel and related expenses resulting from a reduction in headcount in November 1995, partially offset by a $750,000 license fee paid to a collaborative partner in March 1996 in equity securities. Under a current license agreement, the Company may be obligated to make milestone payments totaling $3.0 million to Syntex 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 The Company expects general and administrative expense to increase in the future due to an increase in the level of the Company's activities, additional expenses associated with being a public company and amortization of deferred compensation expense. See Note 8 of Notes to Consolidated Financial Statements. INTEREST EXPENSE, NET. Interest expense, net increased to $597,000 for the nine months ended September 30, 1996, compared to $288,000 for the nine months ended September 30, 1995, as a result of higher loan balances and prepayment penalties associated with a restructuring of the Company's debt, partially offset by higher average cash balances. The Company expects that interest expense, net will decrease as a result of lower debt costs associated with the Company's debt restructuring and anticipated increases in interest income generated from the proceeds of the Offering. The Company records and amortizes over the related vesting periods deferred compensation representing the difference between the exercise price of options granted and the deemed fair value of its Common Stock at the time of grant. Options generally vest over four years. Deferred compensation of approximately $2.3 million will be recorded and amortized to both research and development expenses as well as general and administrative expenses over the related vesting periods of the options granted during the nine months ended September 30, 1996. YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 RESEARCH AND DEVELOPMENT EXPENSES. The Company's research and development expenses increased to $12.9 million for the year ended December 31, 1995, from $8.8 million for the year ended December 31, 1994, and $4.7 million for the year ended December 31, 1993. Research and development expenses increased as a result of higher development expenses primarily associated with the CVT-1 program which was terminated in late 1995, along with higher expenses associated with the hiring of additional personnel to support the Company's expanding research and product development efforts. GENERAL AND ADMINISTRATIVE EXPENSES. The Company's general and administrative expenses increased to $3.4 million for the year ended December 31, 1995, from $2.8 million for the year ended December 31, 1994, and $947,000 for the year ended December 31, 1993, primarily as a result of costs associated with the increasing level of the Company's activities, including increased headcount and related expenses. INTEREST EXPENSE, NET. Interest expense, net increased to $466,000 for the year ended December 31, 1995, from interest (income), net of $(258,000) for the year ended December 31, 1994, and interest (income), net of $(161,000) for the year ended December 31, 1993. These changes relate primarily to increased debt balances and decreased cash and investment balances. The Company has not generated significant taxable income to date. At December 31, 1995, the net operating losses available to offset future taxable income for federal income tax purposes were approximately $32.0 million. Because the Company has experienced ownership changes, future utilization of the carryforwards may be limited in any one fiscal year pursuant to Internal Revenue Code regulations. The carryforwards expire at various dates beginning in 2007 through 2010 if not utilized. As a result of the annual limitation, a portion of these carryforwards may expire before becoming available to reduce the Company's federal income tax liabilities. LIQUIDITY AND CAPITAL RESOURCES The Company has financed its operations since inception primarily through private placements of preferred equity securities, equipment and leasehold improvement financing and other debt financing. As of September 30, 1996, the Company had received approximately $50.4 million in net proceeds from the sale of equity securities, and approximately $8.9 million from equipment and leasehold financings and term loans. On September 30, 1996, the Company refinanced its existing debt obligations with a $5 million debt financing with entities associated with Hambrecht & Quist Group. See Note 5 of Notes to Consolidated Financial Statements. Cash, cash equivalents and short-term investments at September 30, 1996 totalled $10.5 million compared to $5.6 million at December 31, 1995. The increase in 1996 was due to receipt of the net proceeds from the sale of equity securities. The Company's funds are currently invested in short-term, investment grade, interest-bearing debt obligations. 20 Net cash used in operations for the nine months ended September 30, 1996 was $6.2 million, compared to $10.6 million for the nine months ended September 30, 1995. The decrease in cash used in operations was primarily a result of a decrease in development expenses and reduced headcount and related expenses. Net cash used in operations in 1995 was $14.3 million, compared to $10.3 million in 1994. Net cash used in operations increased primarily due to the increase in development expenses, most of which were related to clinical trials and other development expenditures for the CVT-1 program. Through September 30, 1996, the Company had invested approximately $6.1 million in property and equipment, of which approximately $4.4 million was financed through the Equipment and Leasehold Financings. Minimum payments made under the equipment and leasehold financings and other debt financings were approximately $1.6 million in the nine months ended September 30, 1996 and $1.1 million in the year ended December 31, 1995. On September 27, 1996, the Company completed a refinancing of its existing debt obligations with $5.0 million of debt financing from entities associated with Hambrecht & Quist Group (the H&Q Debt Financings). The H&Q Debt Financings consist of a $3.0 million term loan which bears interest at the rate of 9.0% per annum, secured by all of the assets of the Company, and has a final maturity in September 1999, and a $2.0 million term loan which bears interest at 9.0% per annum due January 1, 1997. The Company has the option on or before December 31, 1996 to convert the $2.0 million term loan to an equipment lease which would bear interest at the rate of 9.0% per annum and would have a final maturity in September 1999. The Company intends to convert the term loan into an equipment lease if it does not complete the Offering prior to December 31, 1996. If the Company does not raise a minimum of $13.0 million in gross proceeds through the sale of equity securities by March 1998, the Company can elect to defer payments under either the term loan (or the equipment lease) until March 1998 and minimum subsequent payments would total $3.2 million in 1998 and $1.8 million in 1999. Otherwise, maximum payments could total $2.0 million, $1.7 million, and $1.3 million in 1997, 1998 and 1999, respectively. The Company intends to use $2.0 million of the net proceeds from the Offering to repay the $2.0 million term loan due January 1997. See Note 5 of Notes to Consolidated Financial Statements. The Company will require substantial additional funding after this Offering in order to complete its research and development activities and commercialize any potential products. The Company currently estimates that its existing resources, including the net proceeds from this Offering and projected interest income, will enable the Company to maintain its current and planned operations through 1998. However, there can be no assurance that the Company will not require additional funding prior to such time. The Company's forecast of the period of time through which its financial resources will be adequate to support its operations is a forward-looking statement that involves risks and uncertainties, and actual results could vary as a result of a number of factors, including those described in "Risk Factors" and elsewhere in this Prospectus. If the Company is unable to establish corporate partnerships for development of CVT-124 and ranolazine, the Company's future capital requirements will increase substantially. In addition, the Company's future capital requirements will depend on many other factors, including scientific progress in its research and development programs, the size and complexity of such programs, the scope and results of preclinical studies and clinical trials, the ability of the Company to establish and maintain corporate partnerships, the time and costs involved in obtaining regulatory approvals, the costs involved in filing, prosecuting and enforcing patent claims, competing technological and market developments, the cost of manufacturing preclinical and clinical material and other factors not within the Company's control. There can be no assurance that such additional financing to meet the Company's capital requirements will be available on acceptable terms or at all. Insufficient funds may require the Company to delay, scale back or eliminate some or all of its research or development programs, to lose rights under existing licenses or to relinquish greater or all rights to product candidates at an earlier stage of development or on less favorable terms than the Company would otherwise choose or may adversely affect the Company's ability to operate as a going concern. If additional funds are raised by issuing equity securities, substantial dilution to existing stockholders may result. 21 BUSINESS OVERVIEW The Company is a biopharmaceutical company focused exclusively on the application of molecular cardiology to the discovery, development and commercialization of novel, small molecule drugs for the treatment of chronic cardiovascular diseases. Molecular cardiology was developed, in part, by CVT scientists and their academic collaborators and is based upon the application of molecular biology and genetics to cardiovascular diseases. This discipline has yielded new insights into the mechanisms underlying chronic cardiovascular diseases and has enhanced the search for innovative cardiovascular drugs by providing an increasing number of new molecular targets for drug discovery. To date, CVT has discovered five compounds and completed the strategic in-license of a sixth compound for treatment of chronic cardiovascular diseases. Two of the Company's drug candidates, CVT-124 and ranolazine, are in clinical trials. CVT-124 is an adenosine A(1) receptor antagonist discovered by CVT. Adenosine A(1) receptor antagonists block certain actions of adenosine, a hormone that modulates different functions of the cardiovascular system. CVT-124 has potential applications in the treatment of edema (fluid accumulation) associated with congestive heart failure ("CHF") and in the prevention and treatment of acute renal failure. A Phase I/II study completed by the Company in the United States indicated that CVT-124 is generally well tolerated and produces diuretic activity in healthy volunteers. Approximately one-quarter of the 875,000 patients in the United States hospitalized with a primary diagnosis of CHF exhibit resistance to current intravenous diuretic treatments. The Company believes that these patients would represent the initial target market for CVT-124 in this indication. The Company's second compound in clinical trials, ranolazine, is a novel compound for the treatment of angina. Ranolazine was licensed from Syntex in March 1996. Its novel metabolic mechanism of action was discovered, in part, by cardiovascular researchers now at or associated with CVT. In Phase I and Phase II clinical trials conducted by Syntex, ranolazine IR was administered to over 1,200 patients. These clinical trials have indicated that ranolazine IR improved exercise tolerance in angina patients without adversely affecting heart rate or decreasing blood pressure, a clinical profile absent from currently available drugs. Based on these data, as well as Syntex pilot Phase II data with ranolazine SR for intermittent claudication (pain in the legs due to insufficient blood flow), the Company intends to commence further clinical trials of ranolazine SR. The Company believes ranolazine could particularly benefit angina patients who also suffer from CHF or remain symptomatic despite maximal doses of currently available anti-anginal drugs. In the United States, approximately 6.7 million patients are currently diagnosed with angina. Based on published studies, approximately one-third, or 2.2 million, are either diagnosed with both angina and CHF or are resistant to currently available treatments. The Company believes these patients would represent the initial target market for ranolazine. Four other compounds discovered by the Company are in preclinical studies. CVT-313 is a selective inhibitor of the cell cycle enzyme, cyclin-dependent kinase 2 ("CDK2"). The Company believes that CVT-313 may be useful in a variety of cellular proliferative disorders, including the prevention of restenosis, as an adjunct to coronary artery bypass surgery and as a treatment for cardiomyopathy (heart muscle damage). CVT-634, an inhibitor of another cell cycle regulating enzyme, is also being evaluated in animal models of chronic cardiovascular disease. CVT-609 and CVT-429 are highly selective adenosine A(1) receptor agonists which the Company believes may have potential activity in treating certain common cardiac arrhythmias. The Company believes that compared to current therapies, these compounds may offer an improved clinical profile for immediate treatment of these arrhythmias without unwanted blood pressure lowering effects. In addition, the Company has discovered a novel inflammatory factor found in human cardiovascular diseases, which it partnered to Bayer AG for continued development. BACKGROUND The cardiovascular system is comprised of the heart, the blood vessels, the kidneys and the lungs. Together, the components of the cardiovascular system deliver oxygen and other nutrients to the tissues of the body and remove waste products. The heart propels blood through a network of arteries and veins. The kidneys closely regulate the blood volume and the balance of electrolytes (such as sodium, potassium and chloride) in the blood, and the lungs oxygenate the blood and remove carbon dioxide. To accomplish these tasks, the cardiovascular system must 22 maintain adequate blood flow, or cardiac output. Cardiac output is determined by such factors as heart rate and blood pressure, which in turn are controlled by a variety of hormones such as adrenaline, angiotensin and adenosine. These hormones are small molecules which exert their effects by binding to specific receptors on the surfaces of a variety of cell types in the heart, lungs, blood vessels and kidneys. Any significant disruption of this system results in cardiovascular disease. Cardiovascular disease is the leading cause of death in the United States, claiming more than 950,000 lives in 1993. The American Heart Association projects the total cost of cardiovascular medications in the United States for 1996 at $11 billion. Chronic cardiovascular diseases, including atherosclerosis (hardening of the arteries), hypertension (high blood pressure) and others, may cause permanent damage to the heart and blood vessels, leading to CHF, (4.7 million patients), angina (6.8 million patients) and, heart attack (1.5 million patients). CHF occurs when the heart becomes weakened and, as a result, can no longer maintain adequate blood circulation throughout the body. The kidneys respond to this decrease in blood flow by increasing the retention of salt and water, leading to chronic symptoms such as shortness of breath and edema (fluid retention) in the legs and lungs. Molecular cardiology has provided new insight into the mechanisms underlying chronic cardiovascular diseases, thus creating the opportunity for improved therapies. Over the past twenty years, drugs such as nitrates, beta blockers, calcium channel blockers and ACE inhibitors, have been developed to treat cardiovascular diseases. These drugs have contributed to an increase in the survival of patients who suffer from chronic cardiovascular disease; however, they also can cause a variety of undesirable side effects, including fatigue, depression, impotence, headaches, palpitations and edema. BUSINESS STRATEGY The Company's strategy is to become a leader in the development of novel, cost-effective treatments for chronic cardiovascular diseases by leveraging its expertise in molecular cardiology. The Company is developing products based on small molecules designed to (i) utilize novel mechanisms of action, (ii) address segments of the cardiovascular patient population which are either underserved or not treatable by existing therapies, and (iii) offer the currently served cardiovascular patient population the potential for improved efficacy with fewer side effects than available drugs. The Company believes that it can best utilize its internal resources by concentrating its activities on discovery, preclinical evaluation and early clinical phases of drug development. The Company intends to establish partnerships with pharmaceutical companies for later stage clinical trials and marketing and sales activities for its products. The Company believes that such partnerships will enable it to more effectively and economically develop and market its initial products. DRUG DISCOVERY PLATFORM CVT's drug discovery platform supports several programs, including those focused on the adenosine A(1) receptor, the cell cycle and chronic inflammation in the cardiovascular system. These programs have produced compounds currently in clinical or preclinical development or outlicensed for use in third party drug discovery programs. CVT's expertise in molecular cardiology and drug development has been critical to the identification of these drug candidates. The Company believes that its drug discovery platform allows it to efficiently select novel, clinically relevant drug candidates that have a significant probability of commercial potential. CVT first evaluates new targets with respect to clinical relevance and suitability for small molecule inhibition. CVT then utilizes a highly integrated, multidisciplinary approach to produce novel small molecules as drug candidates for these targets. The Company combines molecular modeling and combinatorial chemistry to assemble targeted libraries of new chemical entities, an approach which the Company believes expedites the identification of potential drug leads. The Company has developed a comprehensive proprietary database correlating biological activity of candidate drugs with their structures. From this database, CVT identifies final lead compounds based on predetermined development criteria including potency, specificity, manufacturability, and pharmacologic activity in animal and IN VITRO models. The Company determines the proper selection of cell-based assays and animal models of disease to enhance development of the drug candidate based on its projected use in the clinical setting. 23 PRODUCTS UNDER DEVELOPMENT The Company's products under development include:
PRODUCT TARGET INDICATION DEVELOPMENT STATUS(1) - ---------- -------------------- --------------------------- -------------------------- 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
- ------------------------ (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 INDICATIONS EDEMA ASSOCIATED WITH CONGESTIVE HEART FAILURE. Approximately 4.7 million people in the United States suffer from CHF, with an estimated 400,000 new diagnoses each year. These patients typically seek medical help because of edema, an accumulation of fluid in the lungs and extremities. Approximately 875,000 patients are hospitalized each year in the United States with a primary diagnosis of CHF, and CHF is the leading cause of hospital admissions among patients over 65. Approximately one-quarter of these hospitalized patients exhibit resistance to current intravenous diuretic treatments. The Company believes that these patients would represent the initial target market for CVT-124 in this indication. Edema fluid accumulates in the body because of adaptations by the kidney during CHF. Each kidney is comprised of approximately one million tiny blood filtering units called nephrons. (See Figure 1) Normally in each nephron, blood is filtered at the renal glomerulus and sodium and water are reabsorbed by the kidney at three locations further along the nephron. Fifty to seventy percent of the filtered sodium is reabsorbed at the proximal tubule, the portion of the nephron closest to the glomerulus. Up to 40% is reabsorbed at the loop of Henle, and the remaining portion, usually less than 10%, is reabsorbed at the distal tubule. The filtered, non-reabsorbed impurities wash out into the urine. In patients suffering from CHF, blood flow through the kidney decreases because of the poor pumping function of the heart. The kidney interprets this event as blood loss and attempts to increase its retention of salt and water to maintain blood pressure. It does this by shifting more (up to 99%) of its reabsorption of sodium to the proximal tubule. The result is the harmful build-up of salt and water in the body, leading to edema. Graphical description of sodium reabsorption in the kidney 25 Current treatment of CHF consists of therapy designed to improve the pumping function of the heart combined with the administration of diuretics to eliminate excess sodium and water from the body by blocking reabsorption in the kidney. However, current diuretic therapies inhibit sodium reabsorption either at the loop of Henle (furosemide) or the distal tubule (thiazides and spironolactone), where as little as one percent of reabsorption of sodium can take place in patients with advanced CHF. Since increasing amounts of sodium are reabsorbed proximally as CHF worsens, distally acting drugs are correspondingly less effective over time and patients become more symptomatic. Approximately one quarter of hospitalized CHF patients exhibit resistance to current intravenous diuretic therapies due to excessive fluid reabsorption in the proximal tubule, and no therapy currently exists which targets this site of the disease process. The dosage for the most commonly prescribed diuretics for edema associated with CHF are often increased as the disease progresses, and therefore are increasingly associated with toxic side effects, including potassium loss, which may lead to an increased incidence of cardiac arrhythmias if potassium is not monitored and replaced, and uric acid build-up which may lead to gout. Preclinical studies conducted by the Company have indicated that CVT-124 acts as a potent diuretic by blocking the adenosine A(1) receptors in the proximal tubule that would ordinarily stimulate sodium reabsorption at that site. These studies also indicated that CVT-124 acted at the distal tubule to reduce sodium reabsorption and minimize potassium excretion. This combination of diuretic mechanisms indicates a unique clinical profile as compared to currently available drugs and suggests that CVT-124 may be particularly useful in the treatment of edema associated with CHF on an acute and chronic basis. Presentation of potential advantages of CVT over existing diuretics CVT completed a double-blind, placebo-controlled Phase I/II trial of intravenous CVT-124 in 26 healthy volunteers. Data from this trial support CVT-124's combination of diuretic mechanisms. Statistically significant, dose-related increases in sodium excretion were observed in response to CVT-124, amounting to a doubling or more in the excretion of sodium compared to placebo. In contrast, mean potassium excretion did not show clinically significant increases. Uric acid excretion was also significantly increased by CVT-124 compared to placebo. CVT-124 was generally well-tolerated. ACUTE RENAL FAILURE. Acute renal failure is a decline in kidney function that may require temporary or chronic therapy with dialysis procedures. Acute renal failure is a complication of certain general medical conditions associated with low blood flow and certain commonly used medications or diagnostic agents, such as 26 cyclosporine, gentamicin, amphotericin, cisplatin, and radiocontrast dye used in x-ray studies. Because the A(1) receptor may be relevant in this type of kidney failure, CVT is planning clinical trials in acute renal failure to assess the opportunity for its treatment and prevention by CVT-124. FUTURE DEVELOPMENT OF CVT-124 While the Company's clinical trials to date have utilized an intravenous formulation of CVT-124, the Company intends to develop CVT-124 in intravenous and oral formulations, both for the treatment of edema in fluid-retaining states like CHF and for the treatment or prevention of acute renal failure. There can be no assurance that CVT-124 will prove to be safe or efficacious in humans or that CVT-124 will obtain FDA or other regulatory or foreign marketing approval for any indication. The Company is currently planning three clinical trials: a Phase II intravenous trial in stable CHF (18-24 patients); a Phase II intravenous trial in renal transplant patients with acute renal failure (30-40 patients); and a Phase I trial to explore the feasibility of an oral formulation (6-8 patients). The first of these trials is planned to begin in the first half of 1997. The Company's current estimate of the commencement of various clinical trials included in this Prospectus are forward-looking statements that involve risks and uncertainties. The actual clinical trial dates could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including the Company's success in completing preclinical development and the other factors set forth under "Risk Factors" and elsewhere in this Prospectus. RANOLAZINE Ranolazine is a patented compound which has been tested by Syntex in Phase I and Phase II trials in patients with angina. The compound fits the Company's criteria for development candidates as it is a small molecule which works through a novel mechanism of action. The Company successfully obtained a license for ranolazine from Syntex in March 1996, after the acquisition of Syntex by Roche. The Company is developing ranolazine to treat angina because the Company believes it does not impair blood pressure or heart rate and has an improved tolerability profile. Ranolazine acts by modulating the body's metabolism to shift the source of energy for the heart from fatty acid toward glucose. Ranolazine decreases the heart's oxygen demand for a given level of cardiac work because less oxygen is required to produce an equivalent amount of energy from glucose than from fatty acids. The Company believes this effect on muscle metabolism may also benefit patients suffering from intermittent claudication. INDICATIONS ANGINA. Angina is a clinical syndrome manifested by chest pain caused by myocardial ischemia (insufficient blood flow to the heart muscle) due to blockage of the coronary arteries. Patients usually experience chest pain on exertion which can become more severe over time. In the United States, approximately 6.7 million patients are currently diagnosed with angina. Based on a published multicenter study involving over 5,000 angina patients, over half of these patients are currently being treated with multiple medications, including nitrates, beta blockers and calcium channel blockers. These anti-anginal drugs accounted for over $3.0 billion in U.S. sales in 1995. Based on published studies, approximately one-third, or 2.2 million, of angina patients are either diagnosed with both angina and CHF or are resistant to currently available treatments. The Company believes these patients would represent the initial target market for ranolazine. 27 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:
MECHANISMS FOR ANTI-ANGINAL AGENTS CHANGE IN CHANGE IN BLOOD THERAPY HEART RATE PRESSURE MECHANISM 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
Ranolazine IR has been administered to over 200 healthy human volunteers and over 1,200 patients with ischemic heart disease or CHF in clinical trials conducted by Syntex. Placebo controlled ranolazine IR trials involving treadmill testing in patients with chronic stable angina have demonstrated statistically significant and clinically meaningful increases in (i) exercise time to onset of angina, (ii) total exercise duration, and (iii) exercise time to onset of an electrocardiographic change associated with insufficient blood flow to the heart muscle. The anti-anginal effect of ranolazine IR was observed in these trials regardless of whether the drug was given alone or in combination with beta blockers or calcium channel blockers, and the drug was generally well tolerated without a significant incidence of adverse events. In initial clinical trials, ranolazine IR was administered on a three times daily schedule. To achieve a more commercially attractive product with a twice-daily dosing schedule, Syntex developed ranolazine SR. In volunteer trials conducted by Syntex, the SR formulation maintained ranolazine plasma concentrations in the range associated with increased exercise times in the stable angina trials of ranolazine IR. Although CVT intends to pursue regulatory approval for treatment of all patients with chronic angina, the Company believes angina patients who are resistant to currently available treatments and those with angina and CHF would represent the initial market for ranolazine. INTERMITTENT CLAUDICATION. Intermittent claudication is a clinical syndrome manifested by pain in the legs during exercise. Like angina, this syndrome is caused by blockage or narrowing of arteries. These patients generally either limit their activity or in severe cases undergo vascular surgery. Over two million people in the United States suffer from intermittent claudication. Only one drug is approved by the FDA to treat this condition in the United States, and worldwide sales in 1995 were approximately $400 million. 28 A pilot trial of ranolazine SR in patients with intermittent claudication was completed by Syntex in 1994. Ranolazine SR was generally well tolerated and exhibited a trend toward prolongation of exercise duration and time to onset of claudication. This clinical trial was not intended to be large enough to demonstrate statistical significance. Further trials will be required to demonstrate the utility of ranolazine SR for this indication. DEVELOPMENT HISTORY OF RANOLAZINE Following the acquisition of Syntex by Roche in 1994, ranolazine clinical development was discontinued. Previously, Syntex had met with the FDA to establish a Phase III clinical development program for ranolazine SR in both angina and intermittent claudication and had begun enrollment in an angina Phase III trial in late 1994. FUTURE DEVELOPMENT OF RANOLAZINE CVT is actively seeking a corporate partner for the development of ranolazine, prior to initiating new Phase III trials in angina which the Company currently expects to involve several hundred patients. The Company's clinical development plan for ranolazine assumes that Phase I data and several Phase II angina trials with ranolazine IR combined with Phase I data and safety and tolerability data from a pilot Phase II trial for intermittent claudication with ranolazine SR will be accepted by the FDA to initiate Phase III trials with ranolazine SR. There can be no assurance that such clinical data will be accepted by the FDA in support of initiation of such Phase III trials with ranolazine SR or that the Company will not be required or otherwise choose to conduct additional Phase II clinical trials of ranolazine SR prior to commencement of Phase III clinical trials. Commencement of the Phase III trials by Syntex in 1994 was based upon Phase I and II ranolazine IR data combined with Phase I ranolazine SR data. The Company has initiated pharmacological and mechanism studies and is engaged in the transfer of manufacturing technology from Syntex. There can be no assurance that the Company will obtain a corporate partner to initiate Phase III trials, that ranolazine will obtain FDA or other regulatory or foreign marketing approval for any indication. CVT-609 AND CVT-429 CVT-609 and CVT-429 were designed and synthesized in the Company's adenosine A(1) receptor program. The Company believes that CVT-609 and CVT-429 may have potential application in treating supraventricular tachycardia, as well as additional applications. Based on preclinical data, the Company believes CVT-609 and CVT-429 are among the most selective adenosine A(1) receptor agonists reported. Preclinical studies conducted by the Company indicated that CVT-609 and CVT-429 slowed electrical impulses in the conduction tissue of the heart by stimulating the adenosine A(1) receptor. Supraventricular tachycardias (atrial fibrillation, atrial flutter and AV nodal re-entrant tachycardias) are among the most common cardiac arrhythmias complicating ischemic heart disease and cardiac surgical procedures and account for over 300,000 new hospital admissions in the United States each year. They originate in the atria as rapid and irregular heart beats that then spread to the ventricles. The ventricular contractions stimulated by the atrial impulses can be so fast and irregular that cardiac function can be severely compromised, resulting in dangerously low blood pressure, fluid in the lungs, and ischemic damage to the heart, brain and other organs. Because of the severity of these conditions and the need to treat patients quickly, intravenous therapies are typically used. Current medical therapies aim to slow the heart to a normal rate but have significant limitations in the acute care setting. Digitalis is effective in controlling heart rate, but requires a long time to take effect, which can be dangerous in patients with a failing heart. Calcium channel blockers, beta blockers and adenosine act quickly but are themselves associated with hypotension and depressed cardiac function, potentially exacerbating the condition of patients already experiencing cardiac dysfunction as a complication of the tachycardia. For the treatment of supraventricular tachycardia, selective stimulation of the A(1) receptor is required to slow the heart rate without significant stimulation of the A(2) receptor which would lower blood pressure. The Company has identified CVT-609 and CVT-429 as candidates for clinical development of intravenous agents and is proceeding with preclinical studies. 29 CVT-313 AND CVT-634 CVT-313 and CVT-634 were designed and synthesized in the Company's cell cycle inhibitor program. The goal of this program is to develop a new class of therapeutics that suppresses abnormal cellular proliferation, which contributes to progressive cardiovascular diseases. Excessive proliferation of cardiovascular connective tissue cells or vascular smooth muscle cells causes the scarring and loss of function that is characteristic of chronic diseases of the heart, blood vessels and kidneys. Several of the Company's scientists and scientific advisors have been among the leaders in identifying the role of cell proliferation in causing a variety of cardiovascular diseases. As part of its drug discovery strategy, the Company has focused upon newly discovered enzymes referred to collectively as the cell cycle enzymes that regulate cellular proliferation. In particular, two important targets identified by the Company, CDK2 and the proteasomal protease, may have different clinical applications. The Company is continuing to explore other cell cycle regulatory enzymes as potential targets in this program. CVT 313 is a novel compound which specifically inhibits CDK2, a critical regulatory protein which participates in the control of the cell cycle. CDK2, whose three dimensional structure was first determined by academic collaborators of the Company, is central to cellular proliferation and was chosen as the Company's first target in the cell cycle inhibitor program. Preclinical studies have shown significant reduction of restenosis after vascular injury, both confirming the appropriate selection of the target and identifying a potential initial clinical application. CVT-634, also identified in this program, has been shown to be a potent inhibitor of proteasomal protease, which regulates both CDK2 activation and macrophage activation. CVT-634 has been shown in preclinical studies to control smooth muscle cell proliferation. This compound is undergoing further preclinical testing. CHRONIC ANTI-INFLAMMATORY INHIBITORS CVT is seeking to address chronic inflammatory diseases of the cardiovascular system by targeting macrophage infiltration into the heart and kidney. Activated macrophages are a type of white blood cell found in lesions associated with virtually all chronic cardiovascular diseases, including atherosclerotic plaque, and are known to secrete growth factors which promote cellular proliferation and scarring. The Company has discovered a novel inflammatory factor in this program which has been partnered to Bayer AG for continued development. LICENSES AND COLLABORATIONS CVT has licensed certain chemical compounds from academic collaborators and other companies and has applied its drug discovery strategies to analog and optimize these structures and to identify applications for preclinical and clinical development. Once these drug candidates enter clinical trials, the Company intends to establish strategic partnerships to expedite development and commercialization. For those programs which provide knowledge useful in the identification of compounds with potential application outside of chronic cardiovascular disease, the Company intends to find corporate partners at the preclinical stage. The Company's licenses and collaborations currently in effect include: UNIVERSITY OF FLORIDA RESEARCH FOUNDATION In June 1994, the Company entered into a license agreement with the University of Florida Research Foundation, Inc. ("UFRFI") under which the Company received exclusive worldwide rights to develop adenosine A(1) receptor antagonists and agonists for the detection, prevention and treatment of human and animal diseases. In consideration for the license, the Company paid UFRFI an initial license fee and is obligated to pay royalties based on net sales of products which utilize the licensed technology. Pursuant to the agreement, the Company must exercise commercially reasonable efforts to develop and commercialize one or more products covered by the licensed technology and is obligated to meet milestones in completing certain preclinical work. In the event the Company fails to reach those milestones, UFRFI may convert the exclusive license into a non-exclusive license. As part of the license agreement with UFRFI, the Company entered into a research agreement with the University of Florida. 30 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 Company may be obligated to make milestone payments totaling $3.0 million to Syntex in 1997 unless the Company elects to terminate the agreement. The license agreement also sets milestones within which the Company must launch products in each country covered by the license or lose exclusivity in such territories. BAYER AG In May 1996, the Company granted an exclusive worldwide license to Bayer AG for a novel inflammatory factor for preclinical and clinical development for any therapeutic, prophylactic or diagnostic use in humans or animals. In consideration of this license, Bayer AG paid the Company a non-refundable license fee of $250,000, and agreed to make certain cash milestone payments related to the progress of product development. Bayer AG is also obligated to pay the Company royalties based on net sales of products which utilize the licensed technology. The Company is responsible for the expenses of patent prosecution for the licensed technology. Bayer AG may terminate the agreement for any reason upon written notice to the Company. MARKETING AND SALES The Company currently has no sales, marketing or distribution capability. The Company intends to rely on relationships with one or more pharmaceutical companies with established distribution systems and direct sales forces to market its products. In the event that the Company is unable to reach agreement with one or more pharmaceutical companies to market its products, it may be required to market its products directly and to develop a marketing and sales force with technical expertise and with supporting distribution capability. There can be no assurance that the Company will be able to establish in-house sales and distribution capabilities or relationships with third parties, or that it will be successful in commercializing any of its potential products. To the extent that the Company enters into co-promotion or other licensing arrangements, any revenues received by the Company will depend upon the efforts of third parties, and there can be no assurance that such efforts will be successful. MANUFACTURING CVT does not currently operate manufacturing facilities for clinical or commercial production of its proposed products. The Company has no experience in, and currently lacks the resources and capability to, manufacture any of its proposed products on a commercial scale. Accordingly, the Company is, and will continue to be, dependent on corporate partners, licensees or other third parties for clinical and commercial scale manufacturing. The Company does have experience in the transfer of synthetic technology from discovery to scale-up manufacturing facilities, having successfully executed technology transfer for the manufacture of clinical supplies of one orally administered agent and one intravenously administered agent. CVT-124 is currently being manufactured to supply clinical trials by a third party, and the Company is currently negotiating with third party manufacturers for clinical scale production of ranolazine. There can be no assurance that the Company will be able to reach satisfactory agreements with its partners or third parties or that such parties will be able to develop adequate manufacturing capabilities for commercial scale quantities of products. PATENTS AND PROPRIETARY TECHNOLOGY Patents and other proprietary rights are important to the Company's business. The Company's policy is to file patent applications and to protect technology, inventions and improvements to inventions that are commercially 31 important to the development of its business. The Company also relies on trade secrets, confidentiality agreements and other protective measures to protect its technology and proposed products. The Company's failure to obtain patent protection or otherwise protect its proprietary technology or proposed products may have a material adverse effect on the Company's competitive position and business prospects. The Company owns four pending patent applications in the United States relating to an inflammatory factor licensed to Bayer AG, CVT-609/429, CVT-313 and CVT-634, as well as one foreign patent application with respect to the inflammatory factor licensed to Bayer. In addition, the Company has acquired an exclusive license to one United States issued patent, two United States patent applications and related foreign patent applications related to CVT-124. The Company also has acquired a license which is exclusive in certain territories to three United States issued patents, one United States patent application and related foreign patent applications related to ranolazine. The patent application process takes several years and entails considerable expense. There is no assurance that patents will issue from these applications or, if patents do issue, that the claims allowed will be sufficient to protect the Company's technology. One of the primary patents relating to ranolazine will expire in May 2003 unless the Company is granted an extension based upon delays in the FDA approval process. Patent applications in the United States are maintained in secrecy until a patent issues, and the Company cannot be certain that others have not filed patent applications for technology covered by the Company's pending applications or that the Company was the first to invent the technology that is the subject of such patent application. Competitors may have filed applications for, or may have received patents and may obtain additional patents and proprietary rights relating to, compounds, products or processes that block or compete with those of the Company. There can be no assurance that third parties will not assert patent or other intellectual property infringement claims against the Company with respect to its products or technology or other matters. There may be third party patents and other intellectual property relevant to the Company's products and technology which are not known to the Company. Patent litigation is becoming more widespread in the biopharmaceutical industry. Litigation may be necessary to defend against or assert claims of infringement, to enforce patents issued to the Company, to protect trade secrets or know-how owned by the Company, or to determine the scope and validity of the proprietary rights of third parties. Although no third party has asserted that the Company is infringing such third party's patent rights or other intellectual property, there can be no assurance that litigation asserting such claims will not be initiated, that the Company would prevail in any such litigation, or that the Company would be able to obtain any necessary licenses on reasonable terms, if at all. Any such claims against the Company, with or without merit, as well as claims initiated by the Company against third parties, can be time-consuming and expensive to defend or prosecute and to resolve. If other companies prepare and file patent applications in the United States that claim technology also claimed by the Company, the Company may have to participate in interference proceedings to determine priority of invention which could result in substantial cost to the Company even if the outcome is favorable to the Company. The Company also relies on trade secrets, confidentiality agreements and other protective measures to protect its technology and proposed products. There can be no assurance that third parties will not independently develop equivalent proprietary information or techniques, will not gain access to the Company's trade secrets or disclose such technology to the public, or that the Company can maintain and protect unpatented proprietary technology. The Company typically requires its employees, consultants, collaborators, advisors and corporate partners to execute confidentiality agreements upon commencement of employment or other relationships with the Company. There can be no assurance, however, that these agreements will provide meaningful protection or adequate remedies for the Company's technology in the event of unauthorized use or disclosure of such information, or that the parties to such agreements will not breach such agreements. GOVERNMENT REGULATION FDA REQUIREMENTS FOR DRUG COMPOUNDS. The research, testing, manufacture and marketing of drug products are extensively regulated by numerous governmental authorities in the United States and other countries. In the United States, drugs are subject to rigorous regulation by the FDA. The federal Food, Drug and Cosmetic Act, as amended (the "FDC Act"), and the regulations promulgated thereunder, and other federal and state statutes and regulations, govern, among other things, the research, development, testing, manufacture, storage, recordkeeping, 32 labeling, promotion and marketing and distribution of pharmaceutical products. Failure to comply with applicable regulatory requirements may subject a company to administrative or judicially imposed sanctions such as civil penalties, criminal prosecution, injunctions, product seizure or detention, product recalls, total or partial suspension of product, and FDA refusal to approve pending NDA applications or NDA supplements to approved applications. The steps ordinarily required before a new pharmaceutical product may be marketed in the United States include: (i) preclinical laboratory tests, IN VIVO preclinical studies and formulation studies; (ii) the submission to the FDA of an IND, which must become effective before clinical testing may commence; (iii) adequate and well-controlled clinical trials to establish the safety and effectiveness of the drug for each indication; (iv) the submission of a NDA to the FDA; and (v) FDA review and approval of the NDA prior to any commercial sale or shipment of the drug. Preclinical tests include laboratory evaluation of product chemistry and formulation, as well as animal studies to assess the potential safety and efficacy of the product. Preclinical tests must be conducted in compliance with Good Laboratory Practice regulations and compounds for clinical use must be formulated according to cGMP requirements. The results of preclinical testing are submitted to the FDA as part of an IND. A 30-day waiting period after the filing of each IND is required prior to the commencement of clinical testing in humans. If the FDA has not commented on or questioned the IND within this 30-day period, clinical studies may begin. If the FDA has comments or questions, the questions must be answered to the satisfaction of the FDA before initial clinical testing can begin. In addition, the FDA may, at any time, impose a clinical hold on ongoing clinical trials. If the FDA imposes a clinical hold, clinical trials cannot commence or recommence without FDA authorization and then only under terms authorized by the FDA. In some instances, the IND application process can result in substantial delay and expense. Clinical trials involve the administration of the investigational new drug to healthy volunteers or patients under the supervision of a qualified principal investigator. Clinical trials are conducted in accordance with Good Clinical Practice regulations under protocols detailing the objectives of the study, the parameters to be used in monitoring safety and the effectiveness criteria to be evaluated. Each protocol must be submitted to the FDA as part of the IND. Further, each clinical study must be conducted under the auspices of an independent Institutional Review Board ("IRB") at the institution at which the study will be conducted. The IRB will consider, among other things, ethical factors, the safety of human subjects and the possible liability of the institution. Clinical trials to support NDAs are typically conducted in three sequential phases, but the phases may overlap. In Phase I, the initial introduction of the drug into healthy human subjects or patients, the drug is tested to assess metabolism, pharmacokinetics and pharmacological actions and safety, including side effects associated with increasing doses. Phase II usually involves studies in a limited patient population to (i) determine the efficacy of the drug in specific, targeted indications, (ii) determine dosage tolerance and optimal dosage and (iii) identify possible adverse effects and safety risks. If a compound is found to be effective and to have an acceptable safety profile in Phase II evaluations, Phase III trials are undertaken to further evaluate clinical efficacy and to further test for safety within an expanded patient population at geographically dispersed clinical study sites. There can be no assurance that Phase I, Phase II or Phase III testing will be completed successfully within any specified time period, if at all, with respect to any of the Company's products subject to such testing. After completion of the required clinical testing, generally an NDA is submitted. FDA approval of the NDA is required before marketing may begin in the United States. The NDA must include the results of extensive clinical and other testing and the compilation of data relating to the product's chemistry, pharmacology and manufacture, the cost of all of which is substantial. The FDA reviews all NDAs submitted before it accepts them for filing and may request additional information rather than accepting an NDA for filing. In such an event, the NDA must be resubmitted with the additional information and, again, is subject to review before filing. Once the submission is accepted for filing, the FDA begins an in-depth review of the NDA. Under the FDC Act, the FDA has 180 days in which to review the NDA and respond to the applicant. The review process is often significantly extended by FDA requests for additional information or clarification regarding information already provided in the submission. The FDA may refer the application to the appropriate advisory committee, typically a panel of clinicians, for review, evaluation and a recommendation as to whether the application should be approved. The FDA is not bound by the recommendation of an advisory committee. If FDA evaluations of the NDA and the manufacturing facilities are favorable, the FDA may issue either an approval letter or an approvable letter, which usually 33 contains a number of conditions that must be met in order to secure final approval of the NDA. When and if those conditions have been met to the FDA's satisfaction, the FDA will issue an approval letter, authorizing commercial marketing of the drug for certain indications. As a condition of NDA approval, the FDA may require postmarketing testing and surveillance to monitor the drug's safety or efficacy. If the FDA's evaluation of the NDA submission or manufacturing facilities is not favorable, the FDA may refuse to approve the NDA or issue a not approvable letter, outlining the deficiencies in the submission and often requiring additional testing or information. Notwithstanding the submission of any requested additional data or information in response to an approvable or not approvable letter, the FDA ultimately may decide that the application does not satisfy the regulatory criteria for approval. Once granted, product approvals may be withdrawn if compliance with regulatory standards is not maintained or problems occur following initial marketing. MANUFACTURING. Each domestic drug manufacturing facility must be registered with FDA. Domestic drug manufacturing establishments are subject to periodic inspection by the FDA and must comply with cGMP. Further, the Company or its third party manufacturer must pass a preapproval inspection of its manufacturing facilities by the FDA before obtaining marketing approval of any products. To supply products for use in the United States, foreign manufacturing establishments must comply with cGMP and are subject to periodic inspection by the FDA or corresponding regulatory agencies in countries under reciprocal agreements with the FDA. Drug product manufacturing establishments located in California must be licensed by the State of California in compliance with local regulatory requirements, and other states may have comparable regulations. The Company uses and will continue to use third party manufacturers to produce its products in clinical and commercial quantities. There can be no guarantee that future FDA inspections will proceed without any compliance issues requiring the expenditure of money or other resources. FOREIGN REGULATION OF DRUG COMPOUNDS. Whether or not FDA approval has been obtained, approval of a product by comparable regulatory authorities may be necessary in foreign countries prior to the commencement of marketing of the product in such countries. The approval procedure varies among countries, can involve additional testing, and the time required may differ from that required for FDA approval. Although there are some procedures for unified filings for certain European countries with the sponsorship of the country which first granted marketing approval, in general each country has its own procedures and requirements, many of which are time consuming and expensive. Thus, there can be substantial delays in obtaining required approvals from foreign regulatory authorities after the relevant applications are filed. In Europe, marketing authorizations may be submitted at either a centralized, a decentralized or a national level. The centralized procedure is mandatory for the approval of biotechnology products and provides for the grant of a single marketing authorization which is valid in all European Community member states. As of January 1995, a mutual recognition procedure is available at the request of the applicant for all medicinal products which are not subject to the centralized procedure. The Company will choose the appropriate route of European regulatory filing to accomplish the most rapid regulatory approvals. There can be no assurance that the chosen regulatory strategy will secure regulatory approvals on a timely basis or at all. HAZARDOUS MATERIALS. The Company's research and development processes involve the controlled use of hazardous materials, chemicals and radioactive materials and produce waste products. The Company is subject to federal, state and local laws and regulations governing the use, manufacture, storage, handling and disposal of such materials and waste products. Although the Company believes that its safety procedures for handling and disposing of such materials comply with the standards prescribed by such laws and regulations, the risk of accidental contamination or injury from these materials cannot be eliminated completely. In the event of such an accident, the Company could be held liable for any damages that result and any such liability could exceed the resources of the Company. Although the Company believes that it is in compliance in all material respects with applicable environmental laws and regulations, there can be no assurance that it will not be required to incur significant costs to comply with environmental laws and regulations in the future, or that the operations, business or assets of the Company will not be materially adversely affected by current or future environmental laws or regulations. 34 COMPETITION The pharmaceutical and biopharmaceutical industries are subject to intense competition and rapid and significant technological change. While several of CVT's products target diseases for which there are presently no effective therapies, CVT nevertheless is aware of companies which are developing products that will compete for the same disease markets. For example, Kyowa Hakko Co., Ltd., Fujisawa Pharmaceutical, Japan and Discovery Therapeutics, Inc., are each developing adenosine A(1) receptor antagonists. In addition, Sandoz and Glaxo Wellcome P.L.C. both have adenosine A(1) receptor agonists under development. If regulatory approvals are received, ranolazine may compete with several classes of existing drugs for the treatment of angina, some of which are available in generic form, including calcium channel blockers, beta blockers and nitrates. There are also non-pharmacologic treatments such as coronary artery bypass grafting ("CABG") and percutaneous transluminal coronary angioplasty ("PTCA"). However, for those patients who do not respond adequately to existing therapies and remain symptomatic despite maximal treatment with existing anti-anginal drugs and who are not candidates for CABG or PTCA, there is no currently effective treatment. In refractory patients who are candidates for CABG or PTCA, there is no effective pharmacologic treatment available. In the treatment of intermittent claudication, ranolazine may compete with Trental, an FDA approved drug developed by Hoechst Marion Roussel, Inc., beraprost, a prostaglandin being developed by Bristol-Myers Squibb, Cilostazol, a prostaglandin E(1) derivative being developed by Otsuka Pharmaceutical Co., Ltd., and L-carnitine, an amino acid derivative being developed by Sigma Tau Pharmaceuticals, Inc. CVT believes that the principal competitive factors in the markets for ranolazine and CVT-124 will include the length of time to receive regulatory approval, product performance, product price, product supply, marketing and sales capability and enforceability of patent and other proprietary rights. CVT believes that it is or will be competitive with respect to these factors. Nonetheless, because the Company's products are still under development, the relative competitive position of the Company in the future is difficult to predict. The Company expects that the pharmaceutical and biopharmaceutical industries will continue to experience rapid technological development which may render the Company's potential products non-competitive or obsolete. Many current and potential competitors have substantially greater product development capabilities and financial, marketing, scientific, and human resources than the Company. Other companies may succeed in developing products earlier than the Company, obtaining approvals for such products from the FDA more rapidly than the Company or developing products that are safer and more effective than those under development or proposed to be developed by the Company. While the Company will seek to expand its technological capabilities in order to remain competitive, there can be no assurance that research and development by others will not render its technology or potential products obsolete or non-competitive or result in treatments or cures superior to any therapy developed by the Company, or that therapy developed by the Company will be preferred to any existing or newly developed technologies. PRODUCT LIABILITY INSURANCE The manufacture and sale of human therapeutic products involve an inherent risk of product liability claims and associated adverse publicity. The Company has only limited product liability insurance for clinical trials and no commercial product liability insurance. There can be no assurance that it will be able to maintain existing or obtain additional product liability insurance on acceptable terms or with adequate coverage against potential liabilities. Such insurance is expensive, difficult to obtain and may not be available in the future on acceptable terms, or at all. An inability to obtain sufficient insurance coverage on reasonable terms or to otherwise protect against potential product liability claims could prevent or inhibit the commercialization of the Company's potential products. A product liability claim brought against the Company in excess of its insurance coverage, if any, or a product withdrawal could have a material adverse effect upon the Company's business, financial condition and results of operations. EMPLOYEES As of September 30, 1996, CVT employed 44 individuals full-time, including 15 who hold doctoral degrees. Of the Company's total work force, 30 employees are engaged in or directly support research and development 35 activities and 14 are engaged in business development, finance and administrative activities. The Company's employees are not represented by a collective bargaining agreement. The Company believes its relations with its employees are good. FACILITIES The Company currently leases a 61,081 square foot building in Palo Alto, California, of which approximately 33,783 square feet are subleased to two third parties. The initial term of the lease expires in February 2002 with an option to renew for five years, and the subleases expire in March 1997 and March 1998, respectively. CVT believes that this facility will be adequate to meet the Company's needs for the foreseeable future. SCIENTIFIC ADVISORY BOARD CVT's Scientific Advisory Board ("SAB") consists of academic and industry experts in the fields of medicine, chemistry and molecular and cellular biology. The SAB reviews and evaluates the Company's research programs and advises the Company with respect to technical matters. Each SAB member has entered into a consulting agreement with the Company specifying the terms and scope of the advisory relationship. All SAB members own shares or have been granted options to acquire Common Stock of the Company. All of the SAB members are employed by employers other than the Company and may have other commitments and consulting contracts with other entities which may compete for such member's time with their obligations to the Company. The Company's Scientific Advisory Board includes the following individuals: VICTOR J. DZAU, M.D. is Chairman of the Scientific Advisory Board. Dr. Dzau is one of the world's leading researchers in the molecular and cellular biology of cardiovascular diseases. Since September 1996, he has served as Chairman of the Department of Medicine and Physician-in-Chief at the Brigham and Women's Hospital in Boston, and as Hersey Professor of the Theory and Practice of Medicine at Harvard Medical School. Between 1990 and September 1996, he served as the William G. Irwin Professor of Medicine and chief of cardiovascular medicine at Stanford University School of Medicine. In early 1995, he was promoted to Arthur L. Bloomfield Professor and Chairman of Medicine at Stanford. Previously, Dr. Dzau held several clinical and research appointments in cardiology at Massachusetts General Hospital and Harvard Medical School, where he was a postdoctoral fellow. He received his M.D. degree from McGill University. STUART A. AARONSON, M.D. is director of the Deraid H. Ruttenberg Cancer Center at Mount Sinai School of Medicine, New York City, and is a world renowned growth factor researcher and tumor biologist. He has established the role of numerous cytokines in the function of blood vessels. He obtained his M.D. degree from the University of California, San Francisco. CHRISTOPHER FIELDING, PH.D. has been a faculty member at the University of California, San Francisco over the past two decades, where he has served as the Neider Professor of Cardiovascular Physiology since 1985. A recognized expert in the field of cholesterol metabolism, Dr. Fielding received his Ph.D. from the University of London and completed postdoctoral work in cell metabolism at Oxford University. RICHARD J. HAVEL, M.D. is a professor of medicine, Chief of Metabolism and past Director of the Cardiovascular Research Institute at the University of California, San Francisco. As a leader in both basic lipid research and clinical lipid investigations for several decades, Dr. Havel is known for his pioneering research on lipoprotein metabolism and for designing and conducting clinical investigations of lipid reduction and coronary atherosclerosis. He recently served on the Executive Committee of the Adult Treatment Panel of the National Cholesterol Education Program. Dr. Havel is a member of the National Academy of Sciences and received his M.D. degree from the University of Oregon. RICHARD M. LAWN, PH.D. has served on part-time basis as the Vice President, Molecular Cardiology at CVT since 1992. Since 1990 has been a Professor of Medicine in the Division of Cardiovascular Medicine, Stanford University School of Medicine. From 1980 to 1990, Dr. Lawn served as a senior scientist and later as a staff scientist at Genentech, Inc. He received his Ph.D. in molecular, cellular and developmental biology from the University of Colorado. 36 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 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:
NAME AGE POSITION - ------------------------------------ --- ---------------------------------------------------------- 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
- ------------------------ (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 company. In addition, from August 1992 to February 1993, he served as the acting Associate Director for Europe, Institute for Cardiovascular and Central Nervous System Clinical Research, Maidenhead, England. From July 1990 until June 1993, Dr. Wolff served as the Director, Department for Cardiovascular Therapy for Syntex. Since June 1988, Dr. Wolff has served also as an assistant clinical professor of medicine in the Cardiology Division of the University of California, San Francisco. He holds an M.D. from the Washington University Medical School. MICHAEL J. STERNS, D.V.M., has served as the Director of Business Development for the Company since February 1995. From March 1993 until February 1995, Dr. Sterns served as the Senior Director, Business Development for Microcide Pharmaceuticals, Inc., a biopharmaceutical company. From October 1990 to March 1993, he served as Director, Business Development for ALZA Corporation, a pharmaceutical company. Dr. Sterns holds a D.V.M. from the University of California at Davis and an M.B.A. from the University of California at Berkeley. SAMUEL D. COLELLA has served as a director of the Company since October 1992. Since November 1984, Mr. Colella has been a General Partner of Institutional Venture Partners, a private venture capital firm. He currently serves as Chairman of the Board of Directors of ONYX Pharmaceuticals, Inc. He also serves as a director of Genta Incorporated, Imagyn Medical, Inc., Pharmacopeia, Inc. and Vivus, Inc. Mr. Colella holds a B.S. in business and engineering from the University of Pittsburgh and an M.B.A. from Stanford University. THOMAS L. GUTSHALL has served as a director of the Company since December 1994. Since August 1996, Mr. Gutshall has served as the Chief Executive Officer of Cepheid Corporation, a diagnostics company. From January 1995 to September 1996, he served as President and Chief Operating Officer of the Company. From June 1989 until December 1994, Mr. Gutshall served as an Executive Vice President at Syntex Corporation, a pharmaceutical and healthcare company. Mr. Gutshall earned a B.S. in chemical engineering from the University of Delaware and completed the Executive Marketing Management Program at Harvard Business School. BARBARA MCNEIL, M.D., PH.D., has served as a director of the Company since December 1994. Since 1990, Dr. McNeil has served as the Ridley Watts Professor of Health Care Policy at Harvard Medical School. In addition, since July 1988, she has served as the Chair of the Department of Health Care Policy at Harvard Medical School. Since 1983, she has been a professor of radiology at both Harvard Medical School and Brigham and Women's Hospital in Boston. Dr. McNeil holds an M.D. from Harvard Medical School and a Ph.D. in biological chemistry from Harvard University. J. LEIGHTON READ, M.D., has served as a director of the Company since September 1992. Dr. Read founded Aviron, a biopharmaceutical company, and has served as its Chairman and Chief Executive Officer since April 1992. From July 1991 to July 1993, Dr. Read was a principal with Interhealth Limited, an investment partnership. From January 1989 to July 1991, Dr. Read served as a managing director of Affymax N.V., a biopharmaceutical company, which he co-founded in 1989. Dr. Read holds a B.S. in biology and psychology from Rice University and an M.D. from the University of Texas Health Science Center at San Antonio. COSTA G. SEVASTOPOULOS, PH.D., has served as a director of the Company since October 1992. Since May 1994, Dr. Sevastopoulos has been an independent consultant and a limited partner of Delphi Ventures I and II, both venture capital partnerships. From April 1988 to April 1994, he served as a general partner of Delphi BioVentures, a venture capital partnership, which he co-founded. Dr. Sevastopoulos currently serves as Chairman of the Board of Directors of Metra Biosystems, Inc. He holds a B.S. in physics from the University of Athens, Greece, an M.S. in electrical engineering from the California Institute of Technology, an M.B.A. from the European Institute of Business Administration in Fontainebleau, France, and a Ph.D. in molecular biology from the University of California at Berkeley. ISAAC STEIN has served as a director of the Company since March 1995. Since its inception, Mr. Stein has served as the President of Waverly Associates, Inc., a private investment firm, which he founded in 1983. In addition, Mr. Stein currently serves as Chairman of Stanford Health Services and is a director of Stanford University Hospital and a Trustee of Stanford University. From February 1993 to February 1994, Mr. Stein served as a special assistant to the President of Stanford University. From July 1990 to December 1992, he served as Chairman of Esprit de Corp., an apparel company, and from March 1991 to February 1992, he served as its 39 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 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 41 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
---------------------------------------------------------- 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 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 $17,500 7,500 - Vice President, Clinical Research and Development Thomas L. Gutshall (2) 211,435 - 77,500 - President and Chief Operating Officer Mark B. Hirsch (3) 182,500 - 23,600 - Vice President, Corporate Development
- ------------------------------ (1) All Other Compensation consists of amounts forgiven on loan obligations. (2) Mr. Gutshall terminated his employment in September 1996 but continues to serve as a member of the Company's Board of Directors and as a consultant to the Company. (3) Mr. Hirsch terminated his employment with the Company in April 1996. 42 OPTION GRANTS IN LAST FISCAL YEAR The following table sets forth each grant of stock options made during the fiscal year ended December 31, 1995, to each of the Named Executive Officers:
---------------------------------------------------------------------- INDIVIDUAL GRANTS ---------------------------------------------- PERCENTAGE OF TOTAL POTENTIAL REALIZABLE NUMBER OF OPTIONS VALUE AT ASSUMED SECURITIES GRANTED TO ANNUAL RATES OF STOCK UNDERLYING EMPLOYEES PRICE APPRECIATION FOR OPTIONS IN FISCAL EXERCISE OPTION TERM(3) GRANTED YEAR PRICE EXPIRATION ---------------------- NAME (#) (%)(1) ($/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. 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
- ------------------------------ (1) Based on an aggregate of options to purchase 392,986 shares of the Company's Common Stock granted to employees and directors of, and consultants to, the Company during fiscal year ended December 31, 1995, including the Named Executive Officers. (2) The exercise price per share of each option was equal to the fair market value of the Common Stock on the date of grant as determined by the Board of Directors. (3) The potential realizable value is calculated based on the term of the option at its time of grant (ten years). It is calculated assuming that the assumed initial public offering price of $13.00 per share appreciates from the date of grant at the indicated annual rate compounded annually for the entire term of the option and the option is exercised and sold on the last day of its term for the appreciated stock price. No gain to the optionee is possible unless the stock price increases over the option term. (4) Twenty-four percent of the option vests one year from the vesting commencement date, with subsequent vesting at a rate of two percent each month for 38 months. The option expires ten years from the date of grant or earlier upon termination of employment. (5) Mr. Gutshall's option for 7,500 shares is fully vested. Under Mr. Gutshall's Separation and Consulting Agreement, (i) the 5,000 share option vested as to 2,000 shares through September 2, 1996 and 3,000 shares were repurchased by the Company for an aggregate purchase price of $7,500; (ii) the 65,000 share option vested as to 26,000 shares through September 2, 1996 and 39,000 shares were canceled on September 2, 1996. (6) In connection with the termination of Mr. Hirsch's employment, the option to purchase 23,600 shares was canceled on May 1, 1996. AGGREGATE OPTION EXERCISES IN FISCAL 1995 AND DECEMBER 31, 1995 OPTION VALUES The following table sets forth for each of the Named Executive Officers the shares acquired and the value realized on each exercise of stock options during the fiscal year ended December 31, 1995 and the number and value of securities underlying unexercised options held by the Named Executive Officers at December 31, 1995:
--------------------------------------------------------------- NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED UNEXERCISED IN-THE-MONEY OPTIONS SHARES OPTIONS AT AT ACQUIRED DECEMBER 31, DECEMBER 31, ON VALUE 1995(#) 1995($)(1) EXERCISE REALIZED EXERCISABLE/ EXERCISABLE/ NAME (#) ($)(1) UNEXERCISABLE(2) UNEXERCISABLE - -------------------------- --------- ----------- ----------------- -------------------- Louis G. Lange, M.D., Ph.D. 15,000(3) $157,500 145,000/0 $1,603,300/0 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
- ------------------------------ (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 (2) As of December 31, 1995, of the 145,000, 53,025, 30,000, 47,500 and 64,025 option shares held by Louis G. Lange, M.D., Ph.D., George F. Schreiner, M.D., Ph.D., Andrew A. Wolff, M.D., Thomas L. Gutshall and Mark B. Hirsch, respectively, 99,750, 31,143, 24,375, 46,253 and 46,652 option shares, respectively, were unvested and subject to repurchase by the Company, if exercised. (3) As of December 31, 1995, all of these shares were subject to repurchase by the Company. EMPLOYMENT AGREEMENTS AND TERMINATION OF EMPLOYMENT AGREEMENTS In January 1996, the Company entered into a letter agreement with Mark B. Hirsch. Pursuant to the agreement, the Company accepted Mr. Hirsch's resignation as Vice President, Corporate Development effective October 31, 1995, but retained Mr. Hirsch as an employee of the Company through April 30, 1996. Under the terms of the agreement, Mr. Hirsch was compensated through April 30, 1996 at the same compensation level in effect prior to his resignation. The Company entered into a Separation and Consulting Agreement with Thomas L. Gutshall effective as of September 2, 1996. Pursuant to the agreement, the Company accepted Mr. Gutshall's resignation as President and Chief Operating Officer effective September 2, 1996. Mr. Gutshall agreed to continue to serve as a member of the Company's Board of Directors and to serve as a consultant to the Company through December 31, 1998. Under the terms of the agreement, Mr. Gutshall will receive consulting fees starting at $8,750 per month in September 1996 and declining to $3,500 per month effective November 1, 1996 and continuing at that rate thereafter. In addition, Mr. Gutshall's stock option grant for 5,000 shares vested as to 2,000 shares through September 2, 1996 and 3,000 shares were repurchased by the Company. His stock option grant for 65,000 shares vested as to 26,000 shares through September 2, 1996 and 39,000 shares were canceled on September 2, 1996. Each officer and salaried employee has entered into a standard form of Employment, Confidential Information and Invention Assignment Agreement which provides that the employment is at-will, that the employee will not disclose any confidential information of the Company received during the course of the employment and that, with certain exceptions, the employee will assign to the Company any and all inventions conceived or developed during the course of the employment. 401(K) PLAN As of October 1, 1993, the Company adopted a tax-qualified employee savings and retirement plan (the "401(k) Plan") covering the Company's employees. Pursuant to the 401(k) Plan, eligible employees may elect to reduce their current compensation by up to the lesser of 15% of their annual compensation or the statutorily prescribed annual limit ($9,500 in 1996) and have the amount of such reduction contributed to the 401(k) Plan. The 401(k) Plan provides for additional matching contributions by the Company in an amount determined by the Company. To date, the Company has not provided any matching contributions. The trustees under the 401(k) Plan, at the direction of each participant, invest the assets of the 401(k) Plan in designated investment options. The 401(k) Plan is intended to qualify under Section 401 of the Internal Revenue Code of 1986, as amended (the "Code"), so that contributions to the 401(k) Plan, and income earned on the 401(k) Plan contributions, are not taxable until withdrawn, and so that the contributions by the Company will be deductible when made. STOCK PLANS 1994 EQUITY INCENTIVE PLAN. The Company's 1994 Equity Incentive Plan (the "Incentive Plan") was adopted by the Board of Directors in February 1994, approved by the stockholders in March 1994, amended by the Board in February 1995 and April 1995 and subsequently approved by the stockholders in July 1995. The Incentive Plan was amended in September 1996, subject to stockholder approval. There are currently 800,000 shares of Common Stock authorized for issuance under the Incentive Plan. The Incentive Plan provides for the grant of incentive stock options under the Code and stock appreciation rights appurtenant thereto, to employees (including officers and employee-directors) and nonstatutory stock options, restricted stock purchase awards and stock bonuses to employees, directors and consultants. The Incentive Plan is administered by the Compensation Committee of the Board of Directors, which has been delegated the Board's authority to administer the Plan. The Compensation Committee determines recipients and types of awards to be granted, including the exercise price, number of shares subject to the award and the exercisability thereof. The terms of stock options granted under the Incentive Plan generally may not exceed 10 years. The exercise price for an incentive stock option cannot be less than 100% of the fair market value of the Common Stock on 44 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 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 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 CERTAIN TRANSACTIONS PRIVATE PLACEMENT TRANSACTIONS All of the Preferred Stock issued in the Company's private placement transactions (collectively, the "Private Placement Transactions") will convert into Common Stock on a 1-for-10 basis upon the closing of the Offering. The price per share and number of shares presented herein reflect the 1-for-10 reverse stock split of the Company's Common Stock effected in October 1996. Since January 1993, the Company has issued in Private Placement Transactions shares of Preferred Stock and warrants as follows: an aggregate of 550,582 shares of Series C Preferred Stock at $12.50 per share in July 1993; an aggregate of 829,657 shares of Series D Preferred Stock at $20.00 per share and warrants to purchase an aggregate of 21,926 shares of Series D Preferred Stock at an exercise price of $20.00 per share in March 1994 and April 1994; an aggregate of 392,159 shares of Series E Preferred Stock and warrants to purchase an aggregate of 196,078 shares of Series E Preferred Stock at a purchase price of $20.00 per unit (with each unit consisting of one share and one warrant to purchase one-half share 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 and warrants to purchase an aggregate of 980,392 shares of Common Stock at a purchase price of $20.00 per unit (with each unit consisting of one share of Series G Preferred Stock and one warrant to purchase 1.50 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:
-------------------------------------------------- SERIES C SERIES D SERIES E SERIES G PREFERRED PREFERRED PREFERRED PREFERRED STOCK STOCK STOCK(1) STOCK(2) ----------- ----------- ----------- ----------- 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 Zesiger Capital Group, LLC............................. -- -- -- 150,000 Entities affiliated with BankAmerica Ventures.......... -- -- -- 150,000 Entities affiliated with Delphi Ventures II, L.P.(6)... 59,999 27,999 38,248 26,700 Entities affiliated with Asset Management Associates, 1989, L.P............................................. 60,000 23,000 28,500 38,350 Entities affiliated with Sequoia Capital V............. 100,000 25,500 18,749 6,249
- ------------------------ (1) Includes 2,500, 500, 625, 20,000, 12,749, 9,500 and 6,249 shares to be issued to Ms. Stafford, the Gutshall Family Trust, the Stein 1995 Revocable Trust, entities affiliated with Institutional Venture Management V, L.P., entities affiliated with Delphi Ventures II, L.P., entities affiliated with Asset Management Associates, 1989, L.P. and entities affiliated with Sequoia Capital V, respectively, upon the exercise of outstanding warrants to purchase shares of Series E Preferred Stock. (2) Excludes warrants to purchase 1,875, 3,750, 1,875, 1,875, 1,875, 67,500, 181,716, 225,000, 40,050, 57,525 and 9,374 shares of Common Stock issued in conjunction with the private placement of Series G Preferred Stock to Dr. Lange, Ms. Stafford, Dr. Wick, the Gutshall Family Trust, the Stein 1995 Revocable Trust, entities affiliated with Institutional Venture Management V, L.P., Zesiger Capital Group, LLC, entities affiliated 48 with BankAmerica Ventures, entities affiliated with Delphi Ventures, II, L.P., entities affiliated with Asset Management Associates, 1989, L.P. and entities affiliated with Sequoia Capital V, respectively. The warrants will be net exercised upon the closing of the Offering. (3) Mr. Gutshall claims beneficial ownerhip of the shares and warrants held by the Gutshall Family Trust. (4) Mr. Stein claims beneficial ownership of the shares and warrants held by the Stein 1995 Revocable Trust. (5) Mr. Colella, a director of the Company, is a general partner of Institutional Ventures Management V, L.P., the general partner of Institutional Venture Partners V, L.P. He disclaims beneficial ownership of the shares held by those entities, except to the extent of his pecuniary interests therein. (6) Dr. Sevastopoulos, a director of the Company, is a limited partner of Delphi Management Partners II, which is the general partner of Delphi Ventures II, L.P. He disclaims beneficial ownership of the shares held by those entities, except to the extent of his pecuniary interests therein. LOANS The Company has provided Louis G. Lange, M.D., Ph.D., Chairman of the Board of Directors and Chief Executive Officer, with several loans. In August 1992, the Company provided a loan in the principal amount of $500,000 at an annual interest rate of 7.0%, pursuant to a promissory note secured by a deed of trust on Dr. Lange's residence (the "1992 Note"). In June 1993, the Company provided a loan in the principal amount of $25,000 at an annual interest rate of 5.33%, pursuant to a promissory note secured by a stock pledge of 2,500 shares of Common Stock held by Dr. Lange. In June 1995, in connection with the exercise of an option to purchase Common Stock, the Company provided a loan in the principal amount of $37,500 at an annual interest rate of 7.31%, pursuant to a promissory note secured by a pledge of 15,000 shares of Common Stock held by Dr. Lange. In August 1996, the Company provided a loan to Dr. Lange in the principal amount of $25,000, at an annual interest rate of 6.84%, pursuant to a promissory note secured by a pledge of 2,500 shares of Common Stock held by Dr. Lange. As of September 30, 1996, an aggregate principal amount of $587,500 remained outstanding on the four notes. In April 1995, the Company forgave $30,000 in interest due on the notes. In September 1996, the Company amended all four notes. Under the terms of each amended note, the loans bear interest at the rate of 6.53% compounded semi-annually and the outstanding principal amount is due on the earliest of December 31, 2001, the termination of employment or a change in control. At the same time, the Company forgave all interest due on the four loans as of December 31, 1995 (estimated at $93,880). In addition, the Company will pay Dr. Lange an amount necessary to compensate him for any taxes that he may incur due to the interest forgiveness and the payment of this additional amount as well as the following amounts for mortgage assistance: $50,000 in 1997, $40,000 in 1998, $30,000 in 1999, $20,000 in 2000 and $10,000 in 2001. In connection with the 1992 Note, the Company entered into a letter agreement of Credit Terms and Conditions with Imperial Bank, dated August 11, 1992, pursuant to which Imperial Bank provided a loan to the Company in the principal amount of $500,000, at an annual interest rate equal to the greater of 2.0% per year in excess of Imperial Bank's prime lending rate or $250 (the "Imperial Loan"). The loan was guaranteed by Institutional Venture Partners V, L.P. ("IVP") pursuant to a Continuing Guarantee dated August 11, 1992 (the "IVP Guarantee"). Mr. Colella, a director of the Company, is a General Partner of IVP. In consideration for the IVP Guarantee, Dr. Lange executed a Guaranty and Pledge Agreement dated August 18, 1992 in which he provided a guarantee of reimbursement and pledged shares in favor of IVP. The Company paid off the Imperial Loan in September 1996. Upon the closing of this Offering, Dr. Lange will sell a sufficient number of shares of Common Stock at the price per share set in the Offering to the Company to satisfy $150,000 of his $500,000 loan and the tax obligations arising from such sale. In August 1995, in connection with the exercise of an option to purchase 30,000 shares of Common Stock, the Company provided a loan to Michael M. Wick, M.D., Ph.D., Senior Vice President, Research, in the principal 49 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. Pursuant to a Separation and Consulting Agreement effective as of September 2, 1996, the Company agreed to amend the note. Under the terms of the amended note, the loan bears interest at the rate of 6.53% compounded semi-annually and the outstanding principal amount is due on the earliest of December 31, 2001, the voluntary termination of association or a change in control. As of September 30, 1996, an aggregate principal amount of $62,500 remained outstanding on the note. In November 1992, the Company provided two loans to George F. Schreiner, M.D., Ph.D., Vice President, Medical Science and Preclinical Research, both in the principal amounts of $75,000, at an annual interest rate of 6.5%. The outstanding principal amount and accrued interest on the first loan was forgiven in three equal amounts on the last day of the year of 1993, 1994 and 1995. The second loan was made pursuant to a promissory note secured by a deed of trust on Dr. Schreiner's residence. In September 1996, the Company amended the note. Under the terms of the amended note, the loan bears interest at the rate of 6.53% compounded semi-annually and the outstanding principal amount is due on the earliest of December 31, 2001, the termination of employment or a change in control. As of September 30, 1996, an aggregate of $75,000 in principal amount remained outstanding on the second loan. In December 1992, the Company provided a third loan to Dr. Schreiner in the principal amount of $50,000, at an annual interest rate of 6.5%, pursuant to a promissory note secured by a deed of trust on Dr. Schreiner's residence (the "December Note"). Dr. Schreiner repaid the outstanding principal amount and accrued interest on the December Note in May 1993. The forgiveness of the accrued interest on the notes to Dr. Lange and Dr. Schreiner was accounted for as compensation expense to the related employees, in the period in which the interest was deemed to have been forgiven. OTHER TRANSACTIONS/RELATIONSHIPS In May 1995, the Company entered into a Consulting Agreement with Kathleen A. Stafford, Chief Financial Officer of the Company. As compensation for her services under the agreement, Ms. Stafford received $1,900 per week as well as an option to purchase 10,000 shares of Common Stock at an exercise price of $2.50 per share, with vesting over a twenty-four month period. The agreement terminated when Ms. Stafford became Chief Financial Officer on December 1, 1995, but the option continues to vest. In April 1993, the Company entered into a Collaborative Research and Development Agreement with Genta Incorporated and Genta Jago Technologies B.V. (the "Genta Agreement"). Mr. Colella, a director of the Company, is also a director of Genta Incorporated. Pursuant to the terms of the Genta Agreement, the parties agreed to engage in a five-year collaboration to design, develop and commercialize certain products utilizing the technology which was the subject of a License Agreement between the Company and Genta Incorporated on the one hand and the Board of Trustees of the Leland Stanford Junior University on the other hand (the "Stanford License"). The parties have terminated the collaboration effort, and the Stanford License has been terminated. In October 1996, the Company entered into indemnification agreements with its directors and officers for the indemnification of, and advancement of expenses to, such persons to the full extent permitted by law. The Company intends to execute such agreements with its future directors and officers. The Company believes that the foregoing transactions were in its best interest. As a matter of policy the transactions were, and all future transactions between the Company and any of its officers, directors or principal shareholders will be, approved by a majority of the independent and disinterested members of the Board of Directors, will be on terms no less favorable to the Company than could be obtained from unaffiliated third parties and will be in connection with bona fide business purposes of the Company. 50 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.
----------------------------------- SHARES BENEFICIALLY OWNED(1) ----------------------------------- PERCENT PERCENT PRIOR TO AFTER NAME AND ADDRESS OF BENEFICIAL HOLDER NUMBER OFFERING OFFERING - ------------------------------------------------------------------ --------- ----------- ----------- Samuel D. Colella (2) 611,518 13.56% 8.72% 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 Zesiger Capital Group, LLC (5) 331,766 7.46 4.77 320 Park Avenue New York, NY 10022 Entities affiliated with BankAmerica Ventures (6) 331,730 7.45 4.77 950 Tower Lane, Suite 700 Foster City, CA 94404 Entities affiliated with Asset Management Associates, 1989, L.P. (7) 321,311 7.21 4.62 2275 East Bayshore Road, Suite 150 Palo Alto, CA 94303 Louis G. Lange, M.D., Ph.D. (8) 333,341 7.18 4.67 Entities affiliated with Sequoia Capital V (9) 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. (10) 68,025 1.51 * Thomas L. Gutshall (11) 58,978 1.32 * Andrew A. Wolff, M.D. (12) 52,500 1.17 * Barbara J. McNeil, M.D., Ph.D. (13) 18,499 * * J. Leighton Read, M.D. (14) 23,221 * * Costa G. Sevastopoulos, Ph.D. (15) 21,292 * * Isaac Stein (16) 40,638 * * Mark B. Hirsch 24,365 * * All directors and executive officers as a group (11 persons)(17) 1,353,304 26.87 17.96
- ------------------------------ * Represents beneficial ownership of less than 1%. (1) Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission and generally includes voting or investment power with respect to securities. Beneficial ownership also includes shares of stock subject to options and warrants currently exercisable or convertible, or exercisable or convertible within 60 days of the date of this table. Except as indicated by footnote, and subject to community property laws where applicable, to the knowledge of the Company, all persons named in the table above have sole voting and investment power with respect to all shares of Common Stock, shown as beneficially owned by them. Percentage of beneficial ownership is based on 4,449,166 shares of Common Stock outstanding as of September 30, 1996 and 6,949,166 shares of Common Stock outstanding after completion of the Offering. 51 (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 150,000 shares and 181,716 shares to be issued upon the net exercise of outstanding warrants upon the closing of this Offering over which Zesiger Capital Group, LLC has dispositive power pursuant to authority granted by its investment clients. Zesiger Capital Group, LLC disclaims beneficial ownership of all such shares. (6) 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. (7) 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. (8) 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. (9) 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. (10) 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. (11) 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. (12) 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. (13) 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. (14) 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. (15) 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. (16) 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. (17) 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), (8) and (10) - (16). 52 DESCRIPTION OF CAPITAL STOCK GENERAL Upon the closing of this Offering, the authorized capital stock of the Company will consist of 30,000,000 shares of Common Stock, $.001 par value, and 5,000,000 shares of Preferred Stock, $.001 par value. The Company may be subject to Section 2115 of the California Corporations Code ("Section 2115"). Section 2115 provides that, regardless of a company's legal domicile, certain provisions of California corporate law will apply to that company if the Company meets certain requirements relating to its property, payroll and sales in California and if more than one-half of its outstanding voting securities are held of record by persons having addresses in California. Section 2115 limits the ability of the Company to, among other things, elect a classified board of directors. The Company will not be subject to Section 2115 (i) at such time as the Company is qualified for trading as a national market security on the Nasdaq system and has 800 stockholders as of the record date of its most recent annual meeting or (ii) at the end of any income year during which a certificate of state connections pursuant to Section 2108 of the California Corporations Code shall have been filed showing that less than one-half of its outstanding voting securities are held of record by persons having addresses in California or that one of the other tests of Section 2115 is not met. The Company expects that it will no longer be subject to Section 2115 by the record date of its 1997 annual meeting of stockholders. COMMON STOCK As of September 30, 1996, there were 4,449,166 shares of Common Stock outstanding (assuming the conversion of all outstanding Preferred Stock upon the closing of this Offering) held of record by approximately 220 stockholders. The holders of Common Stock are entitled to one vote for each share held of record on all matters submitted to a vote of the stockholders. The holders of Common Stock are entitled to receive ratably such dividends as may be declared by the Board of Directors out of funds legally available therefor. See "Dividend Policy." In the event of a liquidation, dissolution or winding up of the Company, holders of the Common Stock are entitled to share ratably in all assets remaining after payment of liabilities. Holders of Common Stock have no preemptive rights and no right to convert their Common Stock into any other securities. There are no redemption or sinking fund provisions applicable to the Common Stock. All outstanding shares of Common Stock are, and all shares of Common Stock to be outstanding upon completion of this Offering will be, fully paid and nonassessable. PREFERRED STOCK The Board of Directors has the authority, without further action by the stockholders, to issue up to 5,000,000 shares of Preferred Stock in one or more series and to fix the rights, preferences, privileges and restrictions thereof, including dividend rights, conversion rights, voting rights, terms of redemption, liquidation preferences, sinking fund terms and the number of shares constituting any series or the designation of such series, without any further vote or action by stockholders. The issuance of Preferred Stock could adversely affect the voting power of holders of Common Stock and the likelihood that such holders will receive dividend payments and payments upon liquidation and could have the effect of delaying, deferring or preventing a change in control of the Company. The Company has no present plan to issue any shares of Preferred Stock. WARRANTS As of September 30, 1996, the Company had outstanding warrants to purchase 570,754 shares of Common Stock at exercise prices ranging from $2.50 to $25.00 per share. In addition, in December 1995, the Company issued a warrant to purchase 2,500 units at a price of $.50 per unit to Cooley Godward LLP, the Company's counsel, with each unit consisting of 1 share of Common Stock and one warrant to purchase 1/2 share of Common Stock at an exercise price of $20.00 per share. Each warrant is exercisable immediately with the exception of two warrants to purchase an aggregate of 84,500 shares of Common Stock which are not exercisable until after September 15, 1997. Each warrant contains provisions for the adjustment of the exercise price and the aggregate number of shares issuable upon the exercise of the warrant under certain circumstances, including stock dividends, stock splits, reorganizations and reclassifications. Each warrant may be exercised, without the payment of cash, for a 53 number of shares of Common Stock determined pursuant to a net issue exercise formula contained in the warrant. Each warrant holder has certain registration rights. See "Description of Capital Stock - Registration Rights of Certain Holders." Generally, the warrants expire at various times from September 1997 to April 2005. REGISTRATION RIGHTS OF CERTAIN HOLDERS Following this Offering, holders of 4,030,002 shares of Common Stock and warrants to purchase 574,504 shares of Common Stock will be entitled to certain rights with respect to the registration of their shares under the Securities Act. These rights are provided under the terms of an Investors' Rights Agreement, dated May 29, 1996, and certain other agreements (the "Agreements"). Pursuant to the terms of the Agreements, if the Company proposes to register any of its securities under the Securities Act, either for its own account or the account of others, the holders are entitled to notice of such registration and are entitled to include, at the Company's expense, their shares of Common Stock; provided, among other conditions, that the underwriters of any offering have the right to limit the number of such shares included in such registration or exclude such shares entirely. The holders may also require the Company, on no more than one occasion over any twelve month period, at the Company's expense, to register all or a portion of their shares of Common Stock on Form S-3 when such form becomes available to the Company, subject to certain conditions and limitations. Further, holders of 4,030,002 shares of Common Stock and warrants to purchase 534,504 shares of Common Stock may require the Company, beginning 180 days after the date of the Prospectus, on not more than two occasions, to file a registration statement under the Securities Act at the Company's expense with respect to their shares of Common Stock, and the Company is required to use its best efforts to effect such registration, subject to certain conditions and limitations. All rights described in this paragraph terminate at such time as such shares of Common Stock may be sold in the public market. DELAWARE LAW AND CERTAIN CHARTER PROVISIONS The Company is subject to the provisions of Section 203 of the Delaware Law, an anti-takeover law. In general, the statute prohibits a publicly held Delaware corporation from engaging in a "business combination" with an "interested stockholder" for a period of three years after the date of the transaction in which the person became an interested stockholder, unless the business combination is approved in a prescribed manner. For purposes of Section 203, a "business combination" includes a merger, asset sale or other transaction resulting in a financial benefit to the interested stockholder, and an "interested stockholder" is a person who, together with affiliates and associates, owns (or within three years prior, did own) 15% or more of the corporation's voting stock. The Company's Restated Certificate of Incorporation and Restated Bylaws also require that, effective upon the closing of this Offering, any action required or permitted to be taken by stockholders of the Company must be effected at a duly called annual or special meeting of the stockholders and may not be effected by a consent in writing. In addition, special meetings of the stockholders of the Company may be called only by the Board of Directors, the Chairman of the Board, the Chief Executive Officer of the Company or by any person or persons holding shares representing at least 10% of the outstanding capital stock. The Company's Restated Certificate of Incorporation also provides for a classified Board which will be instituted at such time as the Company is no longer subject to Section 2115 and specifies that the authorized number of directors may be changed only by resolution of the Board of Directors. See "Management - Board Composition." These provisions may have the effect of deterring hostile takeovers or delaying changes in control or management of the Company. TRANSFER AGENT AND REGISTRAR Norwest Bank Minnesota, N.A. has been appointed as the transfer agent and registrar for the Company's Common Stock. 54 SHARES ELIGIBLE FOR FUTURE SALE Upon completion of this Offering, the Company will have 6,949,166 shares of Common Stock outstanding, assuming the net exercise of certain outstanding warrants for Common Stock and the conversion of all outstanding Preferred Stock but no exercise of other outstanding warrants and options. Of these shares, the 2,500,000 shares sold in this Offering will be freely transferable without restriction under the Securities Act unless they are held by "affiliates" of the Company as that term is defined in Rule 144 under the Securities Act. The remaining 4,449,166 shares of Common Stock (the "Restricted Shares") held by officers, directors, employees, consultants and other stockholders of the Company were sold by the Company in reliance on exemptions from the registration requirements of the Securities Act and are "restricted securities" within the meaning of Rule 144 under the Securities Act and may not be sold publicly unless they are registered under the Securities Act or are sold pursuant to Rule 144 or another exemption from registration. The officers, directors, employees and certain stockholders of the Company have agreed not to sell their shares without the prior written consent of J.P. Morgan Securities Inc. for a period of 180 days from the date of this Prospectus. Upon completion of the Offering, 92,785 shares will be eligible for sale in the public market immediately following the Offering. Beginning 180 days after commencement of this Offering, 2,481,313 Restricted Shares that are subject to lock-up agreements (as described below under "Underwriting") will become eligible for sale in the public market subject to Rule 144 and Rule 701 under the Securities Act. The remaining 1,875,068 Restricted Shares, which are also subject to such lock-up agreements, will have been held for less than two years upon the expiration of such lock-up agreements and will become eligible for sale under Rule 144 at various dates thereafter as the holding period provisions of Rule 144 are satisfied. In general, under Rule 144 as currently in effect, a person (or persons whose shares are aggregated) who has beneficially owned Restricted Shares for at least two years, including persons who may be deemed "affiliates" of the Company, is entitled to sell, within any three month period commencing 90 days after this Offering, a number of shares that does not exceed the greater of 1% of the number of shares of Common Stock then outstanding (approximately 70,000 shares immediately after this Offering, assuming no exercise of the Underwriters' over- allotment option) or the average weekly trading volume of the Common Stock as reported through the Nasdaq National Market during the four calendar weeks preceding the filing of a Form 144 with respect to such sale. Sales under Rule 144 are also subject to certain manner of sale provisions and notice requirements and to the availability of current public information about the Company. In addition, a person who is not deemed to have been an affiliate of the Company at any time during the 90 days preceding a sale, and who has beneficially owned for at least three years the shares proposed to be sold, would be entitled to sell such shares under Rule 144(k) without regard to the requirements described above. Under Rule 701 under the Securities Act, any employee, officer or director of or consultant to the Company, who is not an affiliate of the Company, and who purchased shares pursuant to a written compensatory plan or contract, including the Company's stock option plans, is entitled to sell such shares without having to comply with the public information, holding period, volume limitation or notice provisions of Rule 144, and affiliates of the Company are permitted to sell such shares without having to comply with the Rule 144 holding period restrictions, in each case commencing 90 days after this Offering. The Company presently intends to file a registration statement under the Securities Act on Form S-8 to register approximately 1,415,666 shares of Common Stock subject to outstanding stock options or reserved for issuance under the Incentive Plan, the 1992 Stock Plan and the Directors' Plan (the "Plans") as well as stock options granted outside the Plans and shares reserved for issuance under the Purchase Plan. As of September 30, 1996, 803,338 shares were issuable upon exercise of currently outstanding options, all of which are subject to the lock-up agreements described above. Of these shares, 317,093 will be vested 180 days after commencement of this Offering and eligible for sale, subject, in the case of sales by affiliates, to the volume, manner of sale, notice and public information requirements of Rule 144. See "Management - Stock Plans" and "Management - Directors' Compensation." As of September 30, 1996, 574,504 shares were issuable upon exercise of currently outstanding warrants of which 490,004 shares are subject to the lock-up agreements described above. Of these shares, 186,926 will 55 become eligible for sale in the public markets subject to Rule 144 beginning 180 days after commencement of this Offering and 303,078 shares will become eligible for sale subject to Rule 144 at various dates thereafter as the holding provisions of Rule 144 are satisfied. In addition, 84,500 shares issuable upon exercise of warrants which are not subject to lock-up agreements, will become eligible for sale in the public markets beginning after September 15, 1997 pursuant to the terms of the individual warrants, subject to Rule 144. The holders of 4,030,002 shares of Common Stock and the holders of warrants exercisable for 574,504 additional shares of Common Stock are entitled to certain rights with respect to the registration of such shares under the Securities Act. See "Description of Capital Stock - Registration Rights of Certain Holders." Registration of such shares under the Securities Act would result in such shares becoming freely tradable without restriction under the Securities Act (except for shares purchased by affiliates of the Company) immediately upon the effectiveness of such registration. If certain of such holders, by exercising their demand registration rights, cause a larger number of securities to be registered and sold in the public market, such sales could have an adverse effect on the market price for the Common Stock. If the Company were to include in a Company-initiated registration any Registrable Securities pursuant to the exercise of piggyback registration rights, such sales may have an adverse effect on the Company's ability to raise needed capital. Prior to this Offering, there has been no public market for the Common Stock of the Company. No predictions can be made of the effect if any, that the sale or availability for sale of shares of additional Common Stock will have on the market price of the Common Stock. Nevertheless, sales of a substantial amount of such shares by existing stockholders or by stockholders purchasing in the Offering could have a negative impact on the market price of the Common Stock. 56 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.
NUMBER OF UNDERWRITERS SHARES - --------------------------------------------------------------------------- ------------ J.P. Morgan Securities Inc................................................. Invemed Associates, Inc.................................................... UBS Securities LLC......................................................... ------------ Total.................................................................. ------------ ------------
The Underwriters propose initially to offer the Common Stock directly to the public at the price set forth on the cover page of this Prospectus and to certain dealers at such price less a concession not in excess of per share. The Underwriters may allow, and such dealers may reallow, a concession not in excess of per share to certain other dealers. After the initial public offering of the Common Stock, the public offering price and such concession may be changed. The Company has granted to the Underwriters an option, expiring at the close of business on the 30th day after the date of this Prospectus, to purchase up to 375,000 additional shares of Common Stock at the initial public offering price, less the underwriting discount. The Underwriters may exercise such option solely for the purpose of covering over-allotments, if any. To the extent the Underwriters exercise the option, each Underwriter will have a firm commitment, subject to certain conditions, to purchase approximately the same percentage of such additional shares as the number set forth next to such Underwriter's name in the preceding table bears to the total number of shares of Common Stock offered hereby. The Company has agreed to indemnify the Underwriters against certain liabilities, including liabilities under the Securities Act. The Company's officers, directors and certain other stockholders of the Company have agreed, subject to certain exceptions, not to, directly or indirectly, (i) sell, grant any option to purchase or otherwise transfer or dispose of any shares of Common Stock or securities convertible into or exchangeable or exercisable for shares of Common Stock or file a registration statement under the Securities Act with respect to the foregoing or (ii) enter into any swap or other agreement or transaction that transfers, in whole or in part, the economic consequence of ownership of the Common Stock, without the prior written consent of J.P. Morgan Securities Inc., for a period of 180 days after the date of this Prospectus. The foregoing does not prohibit the Company's issuance of shares pursuant to the exercise of the Underwriters over-allotment option or under the Incentive Plan, the 1992 Stock Plan, the Directors' Plan or the Purchase Plan. J.P. Morgan Securities Inc. may, in its sole discretion at any time or from time to time, without notice, release all or any portion of the shares subject to the lock-up agreements. The Underwriters have advised the Company that they do not expect that sales to accounts over which they exercise discretionary authority will exceed 5% of the shares offered hereby. 57 Prior to this Offering, there has been no public market for the Common Stock. The initial public offering price for the shares of Common Stock offered hereby will be determined through negotiations among the Company and the Underwriters. Among the factors to be considered in making such determination are the history of and the prospects for the industry in which the Company operates, an assessment of the Company's management, the present operations of the Company, the historical results of operations of the Company, the prospects for future earnings of the Company, the general conditions of the securities markets at the time of the Offering and the prices of similar securities of generally comparable companies. There can be no assurance that an active trading market will develop for the Common Stock or that the Common Stock will trade in the public market subsequent to the Offering at or above the initial public offering price. From time to time in the ordinary course of their respective businesses, the Representatives and their respective affiliates may in the future provide investment banking and other financial services to the Company and its affiliates. LEGAL MATTERS The validity of the Common Stock offered hereby will be passed upon for the Company by Cooley Godward LLP ("Cooley"), Palo Alto, California. Certain legal matters in connection with this Offering will be passed upon for the Underwriters by Wilson Sonsini Goodrich & Rosati, a Professional Corporation, Palo Alto, California. As of the date of this Prospectus, Cooley owns a warrant to purchase 2,500 units at a price of $.50 per unit with each unit consisting of 1 share of Common Stock and one warrant to purchase 1/2 share of Common Stock at an exercise price of $20.00 per share. GC&H Investments, a general partnership formed by the partners of Cooley for investment purposes, owns 18,761 shares of the Company's Common Stock, 1,514 shares of Common Stock issuable upon the net exercise of an outstanding warrant upon the closing of the Offering and a warrant to purchase 875 shares of Series E Preferred Stock, convertible into 875 shares of the Company's Common Stock. Alan C. Mendelson and Deborah A. Marshall, partners at Cooley, are Secretary and Assistant Secretary of the Company, respectively. EXPERTS The consolidated financial statements of CV Therapeutics, Inc. as of December 31, 1994 and 1995 and for each of the three years in the period ended December 31, 1995 appearing in this Prospectus and Registration Statement have been audited by Ernst & Young LLP, independent auditors, as set forth in their report thereon appearing elsewhere herein and in the Registration Statement, and are included in reliance upon such report given on the authority of such firm as experts in accounting and auditing. ADDITIONAL INFORMATION The Company has filed with the Securities and Exchange Commission (the "Commission") a Registration Statement on Form S-1 under the Securities Act with respect to the Common Stock offered hereby (the "Registration Statement"). This Prospectus does not contain all of the information set forth in the Registration Statement and the exhibits and schedules thereto. For further information with respect to the Company and such Common Stock, reference is made to the Registration Statement and the exhibits and schedules thereto filed as a part thereof. Statements contained herein as to the contents of any documents are not necessarily complete. In each instance, reference is made to the copy of such document filed as an exhibit to the Registration Statement, and each such statement is qualified in its entirety by such reference. Copies of the Registration Statement, including exhibits and schedules filed therewith, may be inspected without charge at the Commission's principal office in Washington, D.C. or obtained at prescribed rates from the Public Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. In addition, The Commission maintains a Web site (http://www.sec.gov) that contains reports, proxy and information statements and other information regarding registrants that file electronically with the Commission through the Electronics Data Gathering, Analysis and Retrieval System. The Company intends to distribute to its stockholders annual reports containing audited financial statements and will make available copies of quarterly reports for the first three quarters of each fiscal year containing unaudited interim financial information. 58 CV THERAPEUTICS, INC. (A DEVELOPMENT STAGE COMPANY) INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE ----- 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
F-1 REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS The Board of Directors CV Therapeutics, Inc. We have audited the accompanying consolidated balance sheets of CV Therapeutics, Inc. (a development stage company) as of December 31, 1994 and 1995, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 1995 and for the period from inception (December 11, 1990) to December 31, 1995 (not separately presented herein). These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of CV Therapeutics, Inc. (a development stage company) at December 31, 1994 and 1995, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 1995 and for the period from inception (December 11, 1990) to December 31, 1995 (not separately presented herein) in conformity with generally accepted accounting principles. /s/ ERNST & YOUNG LLP Palo Alto, California February 23, 1996, except for Note 10, as to which the date is October 29, 1996 F-2 CV THERAPEUTICS, INC. (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED BALANCE SHEETS
------------------------------------------ PRO FORMA STOCKHOLDERS' EQUITY AT DECEMBER 31, SEPTEMBER SEPTEMBER -------------------- 30, 30, 1994 1995 1996 1996 --------- --------- --------- --------- IN THOUSANDS, EXCEPT PER SHARE AMOUNTS (UNAUDITED) 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 --------- --------- --------- --------- --------- --------- LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 205 $ 405 $ 557 Accrued liabilities 731 1,549 1,447 Current portion of long-term debt 1,201 3,341 - Current portion of capital lease obligation 186 224 27 --------- --------- --------- Total current liabilities 2,323 5,519 2,031 Long-term portion of long-term debt 2,322 3,250 5,000 Long-term portion of capital lease obligation 376 152 - Accrued rent 517 723 722 Commitments Stockholders' equity: Preferred stock (pro forma), $0.001 par value, 5,000,000 shares authorized, none issued and outstanding - - - $ - Convertible preferred stock, $0.001 par value, 42,000,000 preferred shares authorized (none pro forma), issuable in series; 21,549,445, 25,471,045 and 32,382,015 convertible preferred shares issued and outstanding at December 31, 1994 and 1995, and September 30, 1996, respectively; at amounts paid in; aggregate liquidation preference of $37,516 and $51,338 at December 31, 1995 and September 30, 1996, respectively 28,591 36,388 50,130 - Common stock, $0.001 par value, 30,000,000 shares authorized; 254,197, 368,081 and 418,083 shares issued and outstanding at December 31, 1994 and 1995, and September 30, 1996, (4,449,166 - pro forma) respectively, less 95,000 shares held in treasury; at amounts paid in 37 258 2,663 52,793 Warrants to purchase preferred stock (common stock - pro forma) 495 544 1,225 1,225 Notes receivable issued for stock (25) (125) (171) (171) Deferred compensation - - (2,311) (2,311) Deficit accumulated during the development stage (18,537) (35,261) (43,628) (43,628) --------- --------- --------- --------- Total stockholders' equity 10,561 1,804 7,908 $ 7,908 --------- --------- --------- --------- --------- $ 16,099 $ 11,448 $ 15,661 --------- --------- --------- --------- --------- ---------
See accompanying notes. F-3 CV THERAPEUTICS, INC. (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED STATEMENTS OF OPERATIONS
----------------------------------------------------------------------- INCEPTION NINE MONTHS ENDED (DECEMBER 11, YEAR ENDED DECEMBER 31, SEPTEMBER 30, 1990) ------------------------------- -------------------- SEPTEMBER 30, 1993 1994 1995 1995 1996 1996 --------- --------- --------- --------- --------- ---------------- IN THOUSANDS, EXCEPT PER SHARE AMOUNTS (UNAUDITED) (UNAUDITED) License revenue $ - $ - $ - $ - $ 250 $ 250 Operating expenses: Research and development 4,731 8,823 12,856 10,099 5,834 33,411 General and administrative 947 2,802 3,402 2,367 2,186 9,766 --------- --------- --------- --------- --------- ---------------- Total operating expenses 5,678 11,625 16,258 12,466 8,020 43,177 --------- --------- --------- --------- --------- ---------------- Loss from operations (5,678) (11,625) (16,258) (12,466) (7,770) (42,927) Interest income 182 526 416 338 383 1,551 Interest expense (21) (268) (882) (626) (980) (2,229) --------- --------- --------- --------- --------- ---------------- Net loss $ (5,517) $ (11,367) $ (16,724) $ (12,754) $ (8,367) $(43,605) --------- --------- --------- --------- --------- ---------------- --------- --------- --------- --------- --------- ---------------- Pro forma net loss per share $ (4.33) $ (3.37) $ (1.78) --------- --------- --------- --------- --------- --------- Shares used in computing pro forma net loss per share 3,861 3,780 4,708 --------- --------- --------- --------- --------- ---------
See accompanying notes. F-4 CV THERAPEUTICS, INC. (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY PERIOD FROM INCEPTION (DECEMBER 11, 1990) TO SEPTEMBER 30, 1996 ------------------------------------------------------------------------------------------ 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)
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
See accompanying notes. F-5 CV THERAPEUTICS, INC. (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (CONTINUED) PERIOD FROM INCEPTION (DECEMBER 11, 1990) TO SEPTEMBER 30, 1996 ------------------------------------------------------------------------------------------ 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) --------- --------- --------- --------- ---------- ---------- ---------- ---------- --------- --------- --------- --------- ---------- ---------- ---------- ----------
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 ---------- ----------
See accompanying notes. F-6 CV THERAPEUTICS, INC. (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED STATEMENTS OF CASH FLOWS
---------------------------------------------------------------- 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) 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 --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
F-7 CV THERAPEUTICS, INC. (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) ---------------------------------------------------------------- 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 --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
See accompanying notes. F-8 CV THERAPEUTICS, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES THE COMPANY CV Therapeutics, Inc. (the "Company"), a development stage biopharmaceutical company, was incorporated in the State of Delaware on December 11, 1990 to focus exclusively on the application of molecular cardiology to the discovery, development and commercialization of novel, small molecule drugs for the treatment of chronic cardiovascular diseases. The Company's primary activities since incorporation have been establishing its offices and research facilities, recruiting personnel, conducting research and development, performing business and financial planning and raising capital. Since inception, the Company has accumulated a deficit of approximately $43.6 million. Management expects to incur additional losses to complete product development, and commercialization, as necessary, and recognizes the need to raise additional funds from outside sources. In March and May 1996 the Company successfully consummated an equity financing transaction which raised approximately $13.0 million and has completed a refinancing of its existing debt obligations (see Note 5). Management believes that it will be able to obtain additional funds through either public or private equity or debt financings, collaborative and other arrangements with corporate partners or from other sources. If adequate funds are not available, the Company may be required to reduce its level of spending, or eliminate one or more of its research and development programs. PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of the Company and its wholly owned subsidiary, CV Therapeutics International, which was incorporated in December 1993 in the Cayman Islands. All significant intercompany balances have been eliminated. INTERIM FINANCIAL INFORMATION The financial information at September 30, 1996 and for the nine months ended September 30, 1995 and 1996 is unaudited but includes all adjustments (consisting only of normal recurring adjustments) which the Company considers necessary for a fair presentation of the financial position at such date and the operating results and cash flows for those periods. Results for the nine months ended September 30, 1996 are not necessarily indicative of results for the entire year. RESEARCH AND DEVELOPMENT Research and development expenses consist of costs incurred for independent research and development. These costs include direct and research-related overhead expenses. CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS The Company considers all highly liquid investments with a maturity from date of purchase of three months or less to be cash equivalents. Cash equivalents consist primarily of money market funds. All other liquid investments are classified as short-term investments. Short-term investments at December 31, 1994 consist primarily of auction market preferred stock, money market capital notes, and bank notes. At September 30, 1996, all short-term investments are in U.S. government bonds. The Company limits its concentration of risk by diversifying its investments among a variety of issuers. Management determines the appropriate classification of investment securities at the time of purchase and reevaluates such designation as of each balance sheet date. At December 31, 1994 and 1995 and September 30, 1996, all investment securities are designated as available-for-sale. Available-for-sale securities are carried at fair value, with the unrealized gains and losses reported in stockholders' equity. The amortized cost of debt securities in this category is adjusted for amortization of premiums and accretion of discounts to maturity. Such amortization is included in interest income. F-9 CV THERAPEUTICS, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) The cost of securities sold is based on the specific identification method. Interest and dividends on securities classified as available-for-sale are included in interest income. Realized gains and losses and declines in value judged to be other than temporary for available-for-sale securities are included in the statement of operations. There have been no such transactions through December 31, 1995. DEPRECIATION AND AMORTIZATION Property and equipment are stated at cost, less accumulated depreciation and amortization. Depreciation is provided using the straight-line method over the estimated useful lives of the respective assets, generally three to five years. Leasehold improvements are amortized over the lesser of the lease term or the estimated useful lives of the related assets, generally two to three years. Organization costs are amortized over a period of five years. REVENUE RECOGNITION Revenues related to license agreements with noncancelable, nonrefundable terms and no significant future obligations are recognized upon execution of the agreements. Milestone payments will be recognized pursuant to collaborative agreements upon the achievement of specified milestones. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. NET LOSS PER SHARE Except as noted below, historical net loss per share is computed using the weighted average number of common shares outstanding. Common equivalent shares are excluded from the computation as their effect is antidilutive, except that, pursuant to the Securities and Exchange Commission ("SEC") Staff Accounting Bulletins, common and common equivalent shares issued during the 12-month period prior to the initial filing of the proposed offering at prices below the assumed public offering price have been included in the calculation as if they were outstanding for all periods presented (using the treasury stock method for stock options at the estimated public offering price). Historical net loss per share information is as follows:
----------------------------------------------------- NINE MONTHS ENDED YEAR ENDED DECEMBER 31, SEPTEMBER 30, IN THOUSANDS, EXCEPT PER ------------------------------- -------------------- SHARE AMOUNTS 1993 1994 1995 1995 1996 --------- --------- --------- --------- --------- Net loss per share $(3.58) $(7.32) $(10.20) $(7.85) $(4.95) --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- Shares used in computing net loss per share 1,540 1,553 1,640 1,625 1,691 --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Pro forma net loss per share has been computed as described above and also gives effect to the conversion of convertible preferred shares not included above that will automatically convert upon completion of the Company's initial public offering (using the if-converted method) from the original date of issuance. UNAUDITED PRO FORMA STOCKHOLDERS' EQUITY If the offering contemplated by this Prospectus is consummated, all of the convertible preferred stock outstanding as of the closing date will automatically be converted into 3,238,185 shares of common stock, based on the F-10 CV THERAPEUTICS, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) shares of convertible preferred stock outstanding as of September 30, 1996. In addition, 792,898 shares will be issued in connection with the net exercise of certain warrants upon the closing of the initial public offering. Pro forma stockholders' equity at September 30, 1996, as adjusted for the conversion of preferred stock and the net exercise of certain warrants, is disclosed on the balance sheet. STOCK-BASED COMPENSATION In October 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"). SFAS 123 is effective for fiscal years beginning after December 15, 1995. Under SFAS 123, stock-based compensation expense is measured using either the intrinsic-value method as prescribed by Accounting Principle Board Opinion No. 25 or the fair-value method described in SFAS 123. The Company plans to implement SFAS 123 in 1996 using the intrinsic-value method; accordingly, there will be no effect upon adopting SFAS 123 on the Company's financial position or results of operations. 2. LICENSE AND COLLABORATION AGREEMENTS GENTA INCORPORATED In January 1993, the Company, along with Genta Incorporated (collectively referred to as "Licensees"), entered into a worldwide license agreement with the Board of Trustees of the Leland Stanford Junior University ("Stanford"). Under the terms of the agreement, Stanford granted the Licensees rights with respect to certain patents to make, use and sell products for the treatment of coronary restenosis and other vascular and associated human conditions. In consideration for these patent rights, the Licensees paid a $100,000 licensing fee upon signing the agreement. The Licensees provided for certain nonrefundable annual royalties and nonrefundable milestone royalties over the term of the agreement, and royalties on net sales of licensed products. On June 28, 1996, the Company and Stanford agreed upon the terms pursuant to which the January 1993 license agreement referred to above was terminated. GENTA/GENTA JAGO TECHNOLOGIES B.V. On April 9, 1993, the Company entered into a five-year research and development collaboration with Genta, Incorporated ("Genta") and Genta Jago Technologies B.V. ("GJT") to design, develop and commercialize certain products utilizing the technology which is the subject of the Stanford license agreement described above. The agreement obligated the Company, Genta and GJT to jointly fund certain research costs. In connection with this agreement, Genta acquired a warrant to purchase 1,000,000 shares of the Company's Series B preferred stock at $2.50 per share (100,000 shares of common stock at $25.00 per share on an as-if converted basis). The purchase price for the warrant was $0.48 per underlying share or $480,000 (100,000 shares of common stock at $4.80 on an as-if converted basis). The warrant is exercisable immediately and expires on April 7, 2003. As stated above, in June 1996, the Company and Stanford agreed upon the terms pursuant to which the license terminated and, consequently, there are no further obligations to perform under this collaboration agreement. Although the agreements with Genta and GJT have not been terminated, the Company believes that neither party is currently pursuing the collaborative research. UNIVERSITY OF FLORIDA RESEARCH FOUNDATION, INC. In June 1994, the Company entered into a license agreement with the University of Florida Research Foundation, Inc. ("UFRFI") under which the Company received exclusive worldwide rights with respect to certain F-11 CV THERAPEUTICS, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED) 2. LICENSE AND COLLABORATION AGREEMENTS (CONTINUED) patents to develop adenosine A(1) receptor antagonists and agonists for the detection, prevention and treatment of human and animal diseases. In consideration for the license, the Company paid UFRFI an initial license fee and is obligated to pay royalties based on net sales of products which utilize the licensed technology. Pursuant to the agreement, the Company must exercise commercially reasonable efforts to develop and commercialize one or more products covered by the licensed technology and is obligated to meet milestones in completing certain preclinical work. In the event the Company fails to reach those milestones, UFRFI may convert the exclusive license into a non-exclusive license. As part of the license agreement with UFRFI, the Company entered into a research agreement with the University of Florida. SYNTEX (U.S.A.) INC. In March 1996, the Company entered a license agreement with Syntex (U.S.A.) Inc. ("Syntex"), which is an indirect subsidiary of Roche Holding Limited, pursuant to which the Company was granted an exclusive license in certain territories under Syntex patents and know-how for the sale of products incorporating the licensed technology, in exchange for an up front license fee, milestone payments and royalties. In consideration for the up front license fee of $750,000, the Company issued to Syntex 375,000 shares of Series E preferred stock and a five year warrant to purchase 187,500 shares of Series E preferred stock at $2.00 per share (18,750 shares of common stock at $20.00 per share on an as-if converted method). BAYER AG On May 7, 1996, the Company entered a License Agreement with Bayer AG in the area of inflammatory diseases. Pursuant to this agreement, the Company has granted Bayer AG an exclusive worldwide license under the Company's patents and know-how to research, develop and market products incorporating the licensed technology. In exchange for the license, the Company received a $250,000 up front non-refundable license fee and is entitled to receive milestone payments and royalties in the future. 3. INVESTMENTS The following is a summary of available-for-sale securities:
------------------------------------- ESTIMATED FAIR VALUE ------------------------------------- DECEMBER 31, ------------------------ SEPTEMBER IN THOUSANDS 1994 1995 30, 1996 ----------- ----------- ----------- Cash equivalents: 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 ----------- ----------- ----------- ----------- ----------- -----------
As of December 31, 1995 and September 30, 1996, the difference between the fair value and the amortized cost of available-for-sale securities was insignificant. F-12 CV THERAPEUTICS, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED) 3. INVESTMENTS (CONTINUED) As of December 31, 1994 and September 30, 1996, the average contractual maturity was approximately three months and six months, respectively, with no single investment's maturity exceeding one year. Excluded from short-term investments above is $700,000 and $713,000 of certificates of deposit at December 31, 1994 and 1995, respectively, held as collateral against loans and which is included in "Intangibles and other assets" on the balance sheet. 4. PROPERTY AND EQUIPMENT Property and equipment consist of the following:
------------------------------------- DECEMBER 31, ------------------------ SEPTEMBER IN THOUSANDS 1994 1995 30, 1996 ----------- ----------- ----------- Machinery and equipment $ 2,220 $ 2,407 $ 2,419 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 ----------- ----------- ----------- ----------- ----------- -----------
Property and equipment include $756,000 recorded under capital leases at December 31, 1994, 1995, and September 30, 1996. Accumulated amortization related to leased assets totaled $275,000, $500,000 and $685,000 at December 31, 1994 and 1995, and September 30, 1996, respectively. F-13 CV THERAPEUTICS, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED) 5. LONG-TERM DEBT Long-term debt consists of the following:
----------------------------------------- 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 ------ ------ ----------- ------ ------ -----------
The indebtedness to banks is secured by interests in equipment, furniture and fixtures. The carrying value of the corporate term loan approximates fair value at December 31, 1995 and September 30, 1996. The fair value of the corporate term loan was estimated using discounted cash flow analysis, based on the incremental borrowing rates currently available to the Company for borrowings with similar terms and maturity. On September 27, 1996, the Company completed a refinancing of its existing debt obligations with $5.0 million of debt financing from entities associated with Hambrecht & Quist Group. (the H&Q Debt Financings). The H&Q Debt Financings consist of a $3.0 million term loan which bears interest at the rate of 9.0% per annum, secured by all of the assets of the Company, and has a final maturity in September 1999, and a $2.0 million term loan which bears interest at 9.0% per annum due January 1, 1997. The Company has the option on or before December 31, 1996 to convert the $2.0 million term loan to an equipment lease which would bear interest at the rate of 9.0% per annum and would have a final maturity in September 1999. The Company intends to convert the term loan into an equipment lease if it does not complete its initial public offering by December 31, 1996. Therefore, the term loan has been classified as long term in the balance sheet at September 30, 1996. If the Company does not raise a minimum of $13.0 million in gross proceeds through the sale of equity securities, the Company can elect to defer payments under either the term loan (or the equipment lease) until March 1998 and F-14 CV THERAPEUTICS, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED) 5. LONG-TERM DEBT (CONTINUED) minimum subsequent payments would total $3.2 million in 1998 and $1.8 million in 1999. Otherwise, maximum payments could total $2.0 million, $1.7 million and $1.3 million in 1997, 1998 and 1999, respectively. Also, see Note 8. 6. LEASES The Company leases certain equipment and furniture under noncancelable capital leases. The Company leases its facilities under noncancelable operating leases. The facilities lease expires February 2002 and includes an option to renew the lease for an additional five years. In October 1995, the Company entered into a noncancelable sublease agreement whereby it leased additional space to two separate companies for eight months and 17 months, respectively. Aggregate future minimum rentals to be received as of December 31, 1995 totaled $487,000. Following is a schedule of future minimum lease payments at December 31, 1995, net of sublease rentals in 1996 and 1997:
------------------------ 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 ----- -----
Rent expense, net of sublease rentals, for the years ended December 31, 1993, 1994 and 1995, for the nine months ended September 30, 1995 and 1996 and for the periods from inception (December 11, 1990) to September 30, 1996 was approximately $123,000, $662,000, $840,000, $578,000, $305,000 and $1,958,000, respectively. 7. RELATED PARTY TRANSACTIONS During 1992 and 1993, the Company issued loans to certain of the Company's officers and employees related to relocation, purchases of stock and other purposes of which loans aggregating $675,000, $750,000 and $796,000 were outstanding at December 31, 1994 and 1995, and September 30, 1996, respectively. These loans bear interest at 5.33% to 7.31% per annum. The amounts are repayable from December 31, 1997 to June 8, 2005. As of September 30, 1996 loans for $625,000 are secured by personal residences, and loans for the remaining $171,000 are secured by the individuals' common stock. As of December 31, 1994, 1995 and September 30, 1996, loans for $25,000, $125,000 and $171,000 related to the purchase of common stock and have been included in stockholders' equity. The Company forgave $91,500 and $47,400 of accrued interest in the year F-15 CV THERAPEUTICS, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED) 7. RELATED PARTY TRANSACTIONS (CONTINUED) ended December 31, 1995 and the nine months ended September 30, 1996, respectively, on several of these notes. The forgiveness was accounted for as compensation expense to the related employees in the period in which the interest was deemed to have been forgiven. 8. STOCKHOLDERS' EQUITY CONVERTIBLE PREFERRED STOCK Preferred stock as of September 30, 1996 consists of the following ($0.001 par value):
---------------------------------- SHARES SHARES ISSUED AND LIQUIDATION AUTHORIZED OUTSTANDING PREFERENCE ---------- ---------- ---------- Series A 8,000,000 7,746,973 6,197,578 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 ---------- ---------- ---------- ---------- ---------- ----------
Preferred stockholders are entitled to noncumulative dividends at the rate of $0.08, $0.25, $0.125, $0.20, $0.20 and $0.20 per annum, for each share of Series A, Series B, Series C, Series D, Series E and Series G preferred stock outstanding, respectively, if declared by the board of directors, payable in preference to common stock dividends. No dividends have been declared or paid by the Company. Pursuant to the Company's Restated Certificate of Incorporation, as amended, the liquidation preference includes all declared but unpaid dividends, if any. None have been declared to date. After payment has been made to the preferred stockholders, holders of the common stock and preferred stock shall receive the remaining assets. Such assets shall be distributed ratably among such holders in proportion to the shares of stock held by them. Each share of preferred stock votes equally with shares of common stock on an "if-converted" basis at any annual or special meeting of the Company, and may act by written consent in the same manner as the common stock. Series A, Series B (if and when issued) Series C, Series D, Series E and Series G preferred stockholders have the right of first refusal with respect to additional equity financings the Company undertakes. Each share of preferred stock is convertible at any time at the option of the holder. After giving effect to the reverse stock split which occurred on October 29, 1996, the conversion ratio is 1-for-10. Conversion of the preferred stock is automatic upon the closing of an initial public offering with gross proceeds in excess of $10,000,000. See Note 10. The Company has reserved 3,238,185 shares of its common stock for the conversion of its outstanding preferred stock. If the Company issues stock for a price per share less than the Series E conversion price, then the Series E and Series G conversion prices shall be reduced to the amount equal to the consideration per share for which such additional shares of stock are issued. This provision shall terminate upon the first to occur of the closing of an initial public offering in excess of $10,000,000 or a merger, reorganization or sale of substantially all of the assets of the Company or the closing of the Company's next financing of at least $5,000,000. F-16 CV THERAPEUTICS, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED) 8. STOCKHOLDERS' EQUITY (CONTINUED) COMMON STOCK In November 1992, the Company repurchased 40,000 shares of its common stock from its founders for $0.60 per share. The original purchase price was recorded as a reduction to common stock, at stated cost, and the excess over the original purchase price, or $23,600, was recorded in the caption "deficit accumulated during the development stage." 1992 STOCK OPTION PLAN The Company has reserved 345,000 common shares for issuance under its revised 1992 Stock Option Plan which provides for common stock options to be granted to employees (including consultants, officers, and directors). The exercise price of each incentive stock option shall be not less than the 100% of the fair value of the stock subject to the option on the date the option is granted. The exercise price of each nonstatutory stock option shall be not less than 85% of the fair value of the stock subject to the option on the date the option is granted. All options are to have a term not greater than 10 years from the date of grant. Options are exercisable upon vesting, which is generally ratable over a five-year period, unless otherwise approved by the board of directors. 1994 EQUITY INCENTIVE PLAN In February 1994, the Company's board of directors adopted the 1994 Equity Incentive Plan. Under the Plan, up to 500,000 shares of the Company's common stock may be granted to employees of and consultants to the Company and its affiliates. The Plan allows for the grant of incentive stock options, nonstatutory stock options, stock bonuses, rights to purchase restricted stock and stock appreciation rights. Options granted under this plan expire no later than 10 years from the date of grant. The exercise price of each incentive stock option shall be not less than 100% of the fair value of the stock subject to the option on the date the option is granted. The exercise price of each nonstatutory option shall be not less than 85% of the fair value of the stock subject to the option on the date the option is granted. The vesting provisions of individual options may vary but in each case will provide for vesting of at least 20% of the total number of shares subject to the option per year. NON-EMPLOYEE DIRECTOR'S STOCK OPTION PLAN In September 1994, the Company's board of directors adopted the Non-Employee Director's Stock Option Plan. Under the Plan, options for up to 20,000 shares of common stock may be granted to directors of the Company who is not otherwise an employee of or consultant to the Company or of any affiliate of the Company. Options granted under this plan expire no later than 10 years from the date of grant. The exercise price of each option shall be the fair value of the stock subject to such option on the date such option is granted. The options generally vest in increments over a period of three years from the date of grant. Outside of Stock Option Plans, from May 1993 through June 1995 the Company granted options to purchase 85,500 shares of Common Stock to employees and consultants. The exercise prices ranged from $0.80 to $2.50 per share, which exercise prices represent the fair value of common stock at the respective grant dates. The stock option terms vary between the individual grants and were approved by the board of directors. F-17 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:
----------------------------------------------- OUTSTANDING OPTIONS SHARES ----------------------------------- IN THOUSANDS, EXCEPT PER AVAILABLE NUMBER OF PRICE PER AGGREGATE SHARE AMOUNTS FOR GRANT SHARES SHARE PRICE ---------- ---------- ----------- ---------- Shares authorized 299 - $ - - 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 ---------- ---------- ----------- ---------- ---------- ---------- ----------- ----------
At December 31, 1994 and 1995 and September 30, 1996, options to purchase 144,679, 203,613 and 284,459 common shares were exercisable, respectively. At September 30, 1996, the Company has reserved 1,480,500 shares of authorized common stock for issuance under all plans. In March and June 1996, options to purchase 8,835 and 40,505 shares were granted at $2.50 per share. Deferred compensation of $172,000 was recorded on these option grants based on the deemed fair value of common stock of approximately $6.25. In September 1996, the Company granted options to purchase a total of 296,500 shares at an exercise price of $2.50 per share and additional deferred compensation of approximately $2,150,000 was recorded based on the deemed fair value of common stock of approximately $9.75. WARRANTS In connection with the sale of Series A preferred stock, the Company acquired 25,000 shares of its common stock from an investor for $0.60 per share by issuing a warrant to purchase 250,000 shares of the Company's Series A preferred stock at $0.80 per share (25,000 shares of common stock at $8.00 per share on an as-if-converted F-18 CV THERAPEUTICS, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED) 8. STOCKHOLDERS' EQUITY (CONTINUED) basis). This warrant is exercisable immediately and expires at the earlier of September 8, 1997 or an initial public offering in excess of $7,500,000 at an offering price of not less than $5.00 per share as adjusted for any stock dividends, stock split, recapitalization or consolidation of the Company's common stock. As of December 31, 1995, 25,000 shares of common stock have been reserved for the exercise of this warrant. In connection with the equipment lease entered into in 1993, the Company issued a warrant to purchase 2,812 shares of the Company's common stock at $8.00 per share. This warrant is exercisable immediately and expires at the earlier of March 18, 1999 or an initial public offering in excess of $7,500,000 or a merger or consolidation of the Company with or into another corporation or entity. As of December 31, 1995, 2,812 shares of the Company's common stock have been reserved for the exercise of the warrant. In connection with the 1993 facility lease, the Company issued warrants to purchase 30,000 shares of the Company's Series C preferred stock at $1.25 per share (3,000 shares of common stock at $12.50 per share on an as-if-converted basis). The warrants expired in August 1996. In connection with the sale of Series D preferred stock, the Company issued warrants to purchase 219,266 shares of the Company's Series D preferred stock at $2.00 per share (21,926 shares of common stock at $20.00 per share on an as-if-converted basis). In connection with the corporate term loan obtained in April 1995, the Company issued warrants to purchase 400,000 shares of the Company's Series D preferred stock at $2.50 per share (40,000 shares of common stock at $25.00 per share on an as-if-converted basis). The warrant is exercisable immediately and expires on April 24, 2005. As of December 31, 1995, 40,000 shares of common stock have been reserved for the exercise of the warrant. In June 1996, the warrant agreement was amended to change the exercise price of the warrants from $25.00 per share to $8.90 per share, in exchange for the elimination of certain loan covenants. This change in terms resulted in a new measurement date for the warrants for accounting purposes, and, therefore, a value of $160,000 has been recorded in June 1996 based on the deemed fair value of the warrants at that date. The warrant value was initially amortized over the remaining life of the loan. However, on September 30, 1996, the Company repaid the remaining balance of the loan and expensed the unamortized portion of the warrant value at that date. The warrants are exercisable immediately and expire on March 23, 1999. As of December 31, 1995, 21,926 shares of common stock have been reserved for the exercise of the warrants. In connection with the sale of Series E preferred stock, the Company issued warrants to purchase 1,960,800 shares of the Company's Series E preferred stock at $2.00 per share (196,078 shares of common stock at $20.00 per share on an as-if-converted basis). The warrants are exercisable immediately and expire at the earlier of September 7, 2000, an initial public offering of common stock at an offering price of not less than $5.00 per share as adjusted for any stock dividends, combinations or stock split with respect to such stock or a merger, reorganization or sale of substantially all of the assets of the Company. As of December 31, 1995, 196,078 shares of common stock have been reserved for the exercise of the warrants. In 1995, the Company issued its corporate attorneys a warrant to purchase 25,000 units consisting of one share of the Company's Series E preferred stock (2,500 shares of common stock on an as-if converted basis) and one warrant to purchase half of one share of Series E preferred stock for $2.00 per share (1,250 shares of common stock at $20.00 per share on an as-if-converted basis). The warrant was issued in lieu of payment for legal services rendered totaling $48,750 and is separately disclosed in the statement of stockholders' equity. The warrant is exercisable immediately and expires at the earlier of December 2000 or upon the consummation of a qualified initial public offering, as defined in the related agreement. Shares of common stock totaling 3,750 have been reserved for issuance upon exercise of the warrant. F-19 CV THERAPEUTICS, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED) 8. STOCKHOLDERS' EQUITY (CONTINUED) In connection with the sale of Series G preferred stock in March and May 1996, the Company issued warrants to purchase 980,392 shares of common stock at $2.50 per share. These warrants expire March 28, 1999 or at the closing of a qualified initial public offering, as defined in the related agreement. In September 1996, in connection the debt financing described in Note 5, the Company issued five year warrants to purchase 84,500 shares of common stock at an exercise price of $20.00 per share, and five year warrants to purchase 84,500 shares of common stock at an exercise price of $2.50 per share. These warrants were valued at $521,000 based on the value of common stock on the date of the transaction and based on the terms of the respective warrant agreements. The following table summarizes the warrants outstanding as of September 30, 1996 (on an as-if converted basis):
------------------------------------------------------------- DATE OF ISSUED FOR EXERCISE NUMBER OF ISSUANCE UNDERLYING STOCK PRICE WARRANTS - -------------------------- ------------------------------------- ----------- --------- October 1992 Series A preferred stock $ 8.00 25,000 April 1993 Series B preferred stock $ 25.00 100,000 March and April 1994 Series D preferred stock $ 20.00 21,926 April 1995 Series D preferred stock $ 8.90 40,000 September and November 1995 Series E preferred stock $ 20.00 196,078 December 1995 Series E preferred stock $ 20.00 3,750 March 1996 Series E preferred stock $ 20.00 18,750 September 1996 Common stock $ 20.00 84,500 September 1996 Common stock $ 2.50 84,500 --------- Total 574,504
Common stock to be issued on the net exercise of outstanding warrants, upon the closing of an initial public offering, assuming an initial offering price of $13.00 per share:
March 1993 Common Stock $ 8.00 2,812 March and May 1996 Common Stock $ 2.50 980,392 --------- 983,204 --------- --------- Less shares due to net exercise (190,306) --------- Expected shares to be net exercised 792,898 --------- Total warrants outstanding as of September 30, 1996 1,367,402 --------- ---------
9. INCOME TAXES As of December 31, 1995, the Company had federal net operating loss carryforwards of approximately $32,000,000. The Company also had research and development tax credit carryforwards of approximately $1,200,000. The difference between the federal net operating loss carryforwards and the accumulated deficit relates to losses generated by the Company's wholly owned subsidiary, CV Therapeutics, International. The net operating loss and credit carryforwards will expire at various dates beginning on 2007 through 2010, if not utilized. Utilization of the net operating losses and credits may be subject to an annual limitation due to the ownership change limitations provided by the Internal Revenue Code of 1986 and similar state provisions. The annual limitation may result in the expiration of net operating losses and credits before utilization. F-20 CV THERAPEUTICS, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED) 9. INCOME TAXES (CONTINUED) Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting and the amount used for income tax purposes. Significant components of the Company's deferred tax assets as of December 31 are as follows:
----------------------- DECEMBER 31, ----------------------- IN THOUSANDS 1994 1995 ----------- ---------- Net operating loss carryforward $ 5,400 $11,600 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 $ - $ - ----------- ---------- ----------- ----------
The valuation allowance increased by $4,000,000, during the year ended December 31, 1994. 10. SUBSEQUENT EVENTS In September 1996, the board of directors authorized management of the Company to file a registration statement with the SEC permitting the Company to sell shares of its common stock to the public. If the initial public offering is closed under the terms presently anticipated, all of the preferred stock outstanding will automatically convert into 3,238,185 shares of common stock. Unaudited pro forma stockholders' equity, as adjusted for the assumed conversion of the preferred stock, is set forth on the balance sheet. Also in September 1996, the board of directors of the Company authorized a 1-for-10 reverse stock split, in which ten shares of common stock were exchanged for one share of common stock. Following stockholder approval, the stock split was effected on October 29, 1996. Effective upon the closing of the initial public offering, the Company will become authorized to issue 5,000,000 shares of $0.001 par value preferred stock and 30,000,000 shares of $0.001 par value common stock. All par value, share and per share amounts, as well as the dividend and liquidation preferences for preferred stock, included in the accompanying financial statements have been retroactively adjusted to reflect the reverse stock split. In September 1996, the board of directors adopted the Employee Stock Purchase Plan, the amended and restated Non-Employee Directors' Stock Option Plan and the amended and restated 1992 Stock Option Plan and the amended and restated 1994 Equity Incentive Plan. In September 1996, the stockholders approved such plans. A total of 1,545,000 shares of common stock have been reserved for issuance thereunder, subject to stockholder approval. On August 25, 1996, a promissory note was executed in favor of the Company by an officer, for $25,000, bearing interest at 6.84%, per annum. The principal is due and payable on August 25, 2001. The note is secured by a pledge of shares of the Company's common stock. F-21 [LOGO] 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: SEC Registration Fee 13,639 NASD Filing Fee 4,525 Nasdaq National Market Filing Fee 33,880 Blue Sky Fees and Expenses 15,000 Accounting Fees 140,000 Legal Fees and Expenses 325,000 Transfer Agent and Registrar Fees 10,000 Directors and Officers Insurance 175,000 Printing and Engraving 175,000 Miscellaneous 32,956 Total $ 925,000 --------- ---------
- ------------------------ 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 (4) In April 1995, the Company issued warrants to purchase an aggregate of 500,000 shares of Series D Preferred Stock, convertible into an aggregate of 50,000 shares of Common Stock, at a pre-conversion exercise price of $2.50 per share to two accredited investors pursuant to the terms of a Loan and Security Agreement, dated April 24, 1995, as amended March 8, 1996. These warrants were amended and restated in August 1996 to purchase 100,000 and 300,000 shares of Series D Preferred Stock, convertible into 10,000 and 30,000 shares of Common Stock, at a pre-conversion exercise price of $.89 per share. (5) In September and November 1995, the Company issued and sold 3,921,600 shares of Series E Preferred Stock, convertible into 392,159 shares of Common Stock, and warrants to purchase 1,960,800 shares of Series E Preferred Stock, convertible into 196,078 shares of Common Stock at a pre-conversion exercise price of $2.00 per share to a total of 37 accredited investors, including one director and one individual who was an officer and a director, for cash in the aggregate amount of $7,843,200. (6) In December 1995, the Company issued a warrant to purchase 25,000 units at a price of $.50 per unit, with each unit consisting of 1 share of Series E Preferred Stock, convertible into 2,500 shares of Common Stock, and one warrant to purchase 1/2 share of Series E Preferred Stock, convertible into 1,250 shares of Common Stock, at a pre-conversion exercise price of $2.00 per share to Cooley Godward LLP, in connection with cancellation of accounts payable. (7) In March 1996, the Company issued and sold 375,000 shares of Series E Preferred Stock, convertible into 37,500 shares of Common Stock, and warrants to purchase 187,500 shares of Series E Preferred Stock, convertible into 18,750 shares of Common Stock, at a pre-conversion exercise price of $2.00 per share to an accredited investor pursuant to the terms of a License Agreement dated March 27, 1996. (8) In March and May 1996, the Company issued and sold 6,535,970 shares of Series G Preferred Stock, convertible into 653,592 shares of Common Stock, and warrants to purchase 980,392 shares of Common Stock, convertible into 980,392 shares of Common Stock, at an exercise price of $2.50 per share to a total of 64 accredited investors, including one director, three officers and two individuals who were officers and directors, for cash in the aggregate amount of $13,071,940. (9) In September 1996, the Company issued warrants to purchase an aggregate of 84,500 shares of Common Stock, at an exercise price of $20.00 per share, and warrants to purchase an aggregate of 84,500 shares of Common Stock, at an exercise price of $2.50 per share, to two accredited investors in connection with a $5.0 million debt financing and pursuant to the terms of a Common Stock Warrant Purchase Agreement. The share amounts set forth give effect to the Company's 1-for-10 reverse stock split of the Company's Common Stock effected in October 1996. The sales and issuances of securities in the transactions described in paragraphs (2)-(9) were deemed to be exempt from registration under the Securities Act by virtue of Section 4(2), Regulation D or Regulation S promulgated thereunder. With respect to the grant of stock options described in paragraph (1), an exemption from registration was unnecessary in that none of the transactions involved a "sale" of securities as such term is used in Section 2(3) of the Securities Act. Appropriate legends are affixed to the stock certificate issued in the aforementioned transactions. Similar legends were imposed in connection with any subsequent sales of any such securities. All recipients received adequate information about the Company or had access, through employment or other relationships, to such information. ITEM 16 EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (a) Exhibits. 1.1+ Underwriting Agreement. 3.1+ Restated Certificate of Incorporation of the Registrant, as amended. 3.2+ Bylaws of the Registrant. 3.3+ Certificate of Amendment of the Restated Certificate of Incorporation of the Registrant. 3.4+ Restated Certificate of Incorporation of the Registrant to be effective upon closing of the Offering. 3.5+ Restated Bylaws of the Registrant to be effective upon the closing of the Offering.
II-2 4.1 Reference is made to Exhibits 3.1 through 3.5. 4.2+ Specimen Common Stock Certificate. 5.1+ Opinion of Cooley Godward LLP as to legality of the Common Stock. 10.1+ 1992 Stock Option Plan, as amended. 10.2+ 1994 Equity Incentive Plan, as amended. 10.3+ Non-Employee Directors' Stock Option Plan, as amended. 10.4+ Form of Incentive Stock Option Grant. 10.5+ Form of Non-Incentive Stock Option Grant. 10.6+ Employee Stock Purchase Plan. 10.7+ Amended and Restated Promissory Note for $500,000 between Registrant and Louis G. Lange, M.D., Ph.D., effective as of September 23, 1996. 10.8+ Amended and Restated Promissory Note between Registrant and George F. Schreiner, M.D., Ph.D., effective as of September 23, 1996. 10.9+ Separation and Consulting Agreement between Registrant and Thomas L. Gutshall, effective as of September 2, 1996. 10.10+ Form of Indemnification Agreement between Registrant and its directors and officers. 10.11+ Amended and Restated Investor Rights Agreement between the Registrant and the stockholders named therein, dated May 29, 1996. 10.12+ Form of Series A Preferred Stock Warrant, and amendment thereto. 10.13+ Amended and Restated Series B Preferred Stock Warrant to Genta Incorporated. 10.14+ Form of Series D Preferred Stock Warrant to Alex Brown & Sons Incorporated. 10.15+ Form of Amended and Restated Series D Preferred Stock Warrant. 10.16+ Form of Series E Preferred Stock Warrant. 10.17+ Series E Preferred Stock Warrant to Cooley Godward LLP. 10.18+ Series E Preferred Stock Warrant to Syntex (U.S.A.) Inc. 10.19+ Form of Common Stock Warrant issued in connection with the Company's Series G private financing. 10.20+ Common Stock Warrant to Lease Management Services, Inc. 10.21 License Agreement between the Registrant and University of Florida Research Foundation, Inc., dated June 27, 1994.* 10.22 Research Agreement between the Registrant and University of Florida, dated June 27, 1994.* 10.23 License Agreement between Registrant and Syntex (U.S.A.) Inc., dated March 27, 1996.* 10.24 License Agreement between Registrant and Bayer AG, dated May 7, 1996.* 10.25+ Lease Agreement between Registrant and Matadero Creek, dated August 6, 1993 and addendum thereto; Letter Amendment to Lease Agreement, dated June 30, 1994 and Second Amendment to Lease Agreement, dated June 30, 1994. 10.26+ Amended and Restated Promissory Note for $37,500 between Registrant and Louis G. Lange, M.D., Ph.D., effective as of September 23, 1996. 10.27+ Amended and Restated Promissory Note for $25,000 between Registrant and Louis G. Lange, M.D., Ph.D., effective as of September 23, 1996. 10.28+ Amended and Restated Promissory Note for $25,000 between Registrant and Louis G. Lange, M.D., Ph.D., effective as of September 23, 1996. 10.29+ Amended and Restated Promissory Note between Registrant and Thomas L. Gutshall, effective as of September 23, 1996.
II-3 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.
- ------------------------ + 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 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 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 November 6, 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.
SIGNATURE TITLE DATE - ------------------------------------------------------ ---------------------------------- --------------------- Chairman of the Board & Chief /S/LOUIS G. LANGE, M.D., PH.D. Executive Officer (Principal November 6, 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) November 6, 1996 * Samuel D. Colella Director November 6, 1996 * Thomas L. Gutshall Director November 6, 1996 * Barbara J. McNeil, M.D., Ph.D. Director November 6, 1996 * Costa G. Sevastopoulos, Ph.D. Director November 6, 1996 * J. Leighton Read, M.D. Director November 6, 1996 * Isaac Stein Director November 6, 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
II-6 EXHIBIT 23.1 CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS We consent to the references to our firm under the captions "Selected Consolidated Financial Data" and "Experts" and to the use of our report dated February 23, 1996 (except for Note 10, as to which the date is October 29, 1996), in Amendment No. 4 to the Registration Statement (Form S-1, No. 333-12675) and related Prospectus of CV Therapeutics, Inc. for the registration of 2,875,000 shares of common stock. /s/ ERNST & YOUNG LLP Palo Alto, California November 6, 1996 II-7 INDEX TO EXHIBITS
EXHIBIT NUMBER EXHIBITS - --------- -------------------------------------------------------------------------------------------- 1.1+ Underwriting Agreement. 3.1+ Restated Certificate of Incorporation of the Registrant, as amended. 3.2+ Bylaws of the Registrant. 3.3+ Certificate of Amendment of the Restated Certificate of Incorporation of the Registrant. 3.4+ Restated Certificate of Incorporation of the Registrant to be effective upon closing of the Offering. 3.5+ Restated Bylaws of the Registrant to be effective upon the closing of the Offering. 4.1 Reference is made to Exhibits 3.1 through 3.5. 4.2+ Specimen Common Stock Certificate. 5.1+ Opinion of Cooley Godward LLP as to legality of the Common Stock. 10.1+ 1992 Stock Option Plan, as amended. 10.2+ 1994 Equity Incentive Plan, as amended. 10.3+ Non-Employee Directors' Stock Option Plan, as amended. 10.4+ Form of Incentive Stock Option Grant. 10.5+ Form of Non-Incentive Stock Option Grant. 10.6+ Employee Stock Purchase Plan. 10.7+ Amended and Restated Promissory Note for $500,000 between Registrant and Louis G. Lange, M.D., Ph.D., effective as of September 23, 1996. 10.8+ Amended and Restated Promissory Note between Registrant and George F. Schreiner, M.D., Ph.D., effective as of September 23, 1996. 10.9+ Separation and Consulting Agreement between Registrant and Thomas L. Gutshall, effective as of September 2, 1996. 10.10+ Form of Indemnification Agreement between Registrant and its directors and officers. 10.11+ Amended and Restated Investor Rights Agreement between the Registrant and the stockholders named therein, dated May 29, 1996. 10.12+ Form of Series A Preferred Stock Warrant, and amendment thereto. 10.13+ Amended and Restated Series B Preferred Stock Warrant to Genta Incorporated. 10.14+ Form of Series D Preferred Stock Warrant to Alex Brown & Sons Incorporated. 10.15+ Form of Amended and Restated Series D Preferred Stock Warrant. 10.16+ Form of Series E Preferred Stock Warrant. 10.17+ Series E Preferred Stock Warrant to Cooley Godward LLP. 10.18+ Series E Preferred Stock Warrant to Syntex (U.S.A.) Inc. 10.19+ Form of Common Stock Warrant issued in connection with the Company's Series G private financing. 10.20+ Common Stock Warrant to Lease Management Services, Inc. 10.21 License Agreement between the Registrant and University of Florida Research Foundation, Inc., dated June 27, 1994.* 10.22 Research Agreement between the Registrant and University of Florida, dated June 27, 1994.* 10.23 License Agreement between Registrant and Syntex (U.S.A.) Inc., dated March 27, 1996.* 10.24 License Agreement between Registrant and Bayer AG, dated May 7, 1996.*
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. 10.26+ Amended and Restated Promissory Note for $37,500 between Registrant and Louis G. Lange, M.D., Ph.D., effective as of September 23, 1996. 10.27+ Amended and Restated Promissory Note for $25,000 between Registrant and Louis G. Lange, M.D., Ph.D., effective as of September 23, 1996. 10.28+ Amended and Restated Promissory Note for $25,000 between Registrant and Louis G. Lange, M.D., Ph.D., effective as of September 23, 1996. 10.29+ Amended and Restated Promissory Note between Registrant and Thomas L. Gutshall, effective as of September 23, 1996. 10.30+ Master Lease Agreement between Registrant and Hambrecht & Quist Guaranty Finance, LLC, dated September 27, 1996. 10.31+ Finance Agreement between Registrant and Hambrecht & Quist Guaranty Finance, LLC, dated September 27, 1996. 10.32+ Business Loan Agreement between Registrant and Hambrecht & Quist Guaranty Finance, LLC, dated September 27, 1996. 10.33+ Business Loan Agreement between Registrant and Hambrecht & Quist Transition Capital, LLC, dated September 27, 1996. 10.34+ Promissory Note between Registrant and Hambrecht & Quist Guaranty Finance, LLC, dated September 27, 1996. 10.35+ Promissory Note between Registrant and Hambrecht & Quist Transition Capital, LLC, dated September 27, 1996. 10.36+ Security Agreement between Registrant and Hambrecht & Quist Guaranty Finance, LLC, dated September 27, 1996. 10.37+ Security Agreement between Registrant and Hambrecht & Quist Transition Capital, LLC, dated September 27, 1996. 10.38+ Form of Common Stock Warrant exercisable immediately, dated September 27, 1996. 10.39+ Form of Common Stock Warrant, dated September 27, 1996. 11.1+ Statement re computation of net loss per share. 23.1 Consent of Ernst & Young LLP, Independent Auditors (see page II-7). 23.2+ Consent of Cooley Godward LLP (included in Exhibit 5.1). 24.1+ Power of Attorney. 27.1+ Financial Data Schedule.
- ------------------------ + Previously filed. * Confidential treatment is being sought for portions of this exhibit. Brackets indicate portions of text that have been omitted. A separate filing of such omitted text has been made with the Commission as part of the Company's application for confidential treatment. EX-10.21 2 EXHIBIT 10.21 Confidential treatment has been requested for portions of this document. Brackets indicate portions of text that have been omitted. A separate filing of such omitted text has been made with the Commission as part of the Company's application for confidential treatment. LICENSE AGREEMENT BETWEEN UNIVERSITY OF FLORIDA RESEARCH FOUNDATION, INC. AND CV THERAPEUTICS, INC. JUNE 27, 1994 TABLE OF CONTENTS PAGE Article I - Definitions...................................................... 1 Article II - Grant........................................................... 4 Article III - Due Diligence.................................................. 5 Article IV - Royalties....................................................... 6 Article V - Reports And Records.............................................. 8 Article VI - Patent Prosecution and Infringement............................ 9 Article VII - Product Liability.............................................. 10 Article VIII - Confidentiality............................................... 11 Article IX - Export Controls................................................. 12 Article X - Non-Use Of Names................................................. 12 Article XI - Assignment...................................................... 12 Article XII - Term and Termination........................................... 12 Article XIII - Payments, Notices And Other Communications.................... 14 Article XIV - Miscellaneous Provisions....................................... 15 APPENDIX A...................................................................A-1 i LICENSE AGREEMENT This Agreement is made and entered into this 27th day of June, 1994, (the Effective Date) by and between THE UNIVERSITY OF FLORIDA RESEARCH FOUNDATION, INC., a not-for-profit corporation duly organized and existing under the laws of the State of Florida and having its principal office at 223 Grinter Hall, Gainesville, Florida 32611-2037 (hereinafter referred to UFRFI), and CV THERAPEUTICS, INC., a corporation duly organized under the laws of Delaware and having its principal office at 1615 Plymouth Street, Mountain View, CA 94043 (hereinafter referred to as Licensee). WITNESSETH WHEREAS, UFRFI is the owner of certain "Patent Rights" (as later defined herein) by assignment from the University of Florida (hereinafter referred to as University) and the University of South Florida relating to UFRFI Case No.1195 "Adenosine Receptors" invented by Dr. Luiz Belardinelli, Dr. Stephen Baker and Dr. Ray Olsson and has the right to grant licenses under said Patent Rights; WHEREAS, said Patent Rights were invented pursuant to an American Heart Association sponsored research grant; WHEREAS, Dr. Belardinelli and Dr. Baker are employees of the University of Florida and Dr. Olsson is an employee of the University of South Florida; WHEREAS, UFRFI desires to have the Patent Rights and Know-How utilized in the public interest and is willing to grant a license thereunder; WHEREAS, Licensee desires to obtain a license under the Patent Rights and Know-How in order to develop, market and sell Licensed Products as provided herein; WHEREAS, Licensee and the University of Florida have entered into a Research Agreement of even date herewith providing for certain additional research and the parties have agreed that any inventions within the scope of such research program shall be included in the Patent Rights and Know-How licensed hereunder; NOW, THEREFORE, in consideration of the premises and the mutual covenants contained herein the parties hereto agree as follows: ARTICLE I- DEFINITIONS For the purposes of this Agreement, the following words and phrases shall have the following meanings: 1. 1.1 "FIELD OF USE" shall mean the detection, prevention and treatment of human and animal diseases and disorders relating adenosive receptors and analogs thereof. 1.2 "JOINT INVENTIONS" shall mean individually and collectively all inventions, improvements and/or discoveries, patentable or unpatentable, which are conceived and/or made jointly by one or more employee of either of the Universities and one or more employee of Licensee as a result of the Project Work relating to adenosine receptors or analogs thereof, whether conceived or made in connection with the Project Work or otherwise. For the purposes of this Agreement, the "making" of inventions shall be governed by U.S. laws of inventorship. 1.3 "JOINT PATENTS" shall mean individually and collectively any and all United States and foreign patent applications and any and all issued United States Letters Patent and foreign patents which are conceived and/or made jointly by one or more employee of either of the Universities and one or more employee of Licensee which pertain to Joint Inventions. 1.4 "KNOW-HOW" shall mean any and all technical data, information, or knowledge related to or described in the Patent Rights or created or discovered in the course of the Project Work. Upon the reasonable request of Licensee to Dr. Belardinelli or Dr. Baker for other information relating to the manufacture, marketing, registration, purity, quality, potency, safety, and efficacy of the Licensed Products, including without limitation, any University Inventions and Joint Inventions, UFRFI shall provide such information provided that the Licensee shall reimburse UFRFI for out-of-pocket expenses, if any, associated with providing such information. Said information provided by Dr. Belardinelli or Dr. Baker to Licensee shall be deemed Know-How for purposes of this Agreement. 1.5 "LICENSEE" shall mean all of the following: (a) a related company of Licensee, the voting stock of which is directly or indirectly at least fifty percent (50%) owned or controlled by Licensee; (b) an organization which directly or indirectly controls more than fifty percent (50%) of the voting stock of Licensee; and (c) an organization, the majority ownership of which is directly or indirectly common to the ownership of Licensee. 1.6 A "LICENSED PRODUCT" shall mean any product or part thereof which: (a) is covered in whole or in part by an issued, unexpired claim or a pending claim contained in the Patent Rights in the country in which such product or part thereof is made, used or sold; or (b) is manufactured by using a process which is covered in whole or in part by an issued, unexpired claim or a pending claim contained in the Patent 2. Rights in the country in which any such process is used or in which such product or part thereof is used or sold; or (c) is derived from any of the Know-How not otherwise includable in the Patent Rights; and (d) is sold, manufactured or used in any country under this Agreement. 1.7 "NET SALES" shall mean Licensee's billings and its sublicensees' receipts (except as provided below) for Licensed Products sold hereunder less the sum of the following: (a) discounts allowed in amounts customary in the trade; (b) sales taxes, tariff duties and/or use taxes directly imposed and with reference to particular sales; (c) outbound transportation prepaid or allowed; and (d) amounts allowed or credited on returns. No deductions shall be made for commissions paid to individuals whether they be with independent sales agencies or regularly employed by Licensee and on its payroll, or for cost of collections. If Licensee receives royalties from any sublicensee on the basis of such sublicensee's billings for Licensed Products, it shall pay royalties UFRFI on the basis of such sublicensee's billings. 1.8 "PATENT RIGHTS" shall mean all of the following intellectual property owned or controlled by UFRFI: (a) the United States patent application listed in Appendix A and any foreign patent applications thereof; (b) United States and foreign patents issued from such applications and from divisionals and continuations of these applications; (c) claims of U.S. and foreign continuation-in-part applications, and of the resulting patents, which are directed to subject matter specifically described in the U.S. and foreign applications listed in Appendix A; (d) any reissues of United States patents described in (a), (b) or (c) above. The Patent Rights shall include, without limitation, any University Patents and UFRFI's rights under any Joint Patents. 3. 1.9 "PROJECT WORK" shall mean that research work to be performed by University pursuant to the Research Agreement. 1.10 "RESEARCH AGREEMENT" shall mean that agreement attached hereto as Exhibit B. 1.11 "UNIVERSITIES" shall mean individually and collectively the University of Florida and the University of South Florida. 1.12 "UNIVERSITY INVENTIONS" shall mean individually and collectively all inventions, improvements and/or discoveries, patentable or unpatentable, which are conceived and/or made by one or more employees of the Universities, during the course of the Project Work, including without limitation, all inventions, improvements and/or discoveries relating to adenosine receptors or analogs thereof made by Dr. Belardinelli, Dr. Baker and/or one or more of employees of the University of Florida working directly for either Dr. Belardinelli or Dr. Baker during the period beginning with the Effective Date and terminating on the first anniversary of the Effective Date. 1.13 "UNIVERSITY PATENTS" shall mean individually and collectively any and all United States and foreign patent applications and any and all issued United States Letters Patent and foreign patents owned solely by Universities which pertain to University Inventions. ARTICLE II - GRANT 2.1 UFRFI hereby grants to Licensee the exclusive, worldwide right and license, under the Patent Rights and Know-How and in the Field of Use, subject to the terms and conditions of this Agreement to make, have made, use and sell the Licensed Products. 2.2 Licensee agrees that Licensed Products sold in the United States shall be manufactured substantially in the United States if said Licensed Products were invented in whole or in part with federal government research support. Licensee further agrees that it shall abide by all rights and limitations of U.S. Code, Title 35, Chapter 38, and implementing regulations thereof, for all patent applications and patents invented in whole or in part with federal money. 2.3 In order to establish exclusivity for Licensee, UFRFI hereby represents that it has not, and agrees that it shall not, grant any other license under the Patent Rights and Know-How and in the Field of Use to make, have made, use and sell Licensed Products during the term of this Agreement. 2.4 UFRFI reserves the right for the Universities to practice under the Patent Rights and Know-How and to use and distribute to third parties the tangible property described in the Patent Rights and Know-How solely for its own noncommercial research purposes. 2.5 Licensee shall have the right to enter into sublicensing agreements for the rights, privileges and licenses granted hereunder. However, Licensee shall notify UFRFI in writing 4. within ten (10) business days of the initiation of license negotiations with all potential sublicensees. 2.6 Licensee hereby agrees that every sublicensing agreement to which it shall be a party and which shall relate to the rights, privileges and license granted hereunder shall contain a statement setting forth the date upon which Licensee's exclusive rights, privileges and license hereunder shall terminate. 2.7 Licensee agrees that the terms of any sublicense granted hereunder shall be consistent with the terms of this Agreement. Licensee further agrees to attach copies of the following provisions of this Agreement to sublicense agreements: I (Definitions); II (Grant); V (Reports and Records); VI (Patent Prosecution and Infringement); VII (Product Liability); IX (Export Controls); X (Non-Use of Names); XII (Termination) and XIV (Miscellaneous). 2.8 Licensee agrees to forward to UFRFI a copy of any and all sublicense agreements within thirty (30) days of the execution of such sublicense agreements and further agrees to forward to UFRFI annually a copy of such reports received by Licensee from its sublicensees during the preceding twelve (12) month period under the sublicenses as shall be pertinent to a royalty accounting under said sublicense agreements. 2.9 Licensee shall not receive from sublicenses anything of value in lieu of cash payments in consideration for any sublicense under this Agreement, without the express prior written consent of UFRFI. 2.10 The license granted hereunder shall not be construed to confer any rights upon Licensee by implication, estoppel or otherwise as to any technology not specifically set forth herein. ARTICLE III - DUE DILIGENCE 3.1 Licensee shall use commercially reasonable efforts to develop and commercialize, one or more Licensed Products to market through a thorough and diligent program for the exploitation of the right and license granted in this Agreement and to create, supply and service as extensive a market for Licensed Products as is reasonably possible in order to maximize its sale of Licensed Products. 3.2 In addition, Licensee shall adhere to the following milestones: (a) Licensee shall deliver to UFRFI on or before December 27, 1994 a project plan showing the projected amount of money, number and kind of personnel and time budgeted and planned for each phase of development of the Licensed Products and Licensed Processes and shall provide similar reports to UFRFI on an annual basis on or before the ninetieth (90th) day following the close of Licensee's fiscal year. The parties acknowledge 5. that the Licensed Products relate to pharmaceutical and diagnostic products which typically require long periods for development and with respect to which estimates are subject to substantial uncertainty as to time, technology and funding requirements. (b) Licensee shall permit an in-plant inspection by UFRFI on or before June 27, 1995, and thereafter permit in-plant inspections at regular intervals with at least twelve (12) months between each such inspection. All such inspections shall be on reasonable notice to Licensee and during normal business hours. (c) Licensee shall notify UFRFI of any outside preclinical and clinical studies to be performed relating to the Licensed Products and UFRFI shall have thirty (30) days from such notice in which to submit to Licensee a proposal for participation; after such thirty (30) day period, Licensee shall have the right to solicit proposals from any third party. (d) Licensee (or any of its sublicensees) shall file, or have filed on its behalf, an investigational new drug application in the U.S. within one (1) year following completion of the Project Work and after completion of any other necessary and sufficient preclinical safety and efficacy studies, manufacturing, quality control and clinical investigation documentation. Licensee agrees that it will complete such safety and efficacy studies within one (1) year following completion of the Project Work. (e) Licensee (or any of its sublicensees) will promote market and sell a Licensed Product in a country in the Territory within [ ] of receipt of all governmental approvals necessary for the commercial sale of such Licensed Product. 3.3 If Licensee fails to perform in accordance with Paragraphs 3.1 and 3.2, UFRFI shall have the right, effective upon thirty (30) days written notice to Licensee, during which period Licensee may cure such default, to convert the license granted under Paragraph 2.1 to a non-exclusive license. 3.4 If Licensee has not commenced clinical trials relating to the Licensed Products by January 1, 1999, then, UFRFI may, but shall not be obligated to, terminate this Agreement upon sixty (60) days written notice to Licensee. ARTICLE IV - ROYALTIES 4.1 Licensee shall pay license fees, royalties and sublicense fees to UFRFI as follows: 6. (a) [ ] which said [ ] shall be deemed earned and due [ ]. (b) [ ] PROVIDED, HOWEVER, that in countries where neither [ ] such [ ] shall be [ ] of any given year. (c) [ ] excluding amounts paid to Licensee [ ]. Upon request from UFRFI, Licensee shall provide written evidence that such excluded amounts are [ ]. 4.2 No [ ] shall be payable because any [ ] under this Agreement. 4.3 [ ] shall be paid in United States dollars in Gainesville, Florida or at such other place as UFRFI may reasonably designate consistent with the laws and regulations controlling in any foreign country. If any currency conversion shall be required in connection with the payment of [ ] hereunder, such conversion shall be made by using the exchange rate prevailing at the Chase Manhattan Bank (N.A.) on the last business day of the calendar quarterly reporting period to which such royalty payments relate. 4.4 In the event the [ ] set forth herein are higher than the [ ] permitted by the law or regulations of a particular country, the [ ] for sales in such country shall be equal to the [ ] under such law or regulations. Notice of said event shall be provided to UFRFI. An authorized representative of Licensee shall notify UFRFI, in writing, within thirty (30) days of discovering that [ ] are approaching or have reached the [ ], and shall provide UFRFI with written documentation regarding the laws or regulations establishing such maximum. 4.5 In the event that any taxes, withholding or otherwise, are levied by any taxing authority in connection with accrual or payment of any royalties payable by Licensee under this Agreement, and Licensee determines in good faith that it must pay such taxes, Licensee shall have the right to pay such taxes to the local tax authorities on behalf of UFRFI and payment of the net amount due after reduction by the amount of such taxes, shall fully satisfy Licensee's royalty obligations under this Agreement. Licensee shall provide UFRFI with appropriate receipts or other documentation supporting such payment. Licensee shall inform UFRFI in 7. writing, within thirty (30) days of notification that taxes will or have been levied by a taxing authority. ARTICLE V - REPORTS AND RECORDS 5.1 Licensee shall keep full, true and accurate books of account containing all particulars that may be necessary for the purpose of showing the amounts payable to UFRFI hereunder. Said books of account shall be kept at Licensee's principal place of business or the principal place of business of the appropriate division of Licensee to which this Agreement relates. Said books and the supporting data shall be open at all reasonable times for five (5) years following the end of the calendar year to which they pertain, to the inspection of UFRFI or its agents for the purpose of verifying Licensee's royalty statement or compliance in other respects with this Agreement. 5.2 Licensee, within ninety (90) days after March 31, June 30, September 30 and December 31, of each year, shall deliver to UFRFI true and accurate reports, giving such particulars of the business conducted by Licensee and its sublicensees during the preceding three-month period under this Agreement as shall be pertinent to a royalty accounting hereunder. These shall include at least the following; (a) [ ], if any. (b) [ ]. (c) deductions applicable [ ]. (d) [ ]. (e) names and addresses of all sublicensees of Licensee. (f) A progress report on [ ] covering Licensed Products or Licensed Processes. 5.3 With each such report submitted, Licensee shall pay to UFRFI the royalties due and payable under this Agreement. If no royalties shall be due, Licensee shall so report. 5.4 On or before the ninetieth (90th) day following the close of Licensee's fiscal year, Licensee shall provide UFRFI with Licensee's [ ] including, at a minimum, [ ]. 5.5 The [ ] and [ ] set forth in this Agreement shall, if overdue, bear interest until payment at the monthly rate of [ ] 8. [ ]. The payment of such interest shall not foreclose UFRFI from exercising any other rights it may have as a consequence of the lateness of any payment. ARTICLE VI - PATENT PROSECUTION AND INFRINGEMENT 6.1 During the term of this Agreement, [ ] will be responsible for filing, prosecuting and maintaining patent applications with respect to the Patent Rights, at its own expense. [ ] will retain patent counsel of its choosing but reasonably acceptable to [ ] in connection with the performance of [ ] obligations under this Section 6.1 and shall designate [ ] as an additional client with respect to such representation. As an additional client, [ ] shall be entitled to receive copies of correspondence and filings with the U.S. Patent and Trademark office and foreign equivalents and to be consulted regarding such patent applications. 6.2 [ ] will cooperate with [ ] in the preparation, filing, prosecution and maintenance of patents and patent applications with respect to the Patent Rights by disclosing such information as may be necessary and by promptly executing such documents as [ ] may reasonably request to effect such efforts. 6.3 If [ ] wishes to file a patent application with respect to any invention claimed in the Patent Rights in any jurisdiction in which no application has yet been filed, [ ] will so notify [ ] in writing, upon receipt of which [ ] will have ninety (90) days to file such patent application. If [ ] declines or fails to file such patent application, [ ] may file and prosecute such patent application, at [ ] own expense. In such event, [ ] will have no rights under Section 2.1 to practice the invention disclosed in such patent application in such jurisdiction. 6.4 If [ ] intends to abandon all claims under all patent applications contained in the Patent Rights in a particular jurisdiction, it will notify [ ] within ninety (90) days of its proposed abandonment, but no later than thirty (30) days prior to any deadline for filing any response or taking any action necessary to maintain such application. Upon receipt of such notice [ ] may, by written notice to [ ], elect to continue the prosecution of such application. The costs and expenses associated such prosecution will be borne solely by [ ]; provided, however, that if [ ] obtains issuance of any such patent application, [ ] shall reimburse [ ] for such costs and expenses. [ ] determination to abandon any patent application hereunder will have no force and effect upon the license granted with respect to such patent application pursuant to Section 2.1. 6.5 For so long as [ ] under this Agreement, [ ] shall be responsible, solely at its expense, for defending and enforcing the Patent Rights. However, [ ] shall receive notice of and shall have the right, at its expense, to participate in the protection and defense of the Patent Rights. [ ] shall have the right to settle and compromise any dispute with third parties, with the prior written consent of [ ], which consent shall not be unreasonably withheld. All costs, fees and expenses incurred in connection 9. with the defense and enforcement of the Patent Rights shall be borne by [ ] , provided, however, that [ ] and [ ] in connection therewith. Said [ ] shall begin no earlier than the date [ ]. Any [ ] pursuant to this Article VI. [ ] To the extent that [ ] shall be entitled to [ ] under this Agreement. [ ] agrees to cooperate reasonably in any such litigation initiated by [ ] including participating as a necessary party, supplying essential documentary evidence and making essential witnesses in [ ] employment available. 6.6 If [ ] does not, within ninety (90) days after receiving notice or otherwise becoming aware of a third party infringement of any of the Patent Rights, take appropriate action to address such third party infringement, then [ ] may take such legally permissible action as it deems necessary or appropriate to enforce the Patent Rights and restrain such infringement. In such event, all costs, fees and expenses incurred in connection with the defence and enforcement of the Patent Rights shall be borne by [ ]. [ ] agrees to cooperate reasonably in any such litigation initiated by [ ] including participating as a necessary party, supplying essential documentary evidence and making essential witnesses in [ ] 's employment available. If [ ] shall prevail in such proceeding, either by way of judgment or settlement or compromise, any amounts recovered by [ ] shall be divided equally between the parties, net of expenses incurred in connection therewith, with the payment made promptly after such receipt of such amounts. 6.7 If [ ] has a [ ] under this Agreement, the parties shall discuss [ ]. ARTICLE VII - PRODUCT LIABILITY 7.1 Licensee shall at all times during the term of this Agreement and thereafter, indemnify, defend and hold UFRFI, the USF Research Foundation Inc. and the Universities, their trustees, officers, employees and affiliates, harmless against all claims and expenses, including legal expenses and reasonable attorneys' fees, whether arising from a third party claim or resulting from UFRFI's enforcing this indemnification clause against Licensee, arising out of the death of or injury to any person or persons or out of any damage to property and against any other claim, proceeding, demand, expense and liability of any kind whatsoever resulting from the production, manufacture, sale, use, consumption or advertisement of the Licensed Product(s) or arising from any obligation of Licensee hereunder. 10. 7.2 Licensee shall obtain and carry in full force and effect liability insurance, in amounts customary in the biotechnology industry, which shall protect Licensee, UFRFI and the USF Research Foundation Inc. in regard to events covered by Paragraph 7.1 above. 7.3 EXCEPT AS OTHERWISE EXPRESSLY SET FORTH IN THIS AGREEMENT, UFRFI MAKES NO REPRESENTATIONS AND EXTENDS NO WARRANTIES OF ANY KIND, EITHER EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, AND VALIDITY OF PATENT RIGHTS CLAIMS, ISSUED OR PENDING. ARTICLE VIII - CONFIDENTIALITY 8.1 Anything in this Agreement to the contrary notwithstanding, any and all knowledge, know-how, practices, process or other information of any kind and in any form (hereinafter referred to as "Confidential Information") disclosed or submitted, either orally, in writing or in other tangible or intangible form which is designated as Confidential Information, to either party by the other shall be received and maintained by the receiving party in strict confidence and shall not be disclosed to any third party. Furthermore, neither party shall use the said Confidential Information for any purpose other than those purposes specified in this Agreement. The parties may disclose Confidential Information to the minimum number of its employees reasonably requiring access thereto for the purposes of this Agreement provided, however, that prior to making any such disclosures each such employee shall be apprised of the duty and obligation to maintain Confidential Information in confidence and not to use such information for any purpose other than in accordance with the terms and conditions of this Agreement. 8.2 Nothing contained herein will in any way restrict or impair either parties right to use, disclose, or otherwise deal with any Confidential Information which at the time of its receipt: (a) Is generally available in the public domain, or thereafter becomes available to the public through no act of the receiving party; or (b) Was independently known prior to receipt thereof, or made available to such receiving party as a matter of lawful right by a third party. 8.3 Each party may disclose any Confidential Information to the extent that such party has been advised by counsel that such disclosure is necessary for such party to comply with laws or regulations, provided that the party proposing to make such disclosure shall give the other party reasonable advance notice of such disclosure and shall use its best efforts to secure confidential treatment of such Information to be disclosed. 8.4 The obligations of this Article VIII shall continue until the later of the term of this Agreement and for a period of five (5) years thereafter or for so long as any Confidential 11. Information not otherwise includable in the Patent Rights or Know-How is being utilized in connection with any Licensed Product. 8.5 Each party agrees that remedies at law may be inadequate to protect against breach of this Article VIII, and hereby agrees to the granting of injunctive relief, without proof of actual damages. ARTICLE IX - EXPORT CONTROLS Licensee hereby agrees that it shall not sell, transfer, export or reexport any Licensed Products or related information in any form, or any direct products of such information, except in compliance with all applicable laws, including the export laws of any U.S. government agency and any regulations thereunder, and will not sell, transfer, export or reexport any such Licensed Products or information to any persons or any entities with regard to which there exist grounds to suspect or believe that they are violating such laws. Licensee shall be solely responsible for obtaining all licenses, permits or authorizations required from the U.S. and any other government for any such export or reexport. To the extent not inconsistent with this Agreement, UFRFI agrees to provide Licensee with such assistance as it may reasonably request in obtaining such licenses, permits or authorization. ARTICLE X - NON-USE OF NAMES Licensee shall not use the names of the Universities or UFRFI nor of any of their employees, nor any adaptation thereof, in any advertising, promotional or sales literature without prior written consent obtained from UFRFI in each case, except that Licensee may state that it is licensed by UFRFI under one or more of the patents and/or applications comprising the Patent Rights. The parties agree to issue a mutually agreed press release on or after the Effective Date. ARTICLE XI - ASSIGNMENT Licensee shall have the right to assign its rights or obligations under this Agreement in connection with a merger or similar reorganization or the sale of all or substantially all of the assets to which this Agreement pertains, or otherwise with the prior written consent of UFRFI. This Agreement shall be binding upon and inure to the benefit of the successors and permitted assigns of Licensee. Any assignment not in accordance with this Agreement shall be void. ARTICLE XII - TERM AND TERMINATION 12.1 Unless sooner terminated as provided herein, this Agreement will expire on the later of the date on which the last to expire of the Patent Rights shall expire or fifteen (15) years from the first commercial sale of a Licensed Product. Upon such expiration of this Agreement, Licensee shall have a fully paid-up worldwide right and license under the Patents and Know-How for any purpose. 12. 12.2 If Licensee shall cease to carry on its business, this Agreement shall terminate upon notice by UFRFI. 12.3 In the event either party files for bankruptcy or a receiver is appointed, this Agreement may immediately thereafter be terminated at the option of the other party. 12.4 Should Licensee fail to pay UFRFI [ ] due and payable hereunder, UFRFI shall have the right to terminate this Agreement on [ ] notice, unless Licensee shall pay UFRFI within the [ ] period, all such royalties and fees and interest due and payable. Upon the expiration of the [ ] period, if Licensee shall not have paid all such royalties and fees and interest due and payable, the rights, privileges and license granted hereunder shall terminate. 12.5 Upon any material breach or default of this Agreement by Licensee, other than under Sections 3.1, 3.2 and 3.4 and those occurrences set out in Paragraphs 12.2 and 12.4 hereinabove, which shall always take precedence in that order over any material breach or default referred to in this Paragraph 12.5, UFRFI shall have the right to terminate this Agreement and the rights, privileges and license granted hereunder by [ ] notice to Licensee. Such termination shall become effective unless (i) Licensee shall have cured any such breach or default prior to the expiration of the [ ] period or (ii) Licensee shall have demonstrated substantial efforts to cure such breach or default, which efforts shall be reasonably satisfactory to UFRFI. 12.6 Licensee shall have the right to terminate this Agreement at any time on six (6) months' written notice to UFRFI, and upon payment of all amounts due UFRFI through the effective date of the termination. 12.7 UFRFI may [ ]. 12.8 Upon termination of this Agreement for any reason, nothing herein shall be construed to release either party from any obligation that matured prior to the effective date of such termination. Licensee and any sublicensee thereof may, however, after the effective date of such termination, sell all Licensed Products, and complete Licensed Products in the process of manufacture at the time of such termination and sell the same, provided that Licensee shall pay to UFRFI the royalties thereon as required by Article IV of this Agreement and shall submit the reports required by Article V hereof on the sales of Licensed Products. 12.9 Upon termination of this Agreement for any reason, any sublicensee not then in default under its sublicense agreement with Licensee shall automatically have [ ] under this Agreement [ ] on economic terms [ ] and otherwise with the [ ] hereunder, provided, however, that Sublicensee shall have [ ] from notice by [ ] ] in order to: 13. (i) pay any [ ] due and payable or (ii) cure any such breach or default in any manner [ ] or [ ] cure such breach or default, which [ ]; or [ ]. 12.10 Upon termination of this Agreement for any reason, all intellectual property rights licensed hereunder, including without limitation all Patent Rights and rights in and to the Know-How, University Patents and University Inventions shall [ ](except to the extent assumed by sublicensees pursuant to Section 12.9) and [ ] shall have no further right to or continuing interest herein. In addition, upon termination of this Agreement, to the extent that [ ]. ARTICLE XIII - PAYMENTS, NOTICES AND OTHER COMMUNICATIONS Any payment, notice or other communication pursuant to this Agreement shall be sufficiently made or given on the date of mailing if sent to such party by certified first class mail or air courier, postage prepaid, addressed to it at its address below or at it shall designate by written notice given to the other party: In the case of UFRFI: President University of Florida Research Foundation, Inc. 223 Grinter Hall Gainesville, Florida 32611 With a copy to: Director Office of Patent, Copyright and Technology Licensing 186 Grinter Hall Gainesville, Florida 32611 All payments to: Director Office of Patent, Copyright and Technology Licensing 186 Grinter Hall Gainesville, Florida 32611 14. PLEASE MAKE ALL CHECKS PAYABLE TO: UNIVERSITY OF FLORIDA RESEARCH FOUNDATION, INC. In the case of Licensee: CV Therapeutics, Inc. 1615 Plymouth Street Mountain View, CA 94043 Attention: President and CEO ARTICLE XIV - MISCELLANEOUS PROVISIONS 14.1 Each party represents and warrants that it has the authority to enter into this Agreement and that the execution, delivery and performance of this Agreement do not conflict with any agreement or understanding, either written or oral, to which it is a party or to which it is otherwise bound. 14.2 This Agreement shall be construed, governed, interpreted and applied in accordance with the laws of the State of Florida, U.S.A., except that questions affecting the construction and effect of any Patent Rights shall be determined by the law of the country in which the patent was granted. 14.3 The parties hereto acknowledge that this Agreement sets forth the entire agreement and understanding of the parties hereto as to the subject matter hereof, and shall not be subject to any change or modification except by the execution of a written instrument subscribed to by the parties hereto. 14.4 If any term, covenant or condition of this Agreement or the application thereof to any party or circumstance shall, to any extent, be held to be invalid or unenforceable, then (i) the remainder of this Agreement, or the application of such term, covenant or condition to Parties or circumstances other than those as to which it is held invalid or unenforceable, shall not be affected thereby and each term, covenant or condition of this Agreement shall be valid and be enforced to the fullest extent permitted by law; and (ii) the parties hereto covenant and agree to renegotiate any such term, covenant or application thereof in good faith in order to provide a reasonably acceptable alternative to the term, covenant or condition of this Agreement or the application thereof that is invalid or unenforceable, it being the intent of the Parties that the basic purposes of this Agreement are to be effectuated. 14.5 Licensee agrees to mark the Licensed Products sold in the United States with all applicable United States patent numbers. All Licensed Products shipped to or sold in other countries shall be marked in such a manner as to conform with the patent laws and practice of the country of manufacture or sale. 15. 14.6 The failure of either party to assert a right hereunder or to insist upon compliance with any term or condition of this Agreement shall not constitute a waiver of that right or excuse a similar subsequent failure to perform any such term or condition by the other party. IN WITNESS WHEREOF, the parties have hereunto set their hands and seals and duly executed this Agreement the day and year set forth below. UNIVERSITY OF FLORIDA RESEARCH FOUNDATION, INC. By /s/ Karen Holbrook ----------------------------- Name ------------------------------------ Title President ----------------------------------- Date 7/6/94 ------------------------------------ CV THERAPEUTICS, INC. By /s/ Louis G. Lange -------------------------------------- Name ------------------------------------ Title Chief Executive Officer ----------------------------------- Date 8/30/94 - ---------------------------------------- 16. APPENDIX A [ ] U.S.S.N. [ ] By [ ] Filed [ ] A-1 EX-10.22 3 EXHIBIT 10.22 Confidential treatment has been requested for portions of this document. Brackets indicate portions of text that have been omitted. A separate filing of such omitted text has been made with the Commission as part of the Company's application for confidential treatment. RESEARCH AGREEMENT This AGREEMENT entered into this 27th day of June, 1994 (the "Effective Date"), by and between CV Therapeutics, Inc., having its principal office at 1615 Plymouth St., Mountain View, CA 94043 (hereinafter referred to as "Sponsor"), and the UNIVERSITY OF FLORIDA, a non-profit educational institution of the State of Florida located in Gainesville, Florida (hereinafter referred to as the "University"). WITNESSETH: WHEREAS, Sponsor desires the research assistance of certain technically qualified persons having access to certain facilities and equipment; WHEREAS, Sponsor desires to fund said research entitled "Adenosine Receptor" attached hereto as Appendix A; WHEREAS, Sponsor has entered into a License Agreement with the University of Florida Research Foundation, Inc. ("UFRFI") dated June 27, 1994, for the Field of Use described as human pharmaceuticals. UFRFI and the University of Florida, an educational institution having its principal office at 223 Grinter Hall, Gainesville, Florida 32611 (hereinafter referred to as "University"), have agreed that the research described herein shall be conducted by University; WHEREAS, University is willing to cooperate with and assist Sponsor by furnishing such personnel, and facilities as may be required; NOW, THEREFORE, in consideration of the premises and mutual covenants herein contained, the parties hereto agree as follows: I DEFINITIONS: As used herein, the following terms shall have the following meanings: 1.1 "CONTRACT PERIOD" is June 27, 1994, through June 26, 1996, which shall be extended through June 26, 1997, unless Sponsor has also terminated the License Agreement, during which the University shall perform the Project Work. 1.2 "LICENSE AGREEMENT" shall mean that certain License Agreement dated June 27, 1994, to which this Research Agreement is attached. 1.3 "PROJECT DESCRIPTION" shall mean the description of the Project Work, including budget, as described in Appendix A. 1 1.4 "PROJECT WORK" shall mean the research work, as described in Appendix A hereof to be performed by University under this Agreement. 1.5 "RESEARCHER(S)" shall mean individually and collectively Dr. Luiz Belardinelli (hereinafter referred to as the "Principal Investigator"), Dr. Stephen Baker, graduate students, other professional personnel and/or other employees of University participating in the actual performance of the Project Work. 1.6 "SPONSOR" shall mean the Licensee defined and described in the License Agreement between Licensee and UFRFI. II RESEARCH WORK 2.1 University shall perform the Project Work substantially in accordance with the terms and conditions of this Agreement. 2.2 University agrees that Dr. Belardinelli shall act as the Principal Investigator for the Project Work. If Dr. Belardinelli leaves University, or terminates his involvement in this Agreement, University shall use its best efforts to find a replacement acceptable to Licensee. If University fails to do so, Licensee shall have the right to terminate this Agreement on thirty (30) days written notice. 2.3 The parties acknowledge that certain portions of the Project Work may be performed by Dr. Ray Olsson at the University of South Florida under a subcontract of this Agreement. University shall not subcontract the Project Work to any other third party without the prior written consent of Sponsor, which consent shall not be unreasonably withheld. University agrees that any such subcontract shall provide that any University Patents and University Inventions conceived pursuant to such subcontract shall be assigned to University and shall be subject to the License Agreement. III REPORTS AND CONFERENCES 3.1 University shall disclose to Sponsor, on a semi-annual basis and in writing, all of the results of the Project Work including but not limited to all University Inventions, Joint Inventions, know-how, data, conclusions, results, observations, procedures and the like; all of which shall be deemed to be subject to Sponsor's license under the Patent Rights and Know-How pursuant to the License Agreement. Sponsor shall disclose to University, on a semi-annual basis and in writing, all of its results of the Project Work including but not limited to all Joint Inventions, know-how, data, conclusions, results, observations, procedures and the like. 3.2 If requested by Sponsor, during the term of this Agreement, representatives of the University will meet with representatives of Sponsor at times and places mutually agreed upon to discuss the progress and results, as well as ongoing plans, or changes therein, of the Project Work to be performed hereunder. Sponsor will reimburse the University for reasonable travel and living expenses incurred in connection with such meetings. 2 IV RESEARCH FUNDING 4.1 Subject to the terms and conditions of this Agreement, Sponsor shall support the Project Work by a [ ] payable as follows: 4.1.1 Commencing on [ ], Sponsor shall pay the University [ ] and 4.1.2 At [ ], commencing on [ ] Sponsor shall pay the University [ ]. 4.2 Such grant amount shall cover both [ ] and shall be allocated according to the Project Description. Unless otherwise agreed in writing, the total costs to Sponsor for the Project Work shall not exceed [ ]. 4.3 Should this Agreement be terminated pursuant to Section IX hereof prior to its expiration, Sponsor shall [ ] provided, however, that Sponsor shall [ ] which shall include [ ] and [ ]. After [ ], any obligation of [ ]. In addition, if this Agreement is [ ]. V PUBLICITY 5.1 Sponsor shall not use the names of the University or UFRFI nor of any of their employees, nor any adaptation thereof, in any advertising, promotional or sales literature without prior written consent obtained from UFRFI in each case, except that Sponsor may state that it is licensed by UFRFI under one or more of the patents and/or applications comprising the Patent Rights. The parties agree to issue a mutually press release, on or after the Effective Date. VI PUBLICATIONS 6.1 Sponsor recognizes that under University academic policy, the results of a University research project must be publishable and agrees that Researchers engaged in the Project Work shall be permitted to present at symposia, national or regional professional meetings and to publish in journals, theses or dissertations, or otherwise of their own choosing, methods and results of Project Work or any of the University Inventions or Joint Inventions, provided, however, that Sponsor shall have been furnished copies of any proposed publication 3 or presentation at least forty (40) days in advance of the submission of such proposed publication or presentation to a journal, editor or other third party. Sponsor shall have thirty (30) days, after receipt of said copies, to object to such proposed presentation or proposed publication either because there is patentable subject matter which needs protection and/or there is Confidential Information of Sponsor contained in the proposed publication or presentation. In the event that Sponsor makes such objection, the said Researcher(s) shall refrain from making such publication or presentation for a maximum of three (3) months in order for the University to file patent application(s) with the United States Patent and Trademark Office and/or foreign patent office(s) directed to the patentable subject matter contained in the proposed publication or presentation. VII CONFIDENTIALITY 7.1 Anything in this Agreement to the contrary notwithstanding, any and all knowledge, know-how, practices, process or other information of any kind and in any form (hereinafter referred to as "Confidential Information") disclosed or submitted, either orally, in writing or in other tangible or intangible form which is designated as Confidential Information, to either party by the other shall be received and maintained by the receiving party in strict confidence and shall not be disclosed to any third party. Furthermore, neither party shall use the said Confidential Information for any purpose other than those purposes specified in this Agreement. The parties may disclose Confidential Information to the minimum number of its employees reasonably requiring access thereto for the purposes of this Agreement provided, however, that prior to making any such disclosures each such employee shall be apprised of the duty and obligation to maintain Confidential Information in confidence and not to use such information for any purpose other than in accordance with the terms and conditions of this Agreement. 7.2 Nothing contained herein will in any way restrict or impair either parties right to use, disclose, or otherwise deal with any Confidential Information which at the time of its receipt: 7.2.1 Is generally available in the public domain, or thereafter becomes available to the public through no act of the receiving party; or 7.2.2 Was independently known prior to receipt thereof, or made available to such receiving party as a matter of lawful right by a third party. 7.3 Each party may disclose any Confidential Information to the extent that such party has been advised by counsel that such disclosure is necessary for such party to comply with laws or regulations, provided that the party proposing to make such disclosure shall give the other party reasonable advance notice of such disclosure and shall use its best efforts to secure confidential treatment of such Information to be disclosed. 7.4 The obligations of this Article VII shall continue until the later of the term of this Agreement and for a period of five (5) years thereafter or for so long as any Confidential 4 Information not otherwise includable in the Patent Rights or Know-How is being utilized in connection with any Licensed Product. 7.5 Each party agrees that remedies at law may be inadequate to protect against breach of this Article VII, and hereby agrees to the granting of injunctive relief, without proof of actual damages. VIII INVENTIONS IMPROVEMENTS AND DISCOVERIES 8.1 University will promptly notify Sponsor of any University Inventions and Joint Inventions and Sponsor will promptly notify Licensee of any Joint Inventions. This obligation shall survive any termination of this Agreement. 8.2 All rights and title to University Inventions arising under Project Work and conceived and/or made by one or more employees of University shall belong to University. The University and Sponsor shall own jointly all University Inventions arising under Project Work and conceived and/or made jointly by University and Sponsor. For the purposes of this Agreement, the "making" of inventions shall be governed by U.S. laws of inventorship. All the University's right and title to such University Inventions is hereby assigned to UFRFI and shall be subject to the terms and conditions of this Agreement and the License Agreement. 8.3 Rights to inventions, improvements and/or discoveries, whether patentable or not, relating to Project Work made solely by employees of Sponsor shall belong to Sponsor, and such invention, improvements and/or discoveries shall not be subject to the terms and conditions of this Agreement or the License Agreement. IX TERM AND TERMINATION 9.1 This Agreement shall become effective upon the Effective Date and shall continue until June 26, 1996, unless sooner terminated in accordance with the provisions of this Section IX. Sponsor shall extend this Agreement until June 26, 1997, unless Sponsor has also [ ]. 9.2 Notwithstanding anything to the contrary in this Agreement, Sponsor shall have the right to terminate this Agreement, for any reason, on ninety (90) days written notice to the University; provided that Sponsor has also terminated the License Agreement. In such event, Sponsor shall have the obligations set forth in Section 4.3. 9.3 In the event that either party hereto shall commit any breach of or default in any of the terms or conditions of this Agreement, and also shall fail to remedy such default or breach within [ ] after receipt of written notice thereof from the other party hereto, the party giving notice may, at its option and in addition to any other remedies which it may have at law or in equity, terminate this Agreement by sending notice of termination in writing to the other party to such effect, and such termination shall be effective as of the date of the receipt of such notice. 5 9.4 Termination of this Agreement by either party for any reason shall not affect the rights and obligations of the parties accrued prior to the effective date of termination of this Agreement. No termination of this Agreement, however effectuated, shall release the parties hereto from their rights and obligations under Sections III, IV, V, VI, VII, or VIII. X MISCELLANEOUS 10.1 The parties recognize that inventions, copyrightable works or other proprietary information may arise from research sponsored in whole or in part by agencies of the federal government. The parties hereto agree that any such developments shall be governed by the provisions of Public Law 96-517, or as amended, during the term of this Agreement. 10.2 In the performance of all services hereunder: 10.2.1 UFRFI shall be deemed to be and shall be an independent contractor and as such University shall not be entitled to any benefits applicable to employees of Sponsor; 10.2.2 University and UFRFI shall comply with all governmental laws and regulations, such as EPA, OSHA and like regulations, which are applicable to the University and its performance of the Project Work hereunder; 10.2.3 Neither party is authorized or empowered to act as agent for the other for any purpose and shall not on behalf of the other enter into any contract, warranty or representation as to any matter. Neither shall be bound by the acts or conduct of the other. XI INDEMNITY/INSURANCE 11.1 University warrants and represents that, as part of the State of Florida, University is self-funded for liability insurance under Chapter 284, FLORIDA STATUTES, such protection being applicable to officers, employees and agents while acting within the scope of their employment by University and University has no liability insurance policy as such that can extend protection to any other person. 11.2 Each party hereby assumes any and all risks of personal injury and property damage attributable to the negligent acts or omissions of that party and the officers, employees and agents thereof. 11.3 The parties further agree that nothing contained herein shall be construed or interpreted as denying to either party any remedy or defense available to such party under the laws of the State of Florida; the consent of the State of Florida or its agents and agencies to be sued by reason hereon; or as a waiver of sovereign immunity of the State of Florida beyond the waiver provided in Section 768.28, FLORIDA STATUTES (1991). 6 XII GOVERNING LAW 12.1 This Agreement shall be governed and interpreted in accordance with the internal law of the State of Florida without regard to its conflict of laws. XIII ASSIGNMENT 13.1 Sponsor shall have the right to assign its rights or obligations under this Agreement in connection with a merger or similar reorganization or the sale of all or substantially all of the assets to which this Agreement pertains, or otherwise with the prior written consent of University. This Agreement shall be binding upon and inure to the benefit of the successors and permitted assigns of Sponsor. Any assignment not in accordance with this Agreement shall be void. XIV AGREEMENT MODIFICATION 14.1 Any agreement changing the terms of this Agreement in any way shall be valid only if the change is made in writing and approved by authorized representatives of the parties hereto. XV NOTICES 15.1 Notices, invoices, communications and payments hereunder shall be deemed made if given by registered or certified mail, postage prepaid, and addressed to the party to receive such notice, invoice or communication at the address given below, or such other address as may hereafter be designated by notice IN writing: If to Sponsor: CV Therapeutics, Inc. 1615 Plymouth Street Mountain View, CA 94043 Attention: If to UFRFI: Karen A. Holbrook President University of Florida Research Foundation, Inc. 223 Grinter Hall Gainesville, Florida 32611-2037 Technical Matter: Luiz Belardinelli, M.D. Professor of Medicine University of Florida P.O. Box 100277 Gainesville, Florida 32610 7 PAYMENTS SHALL BE MADE IN UNITED STATES DOLLARS TO THE UNIVERSITY OF FLORIDA RESEARCH FOUNDATION, INC. AT THE FOLLOWING ADDRESS: 223 Grinter Hall Gainesville, Florida 32611-2037 The date of giving any notice, invoice or other communication, and the date of making any such payment, provided that such payment is received, shall be the date on which such envelope is deposited with the appropriate U.S. Post Office. The postal service receipt showing the date of such deposit shall be PRIMA FACIE evidence of these facts. XVI ENTIRE AGREEMENT 16.1 This Agreement represents the entire understanding between the parties, and supersedes and merges all understanding between the parties, and supersedes and merges all other agreements, express or implied, discussions or understandings between the parties with respect to the subject matter hereof. It shall be interpreted in conjunction and consistent with the License Agreement to which this is an Exhibit. IN WITNESS WHEREOF, the parties have caused these presents to be executed in duplicate as of the day and year first above written. CV THERAPEUTICS, INC. UNIVERSITY OF FLORIDA By: /s/ Louis G. Lange By: /s/ Karen A. Holbrook ---------------------------- ------------------------ Title: Chief Executive Officer Title: President 8 APPENDIX A PROJECT DESCRIPTION There are 3 main areas of work that the University of Florida Scientists are committed to under the UFDRI/CVT License Agreement. The budgets for this work is detailed below. 1. [ ] Pharmacology. Dr. Belardinelli, Dr. Baker, and the University of Florida will undertake certain molecular, cellular and isolated tissue pharmacology studies on [ ] in collaboration with CVT. CVT will provide the material for these studies and the University of Florida Scientists will investigate [ ]. 2. Development of [ ] University of Florida will work in conjunction with CVT Chemists to develop [ ]. In particular the [ ] which confers such [ ] therefore [ ]. CVT and University of Florida Scientists will work together [ ]. These [ ] may be the subject of [ ]. 3. [ ] The scope of the [ ] allows for the development of [ ] based upon [ ] will be undertaken initially by the inventors at the University of Florida and University of South Florida with preliminary pharmacological evaluation at the University of Florida and then further [ ] evaluations at CV Therapeutics. University of Florida Scientists will carry out additional experiments to develop [ ] with further financial support from CV Therapeutics as appropriate. The primary workload for CV Therapeutics will be to [ ] with the University of Florida Scientists landing support and technical assistance. While these are the immediate goals of the CVT/University of Florida collaboration it is anticipated that within the time frame of the agreements we shall explore [ ]. BUDGET FOR APPENDIX A Total: [ ] Budgeted for research contract for years [ ] and [ ] to be paid by CV Therapeutics to University of Florida investigators (Belardinelli and Baker). 1. Personnel [ ] at [ ] [ ] 2. Supplies and animals [ ] 3. Indirect cost [ ] TOTAL [ ] /s/ Luiz Belardinelli, M.D. /s/ Stephen P. Baker, Ph.D. ---------------------------- ---------------------------- Professor of Medicine Chairman, Department of Pharmacology EX-10.23 4 EXHIBIT 10.23 Confidential treatment has been requested for portions of this document. Brackets indicate portions of text that have been omitted. A separate filing of such omitted text has been made with the Commission as part of the Company's application for confidential treatment. LICENSE AGREEMENT THIS LICENSE AGREEMENT made and effective as of March 27, 1996 between SYNTEX (U.S.A.) INC., 3401 Hillview Avenue, Palo Alto, California 94303 (hereinafter referred to as "Syntex") and CV THERAPEUTICS, INC., 3172 Porter Drive, Palo Alto, California 94304 (hereinafter referred to as "CVT"). RECITALS WHEREAS, Syntex has developed a compound having the generic name of ranolazine, with the Syntex code number RS-43285-193 (the "Compound" as hereinafter defined) and is the owner of patent rights and know-how relating to the Compound; WHEREAS, Syntex desires to have CVT develop and register in specified countries (the "CVT Territory" as hereinafter defined) pharmaceutical products containing the Compound for the treatment of angina pectoris, and, at CVT's discretion, certain other Cardiovascular Indications (as hereinafter defined); 1. WHEREAS, CVT desires to develop, manufacture, and commercialize Licensed Products (as hereinafter defined) in the CVT Territory either by itself or with another party (the "CVT Partner") with whom CVT will collaborate in developing and/or marketing such products and to receive the right and license under the Syntex Patents and Know-How (as hereinafter defined) to make, have made, use, sell, offer for sale and import in the CVT Territory Licensed Products under CVT's trademark; WHEREAS, Syntex is willing to grant in the CVT Territory the above- mentioned rights and license to CVT under Syntex Patents and Know-How relating to the Licensed Products; NOW, THEREFORE, the parties hereto agree as follows: 1. DEFINITIONS. The following terms as used in this License Agreement shall have the meanings respectively set forth in this Article: 1.1 "AFFILIATED COMPANY" or "AFFILIATE" shall mean (a) an organization fifty percent (50%) or more of the voting stock, or comparable ownership interest, of which is owned and/or controlled directly or indirectly by either party to this Agreement; (b) an organization that directly or indirectly owns and/or controls fifty percent (50%) or more of the voting stock, or comparable ownership interest, of either party of this Agreement; 2. (c) an organization that is directly or indirectly under common control with either party to this Agreement through common share holdings. 1.2 "CARDIOVASCULAR INDICATIONS" shall mean the treatment and prevention of any disorders of the heart, blood vessels, or kidney and disorders due to ischemia or hypoxia of any organ or tissue except the brain. 1.3 "COMPOUND" shall mean the chemical substance having the chemical name ( )N-(2,6-dimethylphenyl)-4-[2-hydroxy-3-(2-methoxyphenoxy)propyl]-1- piperazine acetamide dihydrochloride. The Compound has the generic name ranolazine, further identified by Syntex's code number RS-43285-193. 1.4 "CVT KNOW-HOW" shall mean all materials and information developed relating to the mechanism of action, all preclinical and clinical research, and processes and inventions useful for the formulation, development, manufacture, delivery or use of the Licensed Products, that are owned and/or controlled by CVT. 1.5 "CVT PATENT RIGHTS" shall mean all patents and patent applications, both foreign and domestic, including without limitation all provisionals, divisionals, continuations, continuations-in-part, substitutions, extensions, reissues, renewals, supplementary protection certificates and inventors' certificates, owned and/or controlled by CVT that cover inventions or discoveries relating to the Licensed Products. 1.6 "CVT PATENTS AND KNOW-HOW" shall mean CVT Patent Rights and CVT Know-How. 3. 1.7 "CVT TERRITORY" shall mean all countries in the world, excluding Japan, Korea, China, Taiwan, Hong Kong, the Phillipines, Indonesia, Singapore, Thailand, Malaysia, Vietnam, Myanmar, Laos, Cambodia and Brunei. 1.8 "LICENSED COMPOUND(S)" shall mean the Compound and any other compound claimed in U.S. Patent No. 4,567,264 granted January 28, 1986 and in European Patent No. 126,449, granted December 23, 1987. 1.9 "LICENSED PRODUCT(S)" shall mean human therapeutic product(s) containing any Licensed Compound as an active ingredient for the treatment of angina pectoris and, at CVT's discretion, certain other Cardiovascular Indications, in such formulations and modes of administration as determined by CVT. 1.10 "NET SALES" shall mean the gross sales of the Licensed Product invoiced by CVT, its Affiliates, the CVT Partner and other sublicensees, as the case may be, to non-Affiliated third parties, less [ ], as computed on [ ]for the [ ] (hereinafter referred to as "adjusted gross sales"). From the adjusted gross sales there shall be [ ], computed in accordance with Section 5.7, for [ ]. 4. [ ]. 1.11 "SYNTEX KNOW-HOW" shall mean all materials and information developed relating to the mechanism of action, all preclinical and clinical research, and processes and inventions useful for the formulation, development, manufacture, delivery or use of the Licensed Products, that are owned and/or controlled by Syntex as of the effective date of this Agreement and thereafter acquired during and in the course of performance of the Agreement to the extent that Syntex is free to disclose without restriction. Information received by Syntex from the Third Party Licensee will be expressly excluded from Syntex Know-How. Syntex shall not license such information to another third party in the CVT Territory for use in Cardiovascular Indications. 1.12 "SYNTEX PATENT RIGHTS" shall mean all patents and patent applications, both foreign and domestic, including without limitation all provisionals, divisionals, substitutions, continuations, continuations-in-part, extensions, reissues, renewals, supplementary protection certificates and inventors' certificates, that are owned and/or controlled by Syntex and that cover inventions or discoveries relating to the Licensed Products. As of the effective date of this Agreement, Syntex Patent Rights shall mean those patents and applications set out in Appendix A attached hereto. 1.13 "SYNTEX PATENTS AND KNOW-HOW" shall include Syntex Patent Rights and Syntex Know-How. 5. 1.14 "THIRD PARTY LICENSEE" shall mean the third party to which Syntex has granted a license of rights to the Compound in the countries outside the CVT Territory as of the effective date of this Agreement, or any future licensee of Syntex of the Compound or other compounds encompassed by the Licensed Products outside of the CVT Territory. 2. GRANT OF RIGHTS. 2.1 Syntex herewith grants to CVT under the Syntex Patent Rights and Syntex Know-How for the Cardiovascular Indications: (a) an exclusive right and license to develop and register the Licensed Product(s) in the CVT Territory for angina pectoris and, at CVT's discretion, certain other Cardiovascular Indications; and (b) an exclusive right and license to make, have made, use, offer for sale, sell and import the Licensed Product(s) in the CVT Territory for angina pectoris and, at CVT's discretion, certain other Cardiovascular Indications. No rights are granted pursuant to the foregoing license under the Syntex Patent Rights and Know-how to any compounds other than the Licensed Compounds. 2.2 The exclusiveness as per Section 2.1 above shall be valid against Syntex in the CVT Territory, unless specifically provided for to the contrary under this Agreement. 6. 2.3 CVT shall be permitted to extend its right and license obtained under this Agreement to its Affiliates and to grant sublicenses to third parties in the CVT Territory. Unless expressly stated to the contrary, all references in this Agreement to sublicensees of CVT shall include the CVT Partner. CVT shall inform Syntex in writing of the identity of its sublicensees, including the CVT Partner, and any Affiliates to which it has extended rights, promptly after such parties have obtained such rights. 2.4 If at any time CVT or the CVT Partner for reasons of seeking a marketing partner decides that it desires to sublicense its rights granted in Section 2.1 to a third party in a given country of the CVT Territory, CVT or the CVT Partner, as the case may be, shall give Syntex written notice to such effect identifying the country or countries. Syntex shall have forty-five (45) days from receipt of such notice to inform CVT, or the CVT Partner, as the case may be, by written notice that Syntex elects to exercise a right of first negotiation to obtain such sublicense with respect to the country or countries in question and provide at the time of such election a proposal of terms relating to the Licensed Product and country or countries in question. If the election is in the affirmative, Syntex or any Affiliate of Syntex shall have a right of first negotiation, such right giving Syntex or its Affiliate, during the one hundred and twenty (120) day period following delivery of the notice (the "Negotiation Period"), the exclusive right to negotiate with CVT or the CVT Partner, before CVT or the CVT Partner negotiates with any third party, to participate in marketing a Licensed Product in any portion of the CVT Territory in which CVT or the CVT Partner plans to seek assistance in marketing the Licensed Product; provided, however, that the foregoing shall not apply to CVT's selection of a CVT Partner, or if CVT or the CVT Partner at the time of launch of Licensed Product has in the relevant portion of the CVT Territory an established and systematic commercial relationship with a third party for the marketing by such third party of other products developed by CVT or the CVT Partner, as the case may be, and CVT or the CVT Partner plans to use such third party to market the Licensed Product. At Syntex's request, during the Negotiation Period the parties will negotiate in good faith to enter into an agreement providing for Syntex or an Affiliate of Syntex being granted rights as a marketing partner of CVT or the CVT Partner. Such agreement shall be on commercially reasonable terms, which may include, without limitation, co-promotion product exchange and other consideration, consistent with customary business practices in armslength transactions with third parties in the pharmaceutical industry, it being understood that CVT or the CVT Partner shall be entitled to reject Syntex's offer at the end of the Negotiation Period and seek more favorable terms from a third party. If no agreement is entered into with Syntex or a Syntex Affiliate by the end of the Negotiation Period, then CVT or the CVT Partner shall be free to enter into an agreement to sublicense a third party at its sole discretion on terms materially more favorable to CVT than those last offered by Syntex or its respective Affiliate. "Terms" shall include, but not be limited to, royalty, copromotion, product exchange and level of development or marketing support for the Licensed Product in question. If CVT or the CVT Partner intends to enter into such an agreement with a third party on terms materially equal or less favorable to CVT than those last offered by Syntex or its Affiliate, it shall first offer such terms to Syntex or its Affiliate, as the case may be, in writing, and Syntex or its Affiliate shall have thirty (30) days from receipt of such offer to accept or reject the terms of the offer in its entirety. If Syntex or its Affiliate rejects the offer, CVT or the CVT Partner, as the case may be, shall then be free to enter into the agreement with such third party or another party upon the offered terms. 7. 2.5 Any registrations, and any other validations, notifications, or like procedures, and compliance therewith, required by any authority in the CVT Territory with respect to the right and license granted to CVT pursuant to this Agreement shall be the sole responsibility of CVT and shall be at the sole expense of CVT. CVT shall indemnify and hold Syntex harmless from any claim against Syntex arising from or relating to CVT's failure to comply with the foregoing. 3. DISCLOSURE. 3.1 (a) Following execution of this Agreement, Syntex shall provide CVT all written Syntex Know-How in its possession relevant to the Compound to the extent available. Syntex shall use reasonable efforts to arrange for a complete disclosure and demonstration of all technology and know-how in its possession worldwide relating to the Compound that is necessary or useful for the manufacture of Licensed Products (in bulk and finished form under Good Laboratory Practice ("GLP) and Good Manufacturing Practice "(GMP") conditions for clinical or commercial use) by CVT or a CVT sublicensee or subcontractor, by personnel of Syntex or other knowledgeable ex-Syntex personnel accessible to Syntex, to the extent such personnel will be available. (b) Upon reasonable notice to Syntex, Syntex shall use reasonable efforts to make available up to three Syntex employees to facilitate the transfer of Syntex Know-How relating to bulk manufacture of the Compound, including a walk-through of a process batch, and demonstrate the manufacturing process at a 8. single site, either in North America or Europe, and up to two Syntex employees to facilitate the transfer of formulation know-how, including the walk-through of a pilot batch, at a single manufacturing site designated by CVT as its prime manufacturing site in the United States or Europe; provided, however, that Syntex shall not be obligated to make available more than a total of four employees. In either case, Syntex shall not be obligated to maintain such employees on site after successful walk-through and batch preparation, and in no event longer than [ ]. Travel and related out-of-pocket expenses of Syntex employees in rendering the foregoing services at sites remote from the Syntex facilities shall be paid for by CVT. All Syntex obligations under this Section 3.1b) shall cease [ ]. (c) Syntex shall grant permission, upon written request and reasonable notice by CVT, for ex-Syntex personnel and ex-Syntex consultants, as the case may be, to disclose and discuss Syntex's proprietary information on the Compound to CVT or the CVT Partner solely in furtherance of the purposes of this Agreement. Syntex will pay up to a maximum total of [ ] for the reasonable costs (including consulting fees and reasonable travel expenses), in the aggregate, of all ex-Syntex personnel and of the two, [ ]consultants Dr. Gary Lopaschuk and Dr. D.M. Turnball when providing the foregoing services to CVT and the CVT Partner, and CVT shall be solely responsible for payment of any such costs in excess of that amount and the costs of any other consultants of CVT. (d) Syntex's obligations in accordance with this Article III, including making employees available for telephone consultations, with respect to transfer of written information and associated documentation relating to pre- clinical and 9. clinical activities and IND matters shall cease [ ] from the effective date of this Agreement. 3.2 CVT shall provide periodic progress reports of the significant results of the development of the Licensed Products and CVT's progress in meeting the milestone timetable set out in Appendix B, in such form and detail as Syntex may reasonably require. 3.3 If Syntex has been granted rights under an agreement pursuant to Section 2.4 above, it is understood that CVT shall then make available to Syntex any know-how, information, data, etc. (including the registration file prepared by CVT or the CVT Partner for registration approval) in CVT's or the CVT Partner's possession for Syntex's marketing of the Licensed Product in that portion of the CVT Territory where Syntex has been granted rights to sell Licensed Product(s). In such case, the provisions of Section 2.5 shall not apply to that portion of the CVT Territory where Syntex has been granted rights to sell Licensed Product(s). 4. DEVELOPMENT, REGISTRATION AND MARKETING 4.1 All development and clinical trials required for regulatory approval in CVT Territory will be conducted by CVT or the CVT Partner, at the sole expense of CVT or the CVT Partner. CVT and the CVT Partner will have the right to subcontract any part of its development and clinical trial obligations in the CVT Territory. 10. 4.2 Syntex shall, upon execution of this Agreement, exercise reasonable efforts to introduce CVT to the Third Party Licensee. 4.3 Syntex shall endeavor to provide access by CVT to all consultants who have been involved in the development of the Compound by Syntex and whom CVT desires to retain for the purposes of this Agreement, to the extent such consultants are available and willing to work with CVT. Subject to Section 3.1c), all costs and expenses associated with retaining such consultants shall be borne by CVT. 4.4 All processes, inventions, formulations, proprietary information, know-how, and patents resulting from CVT's development program, including formulation and manufacturing information (the "Results") developed pursuant to the licenses granted to CVT hereunder shall be owned by CVT. 4.5 Subject to Section 11.4, CVT shall use commercially reasonable efforts to develop the Compound for the treatment of angina pectoris within milestone/time guidelines set out in Appendix B hereto, or as later mutually agreed to in writing by duly authorized officers of the parties hereto. CVT shall notify Syntex before the lapse of a time limit contained in the milestone/time guidelines that the completion of a particular trial or the filing of a certain document has been delayed, and if CVT can competently demonstrate that such delay was due to valid reasons beyond CVT's control and that CVT has undertaken reasonable efforts to overcome such adverse circumstances, then in such a case Syntex shall, upon consultation with CVT, extend the respective time limit for a reasonable period. Notwithstanding the foregoing, Syntex shall not be obligated to extend any time limit for reaching a particular milestone set 11. forth under the Milestone Payments more than once, and failure to meet the milestone in question by such an extended time limit, unless the amount set forth for payment upon reaching the milestone is paid on or before expiration of the extended time limit, shall be deemed a material breach of the Agreement by CVT. 4.6 Subject to Section 11.4, CVT shall use commercially reasonable efforts consistent with accepted pharmaceutical business practices and legal requirements to promote, market, distribute and sell the Licensed Products with the same standard of effort used by CVT in the marketing of its own products of similar market potential. CVT and any sublicensee of CVT shall launch Licensed Product(s) in each country of the CVT Territory within [ ] of receiving marketing approval, or pricing approval if required, whichever is later, for the Licensed Product in question. 4.7 With regard to any countries in the CVT Territory for which CVT is acting through an Affiliate or sublicensee, CVT's Affiliated Company or sublicensee of CVT, as the case may be, shall observe commercially reasonable efforts comparable to the ones set forth above. 4.8 Upon [ ] prior written notice, but in any event not earlier than [ ] after launch of a Licensed Product in a country in question, Syntex may convert the right and license granted pursuant to Article II into a non-exclusive right and license in a given country of the CVT Territory in the event CVT, or the responsible CVT Affiliate or sublicensee fails to comply with its obligations in each such country as set forth above, unless, within such [ ] period, CVT or the responsible CVT Affiliate or sublicensee shall have 12. cured such default or shall have put a reasonable plan in place and allocated sufficient resources to meet its efforts - obligation in the country in question, all to the reasonable satisfaction of Syntex. 4.9 CVT undertakes to inform Syntex of: (a) the date of filing the application for the registration of each Licensed Product in a given country of the CVT Territory; (b) the date of obtaining product approval (or equivalent authorization) from the relevant authority in each country of the CVT Territory; (c) the date of the first sale of the Licensed Product in each country of the CVT Territory; and (d) any events which might be material to Syntex in connection with a possible extension of the patent protection term. In this regard, CVT shall cooperate with Syntex in filing for and obtaining patent extensions and supplementary or complementary protection certificates in any country of the Territory, if and when available, including supplementary protection certificates in European Union (EU) countries and European Free Trade Area (EFTA) countries, patent extensions in the United States of America, and administrative protection, such as so-called pipeline protection in certain countries of the CVT Territory. Such cooperation shall include, without limitation, providing to Syntex, within one (1) month of receipt by CVT, CVT's Affiliated Companies, recognized distributors and sublicensees, a copy of every marketing authorization for 13. a Licensed Product issued by either an EU or an EFTA country, and in addition, within one (1) month of availability of the document, a copy of the official journal page from each EU or EFTA country giving the marketing approval number and date of authorization for each approved Licensed Product, and a summary of the characteristics of the Licensed Product for that country, for the purpose of applying for supplementary protection certificates under EEC (European Economic Community) Directive 1768/2, which Syntex shall have the right to do in its sole discretion, and providing information and signing of documents as required. 4.10 As soon as practicable after execution of this Agreement, but in any event within [ ] days of the effective date, Syntex shall initiate transfer of ownership of and responsibility for all the pending Investigational New Drug applications, IND 30,205 (oral tablets and caps) and IND 43,735 (sustained-release tablets) ("INDs"), relating to the Compound that have been filed with the United States Food and Drug Administration ("FDA") by sending the appropriate communication to the FDA. Syntex shall render reasonable assistance with respect to matters dealing with the transfer of the IND consistent with its obligations in Article III. After transfer of ownership of the INDs to CVT, CVT shall be solely responsible for all matters relating to the INDs. 5. PAYMENTS, REPORTS, TIME OF PAYMENTS 5.1 In consideration of the rights and license granted under this Agreement, CVT shall make the following payments to Syntex: 14. LICENSE FEE (a) Subject to Section 5.1 c) below, CVT shall pay Seven Hundred and Fifty Thousand Dollars ($750,000) upon execution of this Agreement. MILESTONE PAYMENTS (b) CVT will pay Syntex following additional amounts in milestone payments upon the first occurrence of each of following six milestones in the CVT Territory as follows: (1) Subject to Section 5.1 c) below, [ ] upon [ ], but in no event later than [ ]; (2) [ ] upon commencement of [ ]; (3) [ ] upon commencement of [ ] or the date of [ ]; (4) [ ] upon the date of [ ]; (5) [ ] upon [ ]; and 15. (6) [ ] upon the first [ ]. For the purposes hereof, [ ] shall mean any of the following [ ] and [ ] shall mean [ ]. "Commencement" of a clinical trial shall mean the first date on which a Licensed Product is shipped to an investigator for the clinical trial. (c) In lieu of payment in cash of the Seven Hundred and Fifty Thousand Dollars ($750,000) License Fee [ ] CVT may issue Syntex [ ] that number of shares of its Series E Preferred Stock equally: Seven Hundred Fifty Thousand Dollars ($750,000) divided by the Conversion Price (as that term is defined in CVT's Restated Certificate of Incorporation) of the Series E Preferred Stock then in effect. Any such payment made in Series E Preferred Stock pursuant to this subsection shall be made on the same terms as, and pursuant to, that certain Series E Purchase Agreement dated September 8, 1995 among CVT and the purchases of Series E Preferred Stock and shall also entitle Syntex to receive warrants of Series E Preferred Stock, based on the formula described in the Purchase Agreement, attached hereto as Exhibit A. The Series E Preferred Stock issued to Syntex shall be entitled to the rights, preferences and privileges set forth in CVT's current Restated Certificate of Incorporation as described to Syntex as of the effective date hereof. The Series E Preferred Stock issuable [ ](excluding the Warrants) shall be deemed issued and outstanding for the purpose of obtaining stockholder approval of any amendment to the Restated Certificate of Incorporation and CVT shall receive an appropriate number of Series E shares and warrants for issuance to Syntex. 16. as set forth above. 5.2 CVT shall pay the following royalties to Syntex on Net Sales of the Licensed Products. Such royalties shall be paid on a product-by-product and country-by-country basis according to the following rates: (a) For Net Sales of a Licensed Product as to which Syntex Patents and Know-How cover the manufacture, use, sale, offer for sale, or import of the Licensed Product a rate of [ ]. (b) For sales of a Licensed Product in a country of the CVT Territory in which competition by products having the same active compound as the Licensed Product exceeds [ ] in terms of unit sales, based on IMS data or equivalent independent survey, a royalty reduced to [ ] of the rate shown in Section 5.2 (a) above for as long as such competition continues to exceed [ ]. 5.3 The obligation to pay royalties to Syntex hereunder shall be imposed only once with respect to the same unit of the Licensed Product. 17. 5.4 No royalties shall accrue on the sales of CVT to CVT's Affiliated Companies or sublicensees of CVT on any transactions between such entities. Royalties shall accrue only on sales of the Licensed Product from CVT, Affiliated Companies of CVT or sublicensees of CVT to third parties that are not Affiliates of those entities. 5.5 In the event that CVT shall grant a sublicense to a third party, including, without limitation, the CVT Partner, all of the terms and conditions of this Agreement shall apply to such sublicensee to the same extent as they apply to CVT. CVT guarantees the performance of all obligations so imposed on its sublicensees under this Agreement and will itself pay and account to Syntex for all royalties due under this Agreement which may accrue by reason of the action or operations of any of CVT's sublicensees. 5.6 CVT shall pay to Syntex the royalties due hereunder, including any royalties due from the sales of Licensed Product by CVT's Affiliates or sublicensees on a quarterly basis, within [ ] of such royalty computation period, that is to say up to the last working day of the months of [ ] respectively of each year. The royalty shall be paid to Syntex in U.S. Dollars and computed in accordance with Section 5.7 and Section 5.8, and CVT shall submit to Syntex, together with each royalty payment, a written royalty statement containing at least the following information: (a) the quantity of each Licensed Product subject to royalty sold (by country) by CVT, its Affiliates and sublicensees; (b) total adjusted gross sales for each Product subject to royalty (by country); (c) total royalties payable to Syntex (by country); and 18. (d) any relevant information related to matters stated in Section 5.9. Any compensation payment that is not paid on or before the date such payment is due under this Agreement shall bear interest, to the extent permitted by applicable law, at the average one month London Interbank Offered Rate (LIBOR) for the currency and time such a payment is overdue. The payment of such interest shall not affect the rights defined in Section 11.3. 5.7 With respect to each quarter, monthly adjusted gross sales in the currency of the country of sale will be converted to U.S. Dollars at an exchange rate that is the average of the daily exchange rate for the U.S. Dollar and the currency of the country of sale as quoted by The Wall Street Journal, or a comparable publication acceptable to the parties if it ceases to exist, for the corresponding month in which the adjusted gross sales are made and then aggregated in U.S. Dollars for the quarter in question. From that quarterly aggregate amount in U.S. Dollars, a lump sum of [ ] shall be deducted to obtain the Net Sales aggregate amount of the quarter in question. 5.8 CVT shall keep accurate books and records setting forth the gross sales, adjusted gross sales, Net Sales, the amount of royalties payable to Syntex as provided for herein, for each country with regard to the Licensed Product sold by CVT, CVT's Affiliated Companies or sublicensees of CVT. Such books and records shall be retained by CVT at its principal place of business for at least the three (3) years immediately following the calendar year to which each shall pertain. Abstracts thereof shall be made independently from CVT by CVT's public accountants and shall be made available for audit, all at the request and expense of Syntex by an independent certified public accountant or accounting firm appointed by Syntex and acceptable to CVT; provided, however, that if the 19. audit on behalf Syntex is conducted at the same time as the regular, annual audit of CVT, the expense of such audit shall be borne by CVT. CVT shall not unreasonably withhold acceptance of an independent certified public accountant or accounting firm appointed by Syntex. In the event that such audit shall indicate that in any calendar year the royalties which should have been paid by CVT are at least [ ] greater than those which were actually paid by CVT, then CVT shall pay the cost of such audit. 5.9 Any tax required to be withheld by CVT under the laws of any country for the account of Syntex shall be promptly paid by CVT for and on behalf of Syntex to the appropriate governmental authority, and CVT shall furnish Syntex with proof of payment of such tax. Any such tax actually paid on Syntex's behalf shall be deducted from royalty payments due Syntex. 6. SUPPLY OF COMPOUND. 6.1 Subject to (i) existing quantities of bulk Compound, granulated, formulated Compound and tableted, formulated Compound in Syntex's possession and (ii) Syntex's commitment to provide certain quantities of such materials to Syntex's Third Party Licensee, Syntex shall provide to CVT (x) at no charge, any combination of free goods consisting of bulk Compound, granulated, formulated Compound and tableted, formulated Compound having a total value of [ ] as calculated based on the prices listed on Appendix C hereto, and (y) at CVT's expense, such other agreed to quantities of bulk Compound, granulated, formulated Compound and tableted, formulated Compound in Syntex's possession at the prices set forth in Appendix C. CVT shall order and complete 20. the purchase of the foregoing materials that it desires to purchase and specify those materials that it wishes to receive as free goods as soon as practicable, but in no event later that [ ] after the effective date, and Syntex shall not be obligated to supply any material ordered or specified thereafter. The materials to be provided hereunder are provided "as is", and Syntex hereby disclaims any representation or warranty that the materials provided hereunder will be suitable for use in any manner whatsoever or have adequate dating for use, including, without limitation, for use in clinical trials, or that such materials will meet the requirements of any analysis required to establish extended dating for the materials provided. In the event that the materials provided need to be reanalyzed to establish extended dating or for any other reason, or such materials have to reworked or otherwise manipulated, CVT shall be solely responsible for all of the costs and expenses associated therewith and relating thereto. Title and risk of loss shall pass to CVT upon delivery by Syntex to a common carrier, F.C.A. (Incoterms, 1990), Syntex's storage facility. Thereafter, subject to Syntex's obligations under Article III, CVT and the CVT Partner will be solely responsible to procure the necessary quantities of Compound for the development and manufacture of the Licensed Product. 6.2 CVT acknowledges that it has been informed of the existence, circumstances and details of a "temporary import bond(s)" put up by Syntex with respect to the import of existing Counpound into the United States, including, without limitation, the fact that Syntex has closed out such bond(s) by shipping the Compound out of the United States, and the potential consequences of importing any quantity of such Compound into the United States. CVT shall be responsible for and pay any transportation costs, duties, fines, taxes, penalties, forfeitures or other charges of any kind ("Costs") associated with the 21. supply by Syntex of any Compound pursuant to Section 6.1 and shall indemnify and hold harmless Syntex and any Syntex Affiliates from any such Costs. Any costs, expenses or penalties of any kind associated with the import of any quantity of the Compound into the United States, whether or not relating to such bond(s), after the effective date of this Agreement shall be totally included with the Costs for which the foregoing indemnity and hold harmless apply. 6.3 Subject to Syntex's obligations under Article III, CVT and the CVT Partner shall be solely responsible for manufacturing the Compound and Licensed Products. CVT shall be entitled to procure from any appropriate source the Compound necessary to develop and manufacture the Licensed Product for marketing purposes. 7. LICENSED PRODUCT LIABILITY/DISCLAIMER OF WARRANTIES. 7.1 CVT shall indemnify, and holds harmless, Syntex, its Affiliates, directors, employees and agents from all costs and expenses of any kind, including reasonable attorneys fees, arising from any claim relating to the use of the Syntex Know-How and the Syntex Patent Rights, or the use, manufacture, promotion, marketing and sale of the Compound or any Licensed Products by CVT, its Affiliates, its sublicensees, distributors and customers. 7.2 Syntex hereby disclaims any warranties, whether express or implied, of any kind, including, without limitation, any warranty of merchantability or fitness for any particular purpose, with respect to any Compound or other materials in whatever form provided to CVT hereunder, or that the Compound or a Licensed 22. Product can be successfully developed by use of the Syntex Know-How, or that clinical or commercial quantities of the Compound or Licensed Product can be produced by use of the Syntex Know-How, or that the Syntex Patent Rights are or will be valid or can be or will be enforceable, or that the use of the Syntex Know-How or practice of the invention of the Syntex Patent Rights will not infringe the intellectual property rights of a third party; provided, however, that as of the effective date of this Agreement to the best of the knowledge of Syntex there are no facts that on their face would render the Syntex Patent Rights invalid or unenforceable and Syntex has received no claims with respect thereto. 8. MAINTENANCE AND ENFORCEMENT OF SYNTEX PATENT RIGHTS. 8.1 Syntex agrees to prosecute and maintain, [ ] all of the patents and patent applications included within Syntex Patent Rights. At Syntex's request, CVT shall cooperate, in all reasonable ways in connection with the prosecution of all patent applications included within Syntex Patent Rights. Syntex shall advise CVT promptly of any significant developments in the prosecution of Syntex Patent Rights in the CVT Territory, in particular of the issuance of or rejection of or of opposition to or of protest of any patent or application within Syntex Patent Rights. Should Syntex decide that it is no longer interested in maintaining or prosecuting Syntex Patent Rights or part thereof, it shall promptly advise CVT thereof and, at the request of CVT, Syntex shall assign free of charge such Syntex Patent Rights or part thereof to CVT. Upon assignment of such Syntex Patent Rights or part thereof, CVT will thereafter prosecute and maintain such Syntex Patent Rights [ ] to the extent that CVT desires to do so. 23. 8.2 Each party will advise the other promptly upon its becoming aware of any third party infringement of Syntex Patent Rights. In the event of an infringement of Syntex Patent Rights by a product that would be or is competitive with a Licensed Product under active development or being sold by CVT, the parties agree with the following: (a) to consult with each other to attempt to agree on whether legal action should be taken against the infringer, and also to establish the proportion in which they will participate in the costs and expenses of the action, if taken, and in any recoveries or awards resulting therefrom; and (b) in the event Syntex does not agree to bring suit or to participate in a suit against any such infringer, CVT shall have the right to take such action at its own expense and deduct up to [ ] of its reasonable litigation expenses from future royalties or milestone payments due to Syntex, provided that such deduction does not reduce the royalties or milestone payments payable in any quarter below [ ] of the royalties or milestone payments otherwise due in such quarter, and, upon receiving a recovery or award from such suit, such recovery and award shall be used first to reimburse CVT for its reasonable litigation expenses actually incurred, then to reimburse Syntex for the amounts of any unpaid royalties or milestone payments, and any remainder of the recovery and award shall be retained by CVT for its own benefit and use; and (c) in any such infringement suit Syntex shall, at the request of CVT render all reasonable assistance in the prosecution of such suit. 24. 9. RETAINED RIGHTS. Syntex retains all rights to make, have made, use, import, offer to sell, and sell the Licensed Compounds and to use the know-how encompassed in the Syntex Patents and Know-How in the CVT Territory for non-Cardiovascular Indications. CVT herewith grants to Syntex a non-exclusive, royalty-bearing right and license in the CVT Territory under any CVT Patents and Know-How to exercise such rights. For so long as Syntex is selling any product covered by a claim of the CVT Patent Rights, Syntex shall pay CVT a royalty equal to [ ] of Net Sales, as defined in Section 1.10, with respect to sales by Syntex, its Affiliates or sublicensees; provided, however, that if CVT jointly owns CVT Patent Rights with a third party and payments would be due such third party upon Syntex's use of the CVT Patent Rights, the parties shall negotiate in good faith a commercially reasonable royalty rate that reflects payments due such third party. 10. CONFIDENTIAL INFORMATION. 10.1 CVT shall keep the Syntex Know-How in strict confidence and shall not use Syntex Know-How except for the purposes of this Agreement. Any information disclosed pursuant to the Confidentiality Agreement between the parties dated November 7, 1994 shall be considered Syntex Know-How and governed by the terms of this Agreement. 10.2 Both CVT and Syntex agree to keep in strict confidence all other know-how as well as other information and data of confidential nature received from the 25. other party under this Agreement and not to make any use thereof other than provided under this Agreement. 10.3 The confidentiality obligations as per this Article 10 shall not apply to the extent that the Syntex Know-How or other know-how or information and data are required by appropriate authorities to be submitted for purposes of registration of the Licensed Product; provided, however, that to the extent possible such submissions shall be made on a confidential basis. The confidentiality and non-use obligations under this Article 10 shall extend for the term of this Agreement and five (5) years thereafter. 10.4 The obligation of confidentiality and non-use as set forth in this Article 10 shall not apply: (a) to information and data which, at the time of disclosure, was known by the recipient party or an Affiliated Company, or which after disclosure was independently developed by the recipient party or an Affiliated Company without use of such information and data, and which can be so demonstrated by the records of the recipient party or an Affiliated Company, as the case may be; and/or (b) are public knowledge at the date of disclosure to the recipient party; and/or (c) become public knowledge at a later date without any fault of the recipient party or an Affiliated Company; and/or 26. (d) are disclosed to the recipient party or an Affiliated Company by a third-party having the right to do so. 10.5 Nothing in this Article 10 or this Agreement shall be construed to prevent either party from disclosing to its Affiliated Companies information and data obtained from the other party during this Agreement, provided that such information is used in a manner consistent with this Agreement, and further provided that said Affiliated Companies are bound by a like confidentiality obligation with respect to such information. 11. TERM AND TERMINATION. 11.1 This Agreement shall be effective as of the date first written above. 11.2 This Agreement shall have a duration on a country-by-country and product-by-product basis of the later of (i) ten (10) years from the date of first commercial sale of the Licensed Product in a given country of the CVT Territory or (ii) a duration corresponding to the duration of the Syntex Patent Rights having one or more claims covering a Licensed Product, or its use or manufacture, in a given country, whichever is longer. Following expiration of the term as set forth above, CVT shall retain a non-exclusive, fully-paid license under the Syntex Know-How to manufacture, use, sell and offer for sale Licensed Products for Cardiovascular Indications within the CVT Territory. 11.3 Failures by one party to comply with any of its respective obligations contained in this Agreement shall entitle the other party to give the party in default written notice of such default. If such default is not remedied within [ ] 27. after receipt of such notice (or thirty (30) days in the event of non-payment), the notifying party shall be entitled to terminate this Agreement by giving notice with immediate effect. The right of either party to terminate this Agreement as provided hereinabove shall not be affected in any way by its waiver of or failure to take actions with respect to any previous default. In such cases of breach by CVT, all licenses from CVT to Syntex as set forth below in Section 11.4 for the case of an early termination shall be royalty free, and CVT shall provide to Syntex all of the information required by Section 11.4 in the event of early termination or breach of this Agreement by CVT. If there is any BONA FIDE dispute between the parties regarding the right of termination based on failure by CVT to make a milestone or royalty payment when due, the disputed milestone or royalty payment, as the case may be, shall be paid into an interest bearing account by CVT where it shall remain during the pendency of the dispute, and upon resolution of the dispute, paid, with accumulated interest, to the prevailing party. 11.4 CVT shall have the right to terminate the Agreement at any time provided that CVT gives notice to Syntex at least one hundred and twenty (120) days prior to such termination and under the condition that CVT further informs Syntex together with the notice of termination that, in its reasonable business judgment based on scientific, medical, economic or other valid business reasons, CVT has determined not to carry out further development or marketing of the Licensed Products. In the event of such an early termination, the licenses granted hereunder by Syntex shall revert to Syntex. In addition, CVT shall grant Syntex an exclusive license, with the right to sublicense, to the CVT Patents and Know-How directly related to and solely usable in connection with the Compound and the Licensed Products to make, have made, use, 28. import, offer to sell and sell the Compound and the Licensed Products. All other CVT Patents and Know-How shall be licensed non-exclusively to Syntex solely for use in connection with the Licensed Products as set forth above. Licenses under the CVT Patents shall be royalty bearing on commercially reasonable terms not to exceed, in the aggregate, [ ] of Net Sales, as defined in Section 1.10, with respect to sales by Syntex, its Affiliates or sublicensees, of Licensed Products. All CVT Know-How in CVT's possession or under its control relating to the Licensed Products including without limitation the documents necessary to obtain or maintain the registration authorization of the relevant authorities in the CVT Territory, shall be made available to Syntex free of charge. 11.5 This Agreement shall survive the acquisition or change of control of either company, provided that in the case of CVT the acquiring entity will expressly assume all rights and obligations contained in this Agreement and such entity further undertakes to use its commercially reasonable efforts consistent with accepted pharmaceutical business practices and legal requirements to promote, market, distribute and sell the Licensed Products with the same standard of effort as used in the marketing of its own products of similar market potential. 11.6 In the event of a conversion of the exclusive right and license of CVT into a non-exclusive right and license because of a failure of CVT to comply with its efforts obligation pursuant to Section 4.3, the provisions of Section 11.4 for early termination by CVT shall apply MUTATIS MUTANDIS, with the exception that Syntex shall receive a royalty-free, non-exclusive license. 29. 11.7 Neither of the undersigned parties shall be liable for failure to perform its obligations under this Agreement, where such failure was occasioned by contingencies beyond its control, including without limitation, strikes or work stoppages, lock-outs, riots, wars, delay of carriers, Acts of God, including without limitation, fire, floods, storms, and earthquakes, acts or failures to act by government or governmental agencies or instrumentalities (Force Majeure). Each party will notify the other immediately, should any such contingencies occur. Such notice shall set forth the obligations that the notifying party is unable to perform and shall also specify the contingencies which it contends provide a basis under this Section 11.7 for such non-performance. Nothing herein shall relieve a party from the obligation to pay promptly, in U.S. dollars, all payments that may be due under this Agreement. 11.8 In the event of termination of the licenses to CVT, any licenses granted to a CVT Partner shall survive and this Agreement may be assumed by the CVT Partner for the CVT Partner's portion of the CVT Territory, subject to adequate assurances to Syntex of such CVT Partner's ability to perform CVT's obligations hereunder. The agreement between CVT and the CVT Partner shall provide that if this Agreement is not assumed by the CVT Partner, then the agreement between CVT and the CVT Partner shall be terminated and the CVT Partner's patent rights and know-how relating to the Licensed Products will be licensed to Syntex, with the right to sublicense, with delivery of the necessary information to enable Syntex to exercise the license and continue the development, marketing and sale of Licensed Products in the CVT Partner's portion of the CVT Territory under the same terms as Syntex's license to the CVT Patents and Know-How pursuant to Section 11.4 as in the case of CVT's termination; provided, however, that if the CVT Partner has acquired 30. technology from a third party that the CVT Partner is not permitted to transfer to Syntex, then there would not be an obligation on CVT to obtain agreement to license such technology. In such event, CVT and the CVT Partner will render reasonable assistance to Syntex in its attempts to obtain access to that third party technology. Furthermore, should CVT have acquired licenses from third parties under technology relating to Licensed Products for which CVT has the right to sublicense, CVT shall grant sublicenses to Syntex upon the same financial terms as CVT's licenses, unless the licenses are available from the third party directly to Syntex on the same or more favorable financial terms. 11.9 Either party shall have the right to terminate this Agreement if the other party becomes insolvent or unable to pay its debts or perform its obligations as they mature, or makes an assignment for the benefit of creditors, or is the subject of a petition or other document seeking relief under any bankruptcy law, filed by or against a party, that is not discharged with prejudice within sixty (60) days thereafter, such termination to be effective upon the delivery of written notice to the insolvent or bankruptcy party. 12. MISCELLANEOUS. 12.1 CVT shall not assign or transfer, in whole or in part, this Agreement or any rights thereunder without the prior written consent of Syntex. 12.2 In the event of the permitted assignment or transfer by CVT of this Agreement or any part thereof, or in the event of any sublicense granted by CVT, the assignee, transferee or sublicensee shall agree to be bound by the terms of this Agreement and CVT shall guarantee the performance and obligations thereof. 31. 12.3 Syntex shall have the right to assign or transfer, in whole or in part, this Agreement or any rights thereunder, or delegate any of its obligations, to any Affiliate of Syntex and such Affiliate shall agree to be bound by the terms and conditions of this Agreement, and Syntex shall guarantee the performance and obligations thereof. Promptly after any such assignment or transfer, Syntex shall provide CVT with written notice of the assignment or transfer and the identity of the assignee or transferee. 12.4 This Agreement contains the entire understanding between the parties relating to the subject matter hereof and supersedes any and all prior agreements, understandings and arrangements, whether written or oral, between the parties, including the Confidentiality Agreement dated November 7, 1994 and the Heads of Agreement dated December 21, 1995. No amendments, changes, modifications or alterations of the terms and conditions of this Agreement shall be binding upon either party hereto unless in writing and signed by both parties. 12.5 All titles and captions in this Agreement are for convenience only and shall not be interpreted as having any substantive meaning. 12.6 Both parties hereby expressly state that it is the intention of neither party to violate any rule, law and regulations. If any of the provisions of this Agreement are held to be void or unenforceable, then such void or unenforceable provisions shall be replaced by valid and enforceable provisions which will achieve as far as possible the economic business intentions of the parties. 12.7 Unless required by law or regulation, each party shall refrain from making any public announcement or disclosure of the terms and conditions of this 32. Agreement without the prior written consent of the other party, which consent shall not unreasonably be withheld; provided, however, CVT may publicize certain aspects of the Agreement at time of signing, subject to prior written approval by Syntex. 12.8 No failure or delay on the part of a party in exercising any right hereunder shall operate as a waiver of, or impair, any such right. No single or partial exercise of any such right shall preclude any other or further exercise thereof or the exercise of any other right. Any waiver on the part of either party hereto of any right hereunder shall be effective only if made in writing and shall not constitute or imply a waiver of any other right or a subsequent waiver. 12.9 The indemnities of Section 2.5, Section 6.2 and Section 7.1 and the provisions of Section 5.6, Section 5.7 (for one year), Article X (for the term set forth in Section 10.3), Section 11.4 and Article XIV shall survive termination or expiration of this Agreement. 13. NOTICES. Any notice required to be given hereunder shall be considered properly given if sent in English by registered air-mail, telecopier, telex or by personal courier delivery to the respective address of each party as follows: for Syntex: Syntex (U.S.A.) Inc. P.O.Box 10850 3401 Hillview Avenue Palo Alto, California U.S.A. Attention: President 33. Facsimile: (415) 354-2595 with a copy to: F. Hoffmann-La Roche Ltd P.O.Box, CH-4070 Basel Switzerland Attention: Corporate Law Facsimile: 41-61-68-81396 and in the case of notice regarding CVT's stock, Attention: Corporate Finance 34. for CVT: CV Therapeutics, Inc. 3172 Porter Drive Palo Alto, California 94304 Attention: Thomas L. Gutshall President & COO Facsimile: (415) 858-0388 or to such other address as a party may designate in a notice given in accordance with this Article 13. 14. GOVERNING LAW AND ARBITRATION. 14.1 This Agreement shall be governed by the laws of California (without regard for the choice of law provisions of California or any other jurisdiction). 14.2 In the event of any controversy or claim arising out of or relating to any provision of this Agreement or the breach thereof, the parties shall try to settle those conflicts amicably between themselves. Should they fail to agree, any controversy, dispute or claim which may arise out of or in connection with this Agreement, or the breach, termination or validity thereof, shall be settled by final and binding arbitration pursuant to the Rules of the American Arbitration Association as hereinafter provided: (a) The arbitration tribunal shall consist of three arbitrators. Each party shall nominate in the request for arbitration and the answer thereto one arbitrator and the two arbitrators so named will then jointly appoint the third arbitrator as chairman of the arbitration tribunal. If one party fails to nominate its arbitrator or if the parties' arbitrators cannot agree on the 35. person to be named to be chairman within sixty (60) days, the American Arbitration Association shall make the necessary appointments for arbitrator or chairman. (b) The place of arbitration shall be in Palo Alto, California and the arbitration proceedings shall be held in English. The arbitrators shall apply the law of California as set out in Section 14.1. The arbitrators shall have no power to award punitive damages or any multiple of damages assessed. CV THERAPEUTICS, INC. SYNTEX (U.S.A.) INC. By: /s/ Thomas L. Gutshall By: /s/ David R. Austin ------------------------ --------------------------- Thomas L. Gutshall David R. Austin President and COO Vice President Date: 3/27/96 Date: 3/27/96 ------------------------ ------------------------- 36. APPENDIX A Case [ ] Case [ ] Case [ ]
STATUS OF CASE 23550 APPENDIX A RUN DATE: 19 MAR 1996 PAGE 1 OF 8 DKT COUNTRY CS TP RL TP FL TP FL MO STATUS CLASSIFY - --- ------- -- -- -- -- -- -- -- -- ------ -------- 23530 AUSTRIA E GNT RS43285 APPLICATION NO: 84105643.5 APPLICATION DATE: 17MY1984 PATENT NO: E31533 GRANT DATE: 23DE1987 EXPIRATION DATE: 17MY2004 23550 AUSTRALIA GNT RS43285 APPLICATION NO: 28346/84 APPLICATION DATE: 17MY1984 PATENT NO: 566489 GRANT DATE: 220C1987 EXPIRATION DATE: 17MY2004 23550 BELGIUM E GNT RS43285 APPLICATION NO: 84105643.5 APPLICATION DATE: 17MY1984 PATENT NO: 126449 GRANT DATE: 23DE1987 EXPIRATION DATE: 17MY2004 23550 BAHAMAS GNT RS43285 APPLICATION NO: 753 APPLICATION DATE: 17MY1984 PATENT NO: 753 GRANT DATE: 08DE1986 EXPIRATION DATE: 17MY2000 23550 CANADA GNT RS43285 APPLICATION NO: 454628 APPLICATION DATE: 17MY1984 PATENT NO: 1256874 GRANT DATE: 04JL1989 EXPIRATION DATE: 04JL2006 23550 SWITZERLAND E GNT RS43285 APPLICATION NO: 84105643.5A APPLICATION DATE: 17MY1984 PATENT NO: 126449 GRANT DATE: 23DE1987 EXPIRATION DATE: 17MY2004 23550 CZECH REPUBLIC GNT RS43285 APPLICATION NO: PV3680 APPLICATION DATE: 17MY1984 PATENT NO: 246080 GRANT DATE: 01SE1986 EXPIRATION DATE: 17MY1999 23550 CZECH REPUBLIC D 01 GNT RS43285 APPLICATION NO: PV3492 APPLICATION DATE: 15MY1985 PATENT NO: 246099 GRANT DATE: 01SE1986 EXPIRATION DATE: 17MY1999 23550 GERMANY E GNT RS43285 APPLICATION NO: 84105643.5 APPLICATION DATE: 17MY1984 PATENT NO: P-3468215.5-08 GRANT DATE: 23DE1987 EXPIRATION DATE: 17MY2004 STATUS OF CASE 23550 APPENDIX A RUN DATE: 19 MAR 1996 PAGE 2 OF 8 DKT COUNTRY CS TP RL TP FL TP FL MO STATUS CLASSIFY - --- ------- -- -- -- -- -- -- -- -- ------ -------- 23550 DENMARK GNT RS43285 APPLICATION NO: 2483/84 APPLICATION DATE: 17MY1984 PATENT NO: 168535 GRANT DATE: 18AP1994 EXPIRATION DATE: 17MY2004 23550 EUROPEAN PATENT E INA RS43285 APPLICATION NO: 84105643.5 APPLICATION DATE: 17MY1984 PATENT NO: 126449 GRANT DATE: 23DE1987 EXPIRATION DATE: 17MY2004 23550 SPAIN GNT RS43285 APPLICATION NO: 532565 APLICATION DATE: 17MY1984 PATENT NO: 532565 GRANT DATE: 09SE1985 EXPIRATION DATE: 09SE2005 23550 FINLAND GNT RS43285 APPLICATION NO: 841989 APPLICATION DATE: 17MY1984 PATENT NO: 78479 GRANT DATE: 10AU1989 EXPIRATION DATE: 17MY2004 23550 FRANCE E GNT RS43285 APPLICATION NO: 84105643.5 APPLICATION DATE: 17MY1984 PATENT NO: 126449 GRANT DATE: 23DE1987 EXPIRATION DATE: 17MY2004 23550 GREAT BRITAIN E GNT RS43285 APPLICATION NO: 84105643.5 APPLICATION DATE: 17MY1984 PATENT NO: 126449 GRANT DATE: 23DE1987 EXPIRATION DATE: 17MY2004 23550 GREECE GNT RS43285 APPLICATION NO: 74733 APPLICATION DATE: 16MY1984 PATENT NO: 82400 GRANT DATE: 13DE1984 EXPIRATION DATE: 16MY2004 23550 HUNGARY GNT RS43285 APPLICATION NO: 1902 APPLICATION DATE: 17MY1984 PATENT NO: 192404 GRANT DATE: 16DE1986 EXPIRATION DATE: 17MY2004 23550 IRELAND GNT RS43285 APPLICATION NO: 1224 APPLICATION DATE: 17MY1984 PATENT NO: 57487 GRANT DATE: 02FE1993 EXPIRATION DATE: 17MY2004 STATUS OF CASE 23550 APPENDIX A RUN DATE: 19 MAR 1996 PAGE 3 OF 8 DKT COUNTRY CS TP RL TP FL TP FL MO STATUS CLASSIFY - --- ------- -- -- -- -- -- -- -- -- ------ -------- 23550 ISRAEL GNT RS43285 APPLICATION NO: 71863 APPLICATION DATE: 17MY1984 PATENT NO: 71863 GRANT DATE: 31JA1988 EXPIRATION DATE: 17MY2004 23550 ITALY E GNT RS43285 APPLICATION NO: 126449 APPLICATION DATE: 17MY1984 PATENT NO: 67299BE88 GRANT DATE: 23DE1987 EXPIRATION DATE: 17MY2004 23550 LIECHTENSTEIN E GNT RS43285 APPLICATION NO: 84105643.5 APPLICATION DATE: 17MY1984 PATENT NO: 126449 GRANT DATE: 23DE1987 EXPIRATION DATE: 17MY2004 23550 LUXEMBOURG E GNT RS43285 APPLICATION NO: 84105643.5 APPLICATION DATE: 17MY1984 PATENT NO: 126449 GRANT DATE: 23DE1987 EXPIRATION DATE: 17MY2004 [ ] 23550 NETHERLANDS E GNT RS43285 APPLICATION NO: 84105643.5 APPLICATION DATE: 17MY1984 PATENT NO: 126449 GRANT DATE: 23DE1987 EXPIRATION DATE: 17MY2004 23550 NORWAY GNT RS43285 APPLICATION NO: 841968 APPLICATION DATE: 16MY1984 PATENT NO: 163618 GRANT DATE: 27JE1990 EXPIRATION DATE: 16MY2004 23550 NEW ZEALAND GNT RS43285 APPLICATION NO: 208188 APPLICATION DATE: 17MY1984 PATENT NO: 208188 GRANT DATE: 13AP1988 EXPIRATION DATE: 17MY2004 STATUS OF CASE 23550 APPENDIX A RUN DATE: 19 MAR 1996 PAGE 4 OF 8 DKT COUNTRY CS TP RL TP FL TP FL MO STATUS CLASSIFY - --- ------- -- -- -- -- -- -- -- -- ------ -------- 23550 POLAND GNT RS43285 APPLICATION NO: P247722 APPLICATION DATE: 17MY1984 PATENT NO: 142760 GRANT DATE: 09FE1987 EXPIRATION DATE: 17MY1999 23550 POLAND D 01 GNT RS43285 APPLICATION NO: P252856 APPLICATION DATE: 10AP1985 PATENT NO: 143558 GRANT DATE: 20MR1989 EXPIRATION DATE: 17MY1999 23550 PORTUGAL GNT RS43285 APPLICATION NO: 78604 APPLICATION DATE: 17MY1984 PATENT NO: 78604 GRANT DATE: 15JL1986 EXPIRATION DATE: 15JL2001 23550 SWEDEN E GNT RS43285 APPLICATION NO: 84105643.5 APPLICATION DATE: 17MY1984 PATENT NO: 84105643.5 GRANT DATE: 23DE1987 EXPIRATION DATE: 17MY2004 23550 SLOVAK REPUBLIC GNT RS43285 APPLICATION NO: PV3680 APPLICATION DATE: 17MY1984 PATENT NO: 246080 GRANT DATE: 26NO1986 EXPIRATION DATE: 17MY1999 23550 SLOVAK REPUBLIC D 01 GNT RS43285 APPLICATION NO: PV3492 APPLICATION DATE: 15MY1985 PATENT NO: 246099 GRANT DATE: 26NO1986 EXPIRATION DATE: 17MY1999 [ ] STATUS OF CASE 23550 APPENDIX A RUN DATE: 19 MAR 1996 PAGE 5 OF 8 DKT COUNTRY CS TP RL TP FL TP FL MO STATUS CLASSIFY - --- ------- -- -- -- -- -- -- -- -- ------ -------- 23550 U.S.A. GNT RS43285 APPLICATION NO: 06/495,904 APPLICATION DATE: 18MY1983 PATENT NO: 4,567,264 GRANT DATE: 28JA/1986 EXPIRATION DATE: 18MY2003 23550 SOUTH AFRICA GNT RS43285 APPLICATION NO: 843746 APPLICATION DATE: 17MY1984 PATENT NO: 843746 GRANT DATE: 29JA1986 EXPIRATION DATE: 17MY2004 26720 AUSTRALIA GNT RS43285 APPLICATION NO: 57618/90 APPLICATION DATE: 21JE1990 PATENT NO: 633589 GRANT DATE: 04FE1993 EXPIRATION DATE: 21JE2010 [ ] STATUS OF CASE 23550 APPENDIX A RUN DATE: 19 MAR 1996 PAGE 6 OF 8 DKT COUNTRY CS TP RL TP FL TP FL MO STATUS CLASSIFY - --- ------- -- -- -- -- -- -- -- -- ------ -------- [ ] 26720 SOUTH AFRICA GNT RS43285 APPLICATION NO: 904842 APPLICATION DATE: 21JE1990 PATENT NO: 904842 GRANT DATE: 26 FE1992 EXPIRATION DATE: 21JE2010 [ ] 27850 BAHAMAS GNT RS61443 APPLICATION NO: 1085 APPLICATION DATE: 12MY1994 PATENT NO: 1085 GRANT DATE: 18MR1995 EXPIRATION DATE: 12MY2010 [ ] STATUS OF CASE 23550 APPENDIX A RUN DATE: 19 MAR 1996 PAGE 7 OF 8 DKT COUNTRY CS TP RL TP FL TP FL MO STATUS CLASSIFY - --- ------- -- -- -- -- -- -- -- -- ------ -------- [ ] 27850 HUNGARY C GNT RS61443 APPLICATION NO: P/P00110 APPLICATION DATE: 24AP1995 PATENT NO: 211270 GRANT DATE: 24JL1995 EXPIRATION DATE: 11MY2014 [ ] STATUS OF CASE 23550 APPENDIX A RUN DATE: 19 MAR 1996 PAGE 8 OF 8 DKT COUNTRY CS TP RL TP FL TP FL MO STATUS CLASSIFY - --- ------- -- -- -- -- -- -- -- -- ------ -------- 27850 U.S.A. P 01 GNT RS61443 APPLICATION NO: 08/239,621 APPLICATION DATE: 09MY1994 PATENT NO: 5,472,707 GRANT DATE: 05DE1995 EXPIRATION DATE: 13MY2013 [ ] 27850 SOUTH AFRICA GNT RS61443 APPLICATION NO: 943267 APPLICATION DATE: 11MY1994 PATENT NO: 943267 GRANT DATE: 25JA1995 EXPIRATION DATE: 11MY2014
APPENDIX B MILESTONE DATE OF MILESTONE DATE OF MILESTONE [ ] [ ] - --------- ----------------- ----------------- Satisfied by [ [ [ ] ] ] Satisfied by [ [ [ ] ] ] Satisfied by [ [ [ ] ] ] Satisfied by [ [ [ ] ] ] Satisfied by [ [ [ ] ] ] APPENDIX C Description Unit Price to CVT/Unit - ----------- ---- ----------------- Ranolazine [ ] Kg $[ ]/Kg Ranolazine [ ] Kg $[ ]/Kg Ranolazine [ ]placebo tablet Tablet $[ ]/Tablet Ranolazine [ ]blue tablet Tablet $[ ]/Tablet Ranolazine [ ]tablet Tablet $[ ]/Tablet Ranolazine [ ]tablet Tablet $[ ]/Tablet Ranolazine [ ]placebo tablet Tablet $[ ]/Tablet Exhibit A CV THERAPEUTICS, INC. SERIES E PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT SEPTEMBER 8, 1995 CV THERAPEUTICS, INC. SERIES E PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT THIS AGREEMENT is entered into as of September 8, 1995 (the "Agreement"), by and among CV THERAPEUTICS, INC., a Delaware corporation (the "Company"), with its principal office at 3172 Porter Drive, Palo Alto, California 94304, each of the purchasers who are signatories hereto and any other purchasers who are made a party to this Agreement pursuant to paragraph 2.1 hereof (individually, a "Purchaser" and collectively, the "Purchasers"), as set forth in the Schedule of Purchasers, attached hereto as EXHIBIT A. AGREEMENT In consideration of the mutual promises, representations, warranties and conditions set forth in the Agreement, the Company and each Purchaser, severally and not jointly, agrees as follows: 1. AGREEMENT TO SELL AND PURCHASE. 1.1 AUTHORIZATION OF THE SHARES AND WARRANTS. The Company has authorized, or before the Closing, as defined in paragraph 2.1 hereof, will have authorized, the issuance and sale of: (a) up to 5,000,000 shares of its Series E Preferred Stock (the "Shares") and (b) warrants (the "Warrants") to purchase up to 2,500,000 shares of the Company's Series E Preferred Stock with an exercise price of $2.00 per share (the "Warrant Shares"), at a purchase price of $2.00 per Share and Warrant Share (a "Unit"). As used herein, a Unit is comprised of one share of Series E Preferred Stock and one Warrant, in substantially the form set forth in EXHIBIT B hereto, to purchase one-half of a share of Series E Preferred Stock. 1.2 SALE OF SHARES AND WARRANTS. In reliance upon the Purchasers' representations and warranties contained in Section 4 hereof and subject to the terms and conditions set forth herein, the Company hereby agrees to sell to each Purchaser, at a price per Unit of $2.00, the aggregate number of Shares and Warrants set forth below such Purchaser's signature on such Purchaser's signature page hereto. The total amount of common stock of the Company (the "Common Stock") and other securities issuable upon conversion of the Shares and the Warrant Shares is hereinafter referred to as the "Conversion Stock." The Shares, Warrants, Warrant Shares and the Conversion Stock are hereinafter collectively referred to as the "Securities." 1.3 PURCHASE OF SHARES AND WARRANTS. In reliance upon the representations and warranties of the Company contained herein, and subject to the terms and conditions set forth herein, each Purchaser hereby agrees to purchase, at a price per Unit of $2.00, the number of Shares and Warrants set forth below such Purchaser's signature on such Purchaser's signature page hereto. Each Purchaser shall, severally and not jointly, be liable for only the purchase of the Shares and the Warrants indicated on such Purchaser's signature page hereto. 1.4 FURTHER ISSUANCE. The Purchasers agree that the Company shall be entitled to issue and sell any shares of Series E Preferred Stock (or securities convertible into Series E Preferred Stock) not previously issued and sold at the Closings (as hereinafter defined), in connection with any corporate partnering, collaboration, lease financing or similar transaction. 2. CLOSING DATE; DELIVERY. 2.1 CLOSING DATE. The first closing for the purchase and sale of the Units hereunder will be on September 8, 1995 (the "First Closing") at the offices of Cooley Godward Castro Huddleson & Tatum, Five Palo Alto Square, Palo Alto, California 94306, or at such other time and place as the Company and the Purchasers shall agree upon (the "First Closing Date"). Additional closings ("Additional Closings") may be held from time to time following the First Closing and on or before October 31, 1995 at such time (a "Closing Date") and place as the Company may elect. At or prior to any such Additional Closing, the Purchaser or Purchasers at such Additional Closing shall execute counterpart copies of this Agreement and any related agreements or other documents required to be executed hereunder, dated as of the date of such Additional Closing, and shall thereupon become parties hereto and thereto for all purposes and be added to the Schedule of Purchasers. The First Closing and any Additional Closing shall be referred to collectively as the "Closings" and singularly as a "Closing." 2.2 DELIVERY. At each Closing, the Company will deliver to each Purchaser a stock certificate and a Warrant registered in such Purchaser's name representing the number of Shares and Warrants, respectively, purchased by such Purchaser as set forth on such Purchaser's signature page hereto. At each Closing, each Purchaser will pay the purchase price, in an amount equal to $2.00 times the number of Units being purchased by such Purchaser, by check, wire transfer, cancellation of indebtedness, or a combination thereof, at the option of the Purchaser. No Warrants will be issued for fractional shares. 2.3 SUBSEQUENT CHANGE IN TERMS. If, after the First Closing, the Company shall sell any of the Units at any Additional Closing upon terms more beneficial to the Purchasers than those at any previous Closing, then the Company shall offer such terms to the Purchasers from any previous Closing and shall take appropriate actions to amend any document or agreement to carry out this covenant. 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. Except as set forth on the Schedule of Exceptions attached hereto as EXHIBIT C, the Company hereby represents and warrants to the Purchasers as follows: 3.1 ORGANIZATION; GOOD STANDING AND QUALIFICATION. The Company is a corporation duly organized and validly existing under, and by virtue of, the laws of Delaware and is in good standing 2 under such laws. The Company has the requisite corporate power to own and operate its properties and assets, and to carry on its business as presently conducted and as proposed to be conducted. The Company is qualified to do business as a foreign corporation in any jurisdiction where the failure to be so qualified would have a material adverse impact on the business or financial condition of the Company. 3.2 CORPORATE POWER. The Company will have at each Closing Date all requisite legal and corporate power to execute and deliver this Agreement and the Amended and Restated Investor Rights Agreement of even date herewith, in substantially the form attached hereto as EXHIBIT D (the "Investor Rights Agreement"), to sell and issue the Shares, the Warrants and the Warrant Shares and Conversion Stock and to carry out and perform its obligations under the terms of this Agreement and the Investor Rights Agreement, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors' and contracting parties' rights generally and except as enforceability may be subject to general principles of equity and except as the indemnification agreements of the Company in Section 3 of the Investor Rights Agreement may be legally unenforceable. 3.3 SUBSIDIARIES. Other than CV Therapeutics International, a corporation organized under the laws of the Cayman Islands (the "Subsidiary"), the Company has no subsidiaries or affiliated companies and does not otherwise own or control, directly or indirectly, any other corporation, association or business entity. The Company owns all of the outstanding capital stock of the Subsidiary. 3.4 CAPITALIZATION. The authorized capital stock of the Company, immediately prior to the First Closing, will consist of 60,000,000 shares of Common Stock, of which 3,940,497 are issued and outstanding, and 35,000,000 shares of preferred stock (the "Preferred Stock") of which (a) 8,000,000 are designated Series A Preferred Stock (the "Series A Preferred"), 7,746,973 of which are issued and outstanding, (b) 1,000,000 are designated Series B Preferred Stock (the "Series B Preferred"), none of which are issued and outstanding, (c) 6,000,000 are designated Series C Preferred Stock (the "Series C Preferred"), 5,505,865 of which are issued and outstanding, (d) 12,500,000 are designated Series D Preferred Stock (the "Series D Preferred"), 8,296,607 of which are issued and outstanding, and (e) 7,500,000 are designated Series E Preferred Stock, none of which are issued and outstanding. The conversion prices of the Series A Preferred, Series B Preferred, Series C Preferred and Series D Preferred are $0.80, $1.25, $1.25 and $2.00 per share, respectively. The Company has reserved (a) 28,125 shares of Common Stock, (b) 250,000 shares of Series A Preferred, (c) 1,000,000 shares of Series B Preferred, (d) 30,000 shares of Series C Preferred, and (e) 719,266 shares of Series D Preferred for issuance upon exercise of outstanding stock purchase warrants. In addition, the Company has reserved 6,621,327 shares of Common Stock for issuance upon exercise of outstanding stock options. All of the issued and outstanding shares of Common Stock and Preferred Stock have been duly authorized and validly issued, are fully paid and nonassessable and have been issued in compliance with applicable federal and state securities laws. Except as described herein and in the Investor Rights Agreement, there are no other options, warrants, conversion privileges or other rights (including preemptive rights) or agreements presently outstanding to purchase or otherwise acquire any 3 authorized but unissued shares of capital stock or other securities of the Company. The Company is not aware of any voting agreements among its stockholders. In addition, the total number of shares reserved under the Company's Non-Employee Director Stock Option Plan, 1992 Stock Option Plan and 1994 Equity Incentive Plan is 200,000, 3,450,000 and 5,000,000, respectively. 3.5 AUTHORIZATION. All corporate action on the part the Company, its directors and stockholders necessary for the authorization, execution, delivery and performance of this Agreement and the Investor Rights Agreement by the Company, the authorization, sale, issuance and delivery of the Securities, and the performance of the Company's obligations hereunder and thereunder has been taken. The Securities, when issued in compliance with the provisions of this Agreement, the Warrants and the Certificate (as defined below), will be validly issued, fully paid and nonassessable, and free of any liens or encumbrances created by the Company, except for restrictions created by this Agreement, the Investor Rights Agreement and the Warrants, and will be issued in compliance with all applicable federal and state securities laws. The issuance of the Securities, when issued pursuant to this Agreement, the Warrants and the Certificate, are not subject to any preemptive rights or rights of first refusal that have not been satisfied or waived, other than rights created by this Agreement and the Investor Rights Agreement. 3.6 COMPLIANCE WITH OTHER INSTRUMENTS. The Company is not in violation of any term of its Restated Certificate of Incorporation in the form attached hereto as EXHIBIT E (the "Certificate") or Bylaws or in any material respect of any term or provision of any material mortgage, indenture, contract, agreement, instrument, judgment or decree, and is not in violation of any order, statute, rule or regulation applicable to the Company, the violation of which would have a material adverse effect on the Company's business or properties. The execution, delivery and performance of and compliance with this Agreement and the Investor Rights Agreement and the issuance of the Securities, will not result in any such violation, or be in conflict with, or constitute a default under, or result in the creation of, any mortgage, pledge, lien, encumbrance or charge upon any of the existing properties or assets of the Company. 3.7 NO CONFLICT WITH LAW OR DOCUMENTS. The execution, delivery and consummation of this Agreement and the Investor Rights Agreement and the transactions contemplated hereby and thereby will not: (a) conflict with any provisions of the Certificate or Bylaws, as amended, of the Company or of the Subsidiary; (b) result in any violation of or default or loss of a benefit under, or permit the acceleration of any obligation under (in each case, upon the giving of notice, the passage of time, or both), any mortgage, indenture, lease, agreement or other instrument, permit, franchise license, judgement, order, decree, law, ordinance, rule or regulation applicable to the Company, the Subsidiary or their respective properties. 3.8 GOVERNMENTAL CONSENT. No consent, approval or authorization of, or designation, declaration or filing with, any governmental authority on the part of the Company is required in connection with the valid execution and delivery of this Agreement and the Investor Rights Agreement or the offer, sale or issuance of the Securities, or the consummation of any other transaction contemplated hereby or thereby, except filings as have been made prior to the Closings, except that any notices of sale required to be filed with the Securities and Exchange Commission under Regulation 4 D of the Securities Act of 1933, as amended (the "Securities Act"), or such post-closing filings as may be required under other applicable state or federal securities laws, which filings, if required, will be accomplished in a timely manner, as required by such laws. 3.9 FINANCIAL STATEMENTS. The Company has provided to each Purchaser (a) audited financial statements (consisting of a consolidated balance sheet as at December 31, 1994, and consolidated statement of operations, consolidated statement of stockholders' equity and consolidated statement of cash flows for the year then ended, and (b) unaudited financial statements (consisting of a consolidated balance sheet as at June 30, 1995, and statement of operations and consolidated statement of cash flows for the six months then ended) (collectively, the "Financial Statements"). The Financial Statements have been prepared in accordance with generally accepted accounting principles applied on a consistent basis throughout the periods indicated. 3.10 CERTAIN TRANSACTIONS. Since June 30, 1995, neither the Company nor its Subsidiary has (a) mortgaged, pledged or subjected to lien, charge or any other encumbrance any of its assets, tangible or intangible, (b) sold, assigned or transferred any of its assets or canceled any debts or obligations except in the ordinary course of business, consistent with past practices, (c) suffered any extraordinary losses, or waived any rights of substantial value, (d) entered into any material transaction other than in the ordinary course of business, consistent with past practices, or (e) otherwise had any change in its condition, financial or otherwise, except for changes in the ordinary course of business, consistent with past practices, none of which individually or in the aggregate has been materially adverse, and excepted further that the Company continues to incur losses consistent with its past practices. 3.11 MATERIAL CONTRACTS AND COMMITMENTS. (a) Except for agreements explicitly contemplated by this Agreement and the Investor Rights Agreement, there are no agreements, understandings or proposed transactions between the Company and any of its officers, directors or holders of ten percent (10%) or more of the outstanding voting securities of the Company. (b) Except as set forth in the Financial Statements, there are no agreements, understandings, instruments, contracts or proposed transactions to which the Company is a party or by which it is bound, other than contracts with vendors, suppliers and customers entered into in the ordinary course of business, that involve (i) obligations (contingent or otherwise) of, or payments to the Company in excess of $100,000, or (ii) the license of any patent, copyright, trade secret or other proprietary right to or from the Company, or (iii) provisions restricting the development, manufacture or distribution of the Company's products or services. (c) Except as set forth in the Financial Statements, the Company (i) is not obligated to repay any indebtedness for money borrowed or incurred any other liabilities outside the ordinary course of business individually in excess of $25,000 or, in the case of indebtedness and/or liabilities individually less than $25,000 in excess of $50,000 in the aggregate, (ii) is not a creditor with respect to any loans or advances to any person, other than ordinary advances for travel expenses, or (ii) since 5 June 30, 1995, has not sold, exchanged or otherwise disposed of any of its assets or rights, other than the sale of its inventory in the ordinary course of business. For the purposes of this subsection, all indebtedness, liabilities, agreements, understandings, instruments, contracts and proposed transactions involving the same person or entity (including persons or entities the Company has reason to believe are affiliated therewith) shall be aggregated for the purpose of determining the individual minimum dollar amounts. (d) The Company is not engaged in any current active discussions (i) with any representative of any corporation or corporations regarding the merger of the Company with or into any such corporation or corporations, (ii) with any corporation, partnership, association or other business entity or any individual regarding the sale, conveyance or disposition of all or substantially all of the assets of the Company or a transaction or series of related transactions in which more than fifty percent (50%) of the voting power of the Company is disposed of, or (iii) regarding any other form of liquidation, dissolution or winding up of the Company. 3.12 CHANGES. Since June 30, 1995, there has not been: (a) any change in the assets, liabilities, financial condition or operating results of the Company from that reflected in the Financial Statements, except changes in the ordinary course of business that have not had, in the aggregate, a materially adverse effect on the Company and other than that the Company continues to incur losses. (b) any damage, destruction or loss, whether or not covered by insurance, materially and adversely affecting the assets, properties, financial condition, operating results, prospects or business of the Company (as such business presently is conducted and as it is proposed to be conducted); (c) any waiver by the Company of a valuable right or of a material debt owed to it; (d) any satisfaction or discharge of any lien, claim or encumbrance or payment of any obligation by the Company, except in the ordinary course of business and which is not material to the assets, properties, financial condition, operating results or business of the Company (as such business presently is conducted and as it is proposed to be conducted); (e) any material change or amendment to any material contract or arrangement by which the Company or any of its assets or properties is bound or subject; (f) any material change in any compensation arrangement or agreement with any employee; (g) any declaration or setting aside for payment or other distribution in respect of any of the Company's capital stock, or any agreement or obligation (contingent or otherwise) to repurchase or otherwise acquire or retire shares of its capital stock; or 6 (h) to the Company's knowledge, any change in the Company's prospects or any other event or condition of any character that might materially and adversely affect the assets, properties, financial condition, operating results or business of the Company (as such business presently is conducted and as it is proposed to be conducted). 3.13 TITLE. The Company has good and marketable title to its properties and assets, and has good title to all its leasehold interests, in each case subject to no mortgage, pledge, lien, lease, encumbrance or charge, other than (a) those resulting from taxes not delinquent, (b) minor liens and encumbrances, which do not in any case, or in the aggregate, materially detract from the value of the property subject thereto or materially impair the operations of the Company, when taken as a whole, and (c) those that otherwise have arisen in the ordinary course of business. 3.14 LITIGATION. There are no material actions, suits, proceedings or investigations pending or overtly threatened against the Company that question the validity of this Agreement or the Investor Rights Agreement or the right of the Company to enter into either of them, or to consummate the transactions contemplated hereby or thereby, or which could reasonably be expected to result, either individually or in the aggregate, in any material adverse change in the assets, condition or prospects of the Company, nor is the Company aware that there is a basis for any of the foregoing. The Company is not a party to any order, writ, injunction, judgment, or decree of any court or governmental agency or instrumentality. There is no action, suit, proceeding, or investigation by the Company currently pending or that the Company presently intends to initiate. 3.15 REGISTRATION RIGHTS. Except as set forth in the Investor Rights Agreement, the Company is not under any obligation to register any of its presently outstanding securities or any of its securities which may hereafter be issued. 3.16 TAX RETURNS. The Company has filed all federal, state and other tax returns that are required to be filed. All taxes shown to be due and payable on such returns, any assessments imposed, and all other taxes due and payable by the Company on or before the First Closing have been or will be paid prior to the time they would become delinquent. 3.17 LABOR AGREEMENTS AND ACTIONS. The Company is not bound by or subject to any written or oral, express or implied, contract, commitment or arrangement with any labor union, and no labor union has requested or, to the knowledge of the Company, has sought to represent any of the employees, representatives or agents of the Company. There is no strike or other labor dispute involving the Company pending, or to the knowledge of the Company threatened, which could have a material adverse effect on the assets, properties, financial condition, operating results, or business of the Company (as such business is presently conducted and is it is proposed to be conducted), nor is the Company aware of any labor organization activity involving its employees. The employment of each officer and employee of the Company is terminable at the will of the Company and no employee has been granted the right to any material compensation following the termination of employment with the Company. 7 3.18 INSURANCE. The Company has in full force and effect fire, casualty and liability insurance policies, which to the best of the Company's knowledge are in such amounts and with such coverage as are carried by companies similar to the Company. 3.19 PATENTS AND TRADEMARKS. To the best of its knowledge, the Company owns or possesses sufficient legal rights to all patents, trademarks, service marks, trade names, copyrights, trade secrets, licenses, information, and proprietary rights (collectively, "Intellectual Property") necessary for its business as now conducted and as proposed to be conducted without any conflict with, or infringement of the rights of, others. There are no outstanding options, licenses, or agreements of any kind relating to the foregoing, nor is the Company bound by or a party to any material options, licenses, or agreements of any kind with respect to the Intellectual Property rights of any other person or entity, other than such licenses or agreements arising from the purchase of "off the shelf" or standard products. The Company has not received any communications alleging that the Company has violated or, by conducting is business as proposed, would violate any of the Intellectual Property rights of any other person or entity; provided, however, there can be no assurance that the Company's manufacture and sale of any of its products will not infringe third-party patents or that patents owned or licensed by the Company will cover products sold by the Company. 3.20 DISCLOSURE. No statement by the Company contained in this Agreement and the attached exhibits, and any written statement or certificate furnished or to be furnished to the Purchasers pursuant to this Agreement or in connection with the transactions contemplated hereby (when read together) contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements contained herein or therein not misleading in light of the circumstances under which they were made. To its knowledge the Company has provided the Purchasers with all the information they have reasonably requested in connection with their decision to purchase the Shares and Warrants hereunder. 3.21 PROPRIETARY INFORMATION AND INVENTIONS AGREEMENT. Each employee of the Company has executed a Proprietary Information and Inventions Agreement substantially in the form or forms which have been delivered to special counsel for the Purchasers. 4. REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS; RESTRICTIONS ON TRANSFER. 4.1 REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS. Each Purchaser, severally and not jointly, represents and warrants to the Company with respect to the purchase of the Shares and the Warrants as follows: (a) DUE AUTHORIZATION, EXECUTION, DELIVERY AND PERFORMANCE. All action on the part of Purchaser for the authorization, execution, delivery and performance by Purchaser of this Agreement and the Investor Rights Agreement has been taken. (b) INVESTMENT INTENT. Purchaser is acquiring the Shares and the Warrants for investment for such Purchaser's own account and not with a view to, or for resale in connection with, any distribution. The Purchaser understands that the Shares and the Warrants to be purchased have not 8 been registered under the Act by reason of a specific exemption from the registration provisions of the Act which depends upon, among other things, the bona fide nature of the investment intent as expressed herein. (c) RESTRICTED SECURITIES. Purchaser acknowledges that the Securities must be held indefinitely unless subsequently registered under the Securities Act or an exemption from such registration is available. The Purchaser is aware of the provisions of Rule 144 promulgated under the Securities Act which permits limited resale of shares purchased in a private placement subject to the satisfaction of certain conditions, including, in case the Purchaser has held the Securities for less than three years or is an affiliate of the Company, among other things: the availability of certain current public information about the Company, the resale occurring not less than two years after the Securities were purchased from the Company or an affiliate of the Company, the sale being through a "broker's transaction" or in transactions directly with a "market maker," and the number of shares being sold during any three-month period not exceeding specified limitations. (d) NO PUBLIC MARKET. Purchaser understands that no public market now exists for any of the securities issued by the Company and there can be no assurance that a public market will ever exist for the Securities. (e) RECEIPT OF AND ACCESS TO INFORMATION. Purchaser has been furnished with such materials and has been given access to such information relating to the Company as it or its qualified representative has requested and has been afforded the opportunity to ask questions regarding the Company and the Shares and Warrants, all as Purchaser has found necessary to make an informed investment decision. 4.2 LEGENDS. Each certificate representing the Securities shall be endorsed with the following legend (in addition to any legend required by applicable state securities laws): THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT COVERING SUCH SECURITIES, THE SALE IS MADE IN ACCORDANCE WITH RULE 144 OR ITS SUCCESSOR RULE UNDER THE SECURITIES ACT, OR THE COMPANY RECEIVES AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT AN EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE. The Company will not register a transfer of the Securities unless the conditions specified in the foregoing legend are satisfied, and the Company may instruct its transfer agent not to register the transfer of any of the Securities unless the conditions specified in the foregoing legend are satisfied. Notwithstanding the foregoing, the Company shall not require a Purchaser to furnish an opinion of its counsel in connection with a proposed transfer of Securities to a partner of the Purchaser unless, in the 9 view of the Company's counsel, such an opinion is needed to confirm compliance with applicable securities laws. 5. CONDITIONS TO CLOSING. 5.1 CONDITIONS TO PURCHASERS' OBLIGATIONS AT EACH CLOSING. The Purchasers' obligations to purchase the Shares and the Warrants at each Closing are subject to the fulfillment on or prior to each Closing of the following conditions, any of which may be waived in writing in whole or in part by the Purchasers: (a) REPRESENTATIONS AND WARRANTIES TRUE; PERFORMANCE OF OBLIGATIONS. The representations and warranties made by the Company herein shall be true and correct on the Closing Date with the same force and effect as if they had been made on and as of the same date; and the Company shall have performed all obligations and conditions herein required to be performed or observed by it on or prior to such Closing Date. (b) NECESSARY CONSENTS AND WAIVERS OBTAINED. The Company shall have obtained all consents and waivers necessary for consummation of the transactions contemplated by this Agreement which need to be obtained prior to such Closing. (c) QUALIFICATIONS, LEGAL INVESTMENT. All authorizations, approvals, or permits, if any, of any governmental authority or regulatory body of the United States or of any state that are required prior to the Closing in connection with the lawful sale and issuance of the Shares and the Warrants pursuant to this Agreement shall have been duly obtained and shall be effective on and as of such Closing Date. (d) OFFICER'S CERTIFICATE. The Company shall have delivered to the Purchasers a certificate or certificates, executed by an officer of the Company, dated the Closing Date, certifying to the fulfillment of the conditions specified in subparagraphs (a), (b) and (c) of this Section 5.1. (e) RESTATED CERTIFICATE OF INCORPORATION. The Restated Certificate of Incorporation, substantially in the form attached hereto as Exhibit E shall have been filed with the Secretary of State of the State of Delaware. (f) INVESTOR RIGHTS AGREEMENT. The Company and the Purchasers shall have entered into the Investor Rights Agreement, substantially in the form attached hereto as Exhibit D. (g) LEGAL OPINION. Purchasers shall have received from Cooley Godward Castro Huddleson & Tatum, counsel to the Company, an opinion letter addressed to the Purchasers, dated the Closing Date, substantially in form attached hereto as EXHIBIT F. 5.2 CONDITION TO COMPANY'S OBLIGATIONS AT EACH CLOSING. The Company's obligation to sell and issue the Shares and the Warrants at each Closing is subject to the fulfillment to the 10 Company's satisfaction on or prior to each Closing Date of the following conditions, any of which may be waived in writing in whole or in part by the Company: (a) REPRESENTATIONS AND WARRANTIES TRUE. The representations and warranties made by the Purchasers on the First Closing Date shall be true and correct when made and shall be true and correct on such Closing Date with the same force and effect as if they had been made on and as of the same date, and the Purchasers shall have performed all obligations and conditions herein required to be performed or observed by them on or prior to such Closing Date. (b) NECESSARY CONSENTS AND WAIVERS OBTAINED. The Company shall have obtained all consents and waivers necessary for consummation of the transactions contemplated by this Agreement which need to be obtained prior to such Closing. (c) QUALIFICATIONS, LEGAL INVESTMENT. All authorizations, approvals, or permits, if any, of any governmental authority or regulatory body of the United States or of any state that are required in connection with the lawful sale and issuance of the Shares and the Warrants pursuant to this Agreement shall have been duly obtained and shall be effective on and as of such Closing Date. (d) PERFORMANCE OF OBLIGATIONS. Each Purchaser shall have performed and complied with all agreements and conditions herein required to be performed or complied with by such Purchaser on or before such Closing Date, and each Purchaser shall have delivered payment to the Company in respect of its purchase of Shares and Warrants. (e) INVESTOR RIGHTS AGREEMENT. The Company and the Purchasers shall have entered into the Investor Rights Agreement, substantially in the form attached hereto as Exhibit D. 6. MISCELLANEOUS. 6.1 WAIVERS AND AMENDMENTS. With the written consent of the record holders of a majority of the Securities then outstanding, the obligations of the Company and the rights of the holders of the Securities under this Agreement may be waived (either generally or in a particular instance, either retroactively or prospectively, and either for a specified period of time or indefinitely), and with the same consent of the record holders of a majority of the Securities then outstanding, the Company, when authorized by resolution of its Board of Directors, may enter into a supplementary agreement for the purpose of adding any provision to or changing in any manner or eliminating any provision of this Agreement. Neither this Agreement nor any provision hereof may be changed, waived, discharged or terminated orally, but only by a signed statement in writing. Any such waiver or supplementary agreement shall be binding on all holders of Securities. 6.2 GOVERNING LAW. This Agreement shall be governed in all respects by the laws of the State of California as such laws are applied to agreements between California residents entered into and to be performed entirely within California. 11 6.3 SURVIVAL. The representations, warranties, covenants and agreements made herein shall survive any investigation made by the Purchasers and the Closings of the transactions contemplated hereby. 6.4 SUCCESSORS AND ASSIGNS. Except as otherwise expressly provided herein, the provisions hereof shall inure to the benefit of, and be binding upon, the successors, assigns, heirs, executors and administrators of the parties hereto. 6.5 ENTIRE AGREEMENT. This Agreement and the other documents delivered pursuant hereto, including the exhibits, constitute the full and entire understanding and agreement between the parties with regard to the subjects hereof and thereof. 6.6 SEVERABILITY OF THIS AGREEMENT. In case any provision of this Agreement shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. 6.7 TITLES AND SUBTITLES. The titles of the sections and subsections of this Agreement are for convenience of reference only and are not to be considered in construing this Agreement. 6.8 DELAYS OR OMISSIONS. It is agreed that no delay or omission to exercise any right, power or remedy accruing to the Purchasers, upon any breach or default of the Company under this Agreement, shall impair any such right, power or remedy, nor shall it be construed to be a waiver of any such breach or default, or any acquiescence therein, or of or in any similar breach or default thereafter occurring; nor shall any waiver of any single breach or default be deemed a waiver of any other breach or default theretofore or thereafter occurring. It is further agreed that any waiver, permit, consent or approval of any kind or character by the Purchasers of any breach or default under this Agreement, or any waiver by the Purchasers of any provisions or conditions of this Agreement must be in writing and shall be effective only to the extent specifically set forth in writing and that all remedies, either under this Agreement, or by law or otherwise afforded to the Purchasers, shall be cumulative and not alternative. 6.9 PAYMENT OF FEES AND EXPENSES. The Company and each Purchaser shall bear its own expenses incurred on its behalf with respect to this Agreement and the transactions contemplated hereby; PROVIDED, HOWEVER, that the Company shall pay the reasonable fees and expenses of one special counsel to the Purchasers at the Closing, up to a maximum of $5,000. If any action at law or in equity is necessary to enforce or interpret the terms of this Agreement or the Certificate, the prevailing party shall be entitled to reasonable attorney's fees, costs and necessary disbursements in addition to any other relief to which such party may be entitled. 6.10 NOTICES. Any notice or report required in this Agreement or permitted to be given shall be given in writing and shall be deemed effective upon personal delivery, confirmed facsimile or upon deposit in the United States mail, first-class, postage prepaid and addressed (a) if to a Purchaser, at such Purchaser's address set forth on such Purchaser's signature page hereto, or at such other address as such Purchaser shall have furnished to the Company in writing, or (b) if to any other holder of any 12 Securities, at such address as such holder shall have furnished the Company in writing, or, until any such holder furnishes an address to the Company, then to and at the address of the last holder of such Securities who has so furnished an address to the Company, (c) if to the Company, one copy should be sent to its address set forth on the cover page of this Agreement and addressed to the attention of the Corporate Secretary, or at such other address as the Company shall have furnished to the Purchasers. 6.11 COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which shall be an original, but all of which together shall constitute one instrument. IN WITNESS WHEREOF, the parties hereto have executed this Series E Preferred Stock Purchase Agreement as of the date first set forth above. CV THERAPEUTICS, INC. By: -------------------------------- Louis G. Lange, M.D. Chief Executive Officer PURCHASERS: 13 EXHIBIT A SCHEDULE OF PURCHASERS [OMITTED] EXHIBIT B FORM OF WARRANT SEE EXHIBIT 10.18 EXHIBIT C SCHEDULE OF EXCEPTIONS [OMITTED] EXHIBIT D FORM OF AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT SEE EXHIBIT 10.11 EXHIBIT E FORM OF RESTATED CERTIFICATE OF INCORPORATION SEE EXHIBIT 3.1 EXHIBIT F FORM OF OPINION OF COOLEY GODWARD CASTRO HUDDLESON & TATUM [OMITTED] EX-10.24 5 EXH. 10.24 (LICENSE AGREEMENT) Confidential treatment has been requested for portions of this document. Brackets indicate portions of text that have been omitted. A separate filing of such omitted text has been made with the Commission as part of the Company's application for confidential treatment. LICENSE AGREEMENT THIS LICENSE AGREEMENT (the "Agreement") is dated May 07, 1996 by and between CV THERAPEUTICS, INC., a California corporation, having its principal place of business at 3172 Porter Drive, Palo Alto, California ("CVT"), and BAYER AG, a German corporation having its principal place of business at D 51368 Leverkusen, Germany ("BAYER"). Each of BAYER and CVT are sometimes referred to herein as the "PARTY" or, collectively, as the "PARTIES". RECITALS WHEREAS, CVT has discovered [ ] ([ ] CTX), as the available representative), has performed certain research, and owns certain proprietary rights thereon. WHEREAS, BAYER is a leader in the research, development, marketing, manufacture and distribution of therapeutic pharmaceutic products; and 1. WHEREAS, CVT and BAYER desire to establish a contractual relationship to grant an exclusive license to BAYER to research, develop, manufacture and market CTX, its derivatives and/or modulators of the principle. NOW, THEREFORE, in consideration of the mutual covenants and promises contained in this Agreement, the PARTIES agree as follows: DEFINITIONS Capitalized words used in this Agreement shall have the meanings ascribed in the following definitions, unless otherwise stated or defined in the Agreement. 1. DEFINITIONS 1.1 "AFFILIATE" means any entity controlled by, controlling, or under common control with a PARTY and shall include without limitation any company fifty percent (50%) or more of whose voting stock or participating profit interest is owned or controlled, directly or indirectly, by a PARTY, and any entity which owns or controls, directly or indirectly, fifty percent (50%) or more of the voting stock of a PARTY. Where the laws of jurisdiction in which such entity operates prohibits the ownership by a PARTY of 50%, an AFFILIATE shall mean an entity that is controlled by, controlling, or under common control with a PARTY at a maximum level of ownership allowed by such jurisdiction. 1.2 "BAYER PATENT" means all PATENTS that claim or cover COMPOUNDS or PRODUCTS, the manufacture, use, sale,offer for sale or import of COMPOUNDS, or methods or materials useful for discovering, identifying, or 2. assaying for COMPOUNDS, the manufacture, use, sale, offer for sale or import of PRODUCTS, where such PATENTS cover inventions made solely by employees or agents of BAYER or an AFFILIATE of BAYER. 1.3 "COMPOUND" means (a) [ ] (CTX), and/or (b) modulators [ ] of CTX and/or (c) any composition of matter that is discovered, identified or synthesized by or on behalf of BAYER or an AFFILIATE regarding the FIELD and which is covered by valid claims of the CVT PATENT and/or identified only by using and applying the CVT KNOW HOW within the FIELD. 1.4 "CONFIDENTIAL INFORMATION" means each PARTY's confidential information, inventions, additional Know-How or data relating to COMPOUNDS, CTX, KNOW HOW, including but not limited to identifying, developing, manufacturing COMPOUNDS and/or PRODUCTS, BAYER's reporting and other business information and plans, whether in oral, written graphic or electronic form. CONFIDENTIAL INFORMATION disclosed orally shall be reduced to writing by the disclosing PARTY and delivered to the other PARTY within thirty (30) days after disclosure. 3. 1.5 "CONTROL" means possession of the ability to grant a license or sublicense as provided for herein without violating the terms of any agreement, other arrangement with or any rights of any THIRD PARTY. 1.6 "CTX" means [ ] covered by the FIELD and CVT PATENT. 1.7 "CVT KNOW HOW" means all KNOW HOW information, results, procedures including but not limited to the identification and development of COMPOUNDS and to the isolation and purification of CTX, [ ] and corresponding information for the use and handling thereof and/or useful for the identification and development of COMPOUNDS that CVT owns or CONTROLS on the EFFECTIVE DATE and that will be owned and will be CONTROLLED by CVT. CVT KNOW HOW shall exclude CVT PATENTS. 1.8 "CVT PATENTS" means all PATENTS owned or CONTROLLED by CVT or an affiliate of CVT that claim or cover COMPOUNDS, the manufacture or use of COMPOUNDS and PRODUCTS and/or methods or materials useful for discovering, identifying, purifying, evaluating or assaying of COMPOUNDS, where such PATENTS cover inventions made by employees or agents of CVT or made by CVT's cooperation partners in the FIELD, as identified in Annex 2. 1.9 "EFFECTIVE DATE" means May 07, 1996. 4. 1.10 "FIELD" means the use of the PRINCIPLE for any therapeutic and/or prophylactic and/or diagnostic use in human or animals. 1.11 "KNOW HOW" means all intangible Know-How, inventions (whether or not patentable), data, preclinical results, information, and any physical, chemical or biological material or any replication of any part of such material. 1.12 "NET SALES" shall mean gross sales of PRODUCT sold by BAYER, its AFFILIATES and sublicensees to THIRD PARTIES (including any unaffiliated THIRD PARTY's distributors), less, to the extent included in gross sales, the total of (a) ordinary and customary trade discounts actually allowed, (b) credits, rebates, returns (including, but not limited to, wholesaler and retailer returns) actually allowed, (c) excise taxes, other consumption taxes, customs duties and compulsory payments to governmental authorities paid, and (d) amounts equivalent to 5 % of said gross sales as an allowance for expenses such as transportation, insurance and the like. 1.13 "PATENT" means (a) valid and enforceable Letters Patent in any and all countries including without limitation any extension - Supplemental Protection Certificates 5. (SPC), registration, confirmation, reissue, continuation-in-part, division, or renewal thereof, and (b) pending applications for any of the foregoing. 1.14 "PRINCIPLE" means the [ ] exemplified as the activities of CTX, and modulators [ ]. 1.15 "PRODUCT" means any pharmaceutical product identified and developed under this Agreement covered by the FIELD containing CTX or any other COMPOUND as active ingredient, representing the PRINCIPLE. 1.16 "PRODUCT DEVELOPMENT" means the performance of the non-clinical and clinical investigations necessary to and directly in support of obtaining REGULATORY APPROVAL for marketing a PRODUCT. 1.17 "REGULATORY APPROVAL" means any approvals (including price and reimbursement approvals), licenses, registrations or authorizations of any federal, state or local regulatory agency, department, bureau or other government entity, necessary for the manufacture, use, storage, import, transport or sale, of PRODUCTS in a country. 1.18 "SUBLICENSE REVENUES" means all revenues from THIRD PARTIES as consideration for the sale of PRODUCTS. 1.19 "TERRITORY" means the entire world. 6. 1.20 "THIRD PARTY" means any entity other than CVT or BAYER and their respective AFFILIATES. 1.21 "THIRD PARTY ROYALTIES" means royalties payable to a THIRD PARTY in respect of the PRINCIPLE, COMPOUND and the manufacture or sale of PRODUCTS. 2. LICENSE GRANT 2.1 CVT hereby grants BAYER a license under CVT PATENTS and CVT KNOW HOW to identify, have identified and develop, have developed COMPOUNDS and to develop, have developed, make, have made use, have used, sell, have sold, offer, have offered for sale, import and have imported COMPOUNDS and/or PRODUCTS subject to the terms and conditions of this Agreement. Such license shall be exclusive, unlimited and worldwide. BAYER shall have the right to sublicense its rights hereunder to its AFFILIATES and to THIRD PARTIES. 2.2 EXCLUSIVITY. 2.2.1 RIGHTS IN USE Subject to and conditioned upon the provisions of this Agreement, the rights, licenses and privileges granted pursuant to Article 2.1 shall be exclusive to 7. BAYER. Without limiting the generality of the foregoing, CVT covenants that during the term of this Agreement, neither CVT nor its AFFILIATES shall grant to any THIRD PARTY any right, license or privilege to identify, develop, make, have made COMPOUNDS and/or to develop, use or sell PRODUCTS, or to otherwise use or exploit CVT PATENTS and CVT KNOW HOW. 2.2.2 CONTROL Regarding CVT PATENTS, CVT KNOW HOW and CTX, CVT herewith expressly confirms to own and CONTROL exclusively all rights, which will be exclusively licensed to BAYER. CVT further expressly confirms that CVT. owns and CONTROLS exclusively all rights, know how experiences, cell lines as defined under CVT KNOW HOW which was developed at CVT's cooperation partners including but not limited to the University of Kansas and the Washington University. CVT further confirms that- to the best of their knowledge - there are not any rights with any THIRD PARTY regarding the PRINCIPLE. 8. 2.2.3 THIRD PARTY ROYALTIES If under this Agreement BAYER becomes aware of technology and/or know how of a THIRD PARTY that at BAYER's discretion would be valuable or necessary to the discovery, development or commercialization of PRODUCTS, BAYER is free to acquire such rights at its sole discretion. In the event of an acquisition of any such THIRD PARTY right or know how which would result in payment of royalties or other license fee to a THIRD PARTY, the PARTIES will share such compensation to the offering THIRD PARTY: Of any such license fee, CVT will pay [ ] out of the milestone payment foreseen in section 4.3.5., but only up to a maximum of [ ] of that milestone. The contribution of CVT to this license fee shall be deducted by BAYER from the milestone foreseen in section 4.3.5. In case of an obligation by BAYER to pay running royalties to such licensor, CVT will contribute [ ] out of CVT royalties received from BAYER under this Agreement, but limited to a maximum of [ ] of CVT's royalties received from BAYER. 2.3 RIGHTS TO SUBLICENSE (i) BAYER shall have the sole right to sublicense to THIRD PARTIES all or any portion of the rights to CVT PATENTS and CVT KNOW HOW and/or CTX granted to BAYER pursuant to this Agreement; 9. (ii) BAYER shall have the sole right to sublicense all or any portion of the rights to the CVT PATENTS, the CVT KNOW HOW and CTX, granted to BAYER pursuant to this Agreement to any or all of its AFFILIATES. (iii) BAYER agrees that all sublicenses granted by BAYER hereunder shall expressly bind sublicensees to the terms of sections 3.2, 4.4, 5.4, 9, and all other relevant obligations of this Agreement. In the event BAYER grants sublicenses, BAYER shall pay all royalties to CVT through and under the sole responsibility of BAYER as if SUBLICENSE REVENUES were NET SALES of BAYER; (iv) Any sublicenses granted by BAYER shall provide for the termination of the sublicenses upon termination of this Agreement. (v) During the term of this Agreement, BAYER shall inform CVT on all sublicenses granted by BAYER hereunder. 2.4 SUBCONTRACTING Notwithstanding anything herein provided for to the contrary, BAYER shall be allowed to (i) sub-contract in whole or in part COMPOUND and PRODUCT development to THIRD PARTIES, (ii) appoint sales agents and distributors to market PRODUCT, and (iii) sub-contract the manufacturing of COMPOUND and/or PRODUCT with THIRD PARTIES on BAYER's discretion or with BAYER's AFFILIATES. BAYER shall provide for the corresponding confidentiality and restriction-of-use obligations to apply to those subcontracting THIRD PARTIES according to Article 9. 10. 3. DISCLOSURE OF INFORMATION 3.1 As soon as possible after the EFFECTIVE DATE, CVT shall disclose or cause its AFFILIATES to disclose and/or deliver to BAYER all CVT PATENTS, COMPOUND, COMPOUND specifications, CTX, CTX specifications, CVT KNOW HOW, to enable and support BAYER to identify, develop COMPOUNDS and to manufacture, have manufactured, and commercialize PRODUCTS in the FIELD on the terms and subject to the conditions of this Agreement. 3.2 During the term of this AGREEMENT, BAYER shall inform CVT on the progress of the project under this Agreement, at 6 (six) months intervals (Summaries, only). 4. PAYMENTS For the rights granted to BAYER according to Article 2, BAYER will compensate CVT by the following payments at the following events under the following conditions: 4.1 DOWN PAYMENT BAYER shall transfer to CVT a downpayment of U.S. $0.25MM (two hundred and fifty thousand U.S. Dollars) due on the EFFECTIVE DATE. 4.2 DOWN PAYMENT 11. If and when the [ ] (CTX) producing cell line is successfully established at BAYER's labs, [ ] and [ ] efficacy is confirmed by Bayer as being sufficient and qualified for [ ] Bayer shall transfer to CVT [ ]. 4.3 Milestone Payments according to the progress of the first COMPOUND or PRODUCT to be developed, as follows: 4.3.1 As soon as [ ] BAYER shall transfer to CVT [ ]. 4.3.2 At the [ ] BAYER shall transfer to CVT [ ]. 4.3.3 At the [ Bayer shall furnish to CVT [ ]. 12. 4.3.4 At the [ ] BAYER will furnish to CVT [ ]. 4.3.5 At the [ BAYER shall furnish to CVT [ ]. It is understood that all payments identified in Article 4.3 will only become due [ ]. 4.4 ROYALTIES 4.4.1 On the NET SALES of each of BAYER's PRODUCTS [ ] in the TERRITORY of up to [ ] -accrued during [ ] BAYER shall [ ] of [ ] for the period according to Art. 10.1. 4.4.2 On the NET SALES of each of BAYER's PRODUCTS [ ] in the TERRITORY of more than [ ] - accrued during [ ] BAYER shall [ ] of [ ] for the period according to Art. 10.1. 13. 4.4.3 On the NET SALES of each of BAYER's PRODUCT [ ] or [ ] - accrued during [ ] BAYER shall [ ] of [ ] of that identified in Art. 4.4.1 and 4.4.2, respectively, for the period according to Art. 10.1. 4.5 MARKET EXCLUSIVITY On a country by country basis, BAYER will pay the royalty rates according to Art. 4.4 only and as long as the [ ] Under all other circumstances, BAYER will [ ] according to Art. 4.4.1 through 4.4.3. 4.6 OFFSET FOR THIRD PARTY ROYALTIES BAYER may offset, against any amounts owed to CVT as royalties hereunder the following expenses to the extent incurred in the year for which such royalty amounts accrued: (a) [ ] of THIRD PARTY ROYALTIES with respect to technology acquired and due under Section 2.2.3 to the extent provided hereunder and as defined and limited according to Section 2.2.3 and, (b) any amounts paid and/or allocated to be paid by BAYER pursuant to Art. 8.3 and 8.4. 14. 5. MANNER OF PAYMENTS 5.1 BAYER shall effect each milestone payment under Section 4.3 within 60 (sixty) days after they become due. BAYER shall effect all royalty payments under Section 4.4 within 90 (ninety) days after each calendar quarter Payment shall be made to an account designated in writing by CVT. 5.2 BLOCKED CURRENCY In each country where the local currency is blocked and cannot be removed from the country, at the election of BAYER, royalties accrued in that country shall be paid to CVT in the country in local currency by deposit in a local bank designated in writing by the CVT. 5.3 FOREIGN EXCHANGE Royalties on U.S. sales shall be calculated and paid in U.S. Dollars. Royalties on all other sales shall be calculated in local currency and converted to the US Dollar at the end of each calendar quarter. The exchange rate used shall be the exchange rate for the US dollar and the currency of the country of sale as quoted by the Wall Street Journal, or a comparable publication acceptable to both parties, if the Wall Street Journal ceases to exist, on the last day of the quarter for which royalties on net sales have been calculated. 15. 5.4 RECORDS BAYER shall keep or cause to be kept such records as are required to determine in a manner consistent with generally accepted accounting principles the sum of royalties due under this Agreement and the sales figures of each first PRODUCT according to Art. 4.4. At the request (and expense) of CVT, BAYER and its sublicensees shall permit an independent certified public accountant appointed by CVT and reasonably acceptable to BAYER, at reasonable times and upon reasonable notice, to examine those records as may be necessary to: (a) determine, with respect to any calendar year ending not more than three years prior to CVT's request, the correctness of any report or payment made under this Agreement; or (b) obtain information as to the royalty payable for any calendar year. Any such examination shall be subject to Article 9. Results of any such examination shall be made available to both PARTIES. If CVT requests an audit, CVT shall bear the full cost of the performance of any such audit, unless such audit discloses a variance of more than [ ] from the amount of the original report, royalty or payment calculation. In such case, BAYER shall bear the full cost of the performance of such audit. 16. 6. DILIGENCE 6.1 DEVELOPMENT BAYER shall use reasonable diligence in developing and marketing PRODUCTS and shall endeavor to maximize the economic value of the PRODUCTS. 6.2 COMMERCIAL SUPPLY BAYER shall be responsible for optimization, scale-up and commercial supply of PRODUCTS for worldwide sale, directly or through AFFILIATES of BAYER or through THIRD PARTIES, at BAYER's discretion. BAYER shall manufacture, or have manufactured, all PRODUCTS for worldwide commercial sales in conformance with the specifications set forth in the respective applications for REGULATORY APPROVAL and any amendments or supplements thereto, and any substitutes. 7. TAXES 7.1 CVT shall pay any and all taxes levied on account of the royalties it receives under this Agreement. If laws or regulations require that taxes be withheld, BAYER will (a) deduct those taxes from the remittable royalty, (b) timely pay the taxes to the proper taxing authorities, and 17. (c) send proof of payment to CVT within 90 (ninety) days following that payment. The PARTIES agree to cooperate to obtain the benefit of any tax treaty with respect to such royalty payments. 8. OWNERSHIP OF INTELLECTUAL PROPERTY AND PATENT RIGHTS 8.1 PATENT PROSECUTION The PARTIES intend to establish broad patent protection for CTX arid other patentable inventions developed by or achieved at CVT and CVT's collaboration partners according to Art. 2.2.2 and other patentable inventions. CVT shall supervise and direct patenting of all CVT PATENTS. CVT shall file and prosecute all patent applications covering such CVT PATENTS and collaboration partners' inventions. For such prosecution, CVT will engage counsel reasonably acceptable to BAYER, at CVT's expense. CVT shall give BAYER copies of all such applications and related correspondence, in sufficient time to allow BAYER reasonably to comment thereon. CVT will seriously consider BAYER's comments. CVT shall maintain all CVT PATENTS that issue on such applications. 8.2 CONFIDENTIAL TREATMENT All information disclosed under Sections 8.1 shall be treated as confidential pursuant to Article 9. 18. 8.3 INFRINGEMENT BY THIRD PARTIES OF CVT PATENT. If any CVT PATENT is infringed by a THIRD PARTY in any country of the TERRITORY, regarding the development, manufacture, use, sale, offer for sale or import of COMPOUND or any PRODUCT in such country, the PARTY first having knowledge of such infringement shall promptly notify the other in writing. The notice shall set forth the facts of that infringement in reasonable detail. CVT shall have the obligation to institute, prosecute, and control any action or proceeding with respect to such infringement, by counsel of its own choice, and BAYER shall have the right, at its own expense, to be represented in any action by counsel of its own choice. If CVT fails to bring an action or proceeding within a period of ninety (90) days after having knowledge of infringement of a CVT PATENT, BAYER shall have the right to bring and control any such action by counsel of its own choice, and CVT shall have the right to be represented in any such action by counsel of its own choice at its own expense. If one PARTY brings any such action or proceeding, the other PARTY agrees to be joined as a party plaintiff if necessary to prosecute the action and to give the first PARTY reasonable assistance and authority to file and prosecute the suit. No settlement or consent judgment or other voluntary disposition of a suit brought by a PARTY under this section may be entered into without the written consent of the other PARTY if such settlement would adversely affect the other PARTY's interests, which consent shall not be unreasonably withheld. [ ] 19. [ ]. 8.4 THIRD PARTY CLAIMS AGAINST CVT PATENTS If a THIRD PARTY asserts that a patent or other right owned by it is infringed by the use of CVT KNOW HOW or by the manufacture, use, sale, offer for sale or import of COMPOUND and/or PRODUCT, the PARTY first obtaining knowledge of such a claim shall immediately provide the other PARTY notice of such claim and the related facts in reasonable detail. CVT shall have the primary right and obligation to control the defense of such claims. BAYER will cooperate in defending all such actions and shall have the right to be represented separately by counsel of its own choice. If CVT fails to bring an action or proceeding within a period of ninety (90) days after having knowledge of infringement of a CVT PATENT, BAYER shall have the right to bring and control any such action by counsel of its own choice, and CVT shall have the right to be represented in any such action by counsel of its own choice at its own expense. If one PARTY brings any such action or proceeding, the other PARTY agrees to be joined as a party plaintiff if necessary to prosecute the action and to give the first PARTY reasonable assistance and authority to file and prosecute the suit. No settlement or consent judgment or other voluntary disposition of a suit under this section may be entered into without the written consent of the other PARTY if such settlement would adversely affect the other PARTY's interests, which consent shall not be unreasonably withheld. 20. [ ] 9. CONFIDENTIALITY 9.1 CONFIDENTIALITY; EXCEPTIONS. (a) Except to the extent expressly authorized by this Agreement or otherwise agreed in writing, the PARTIES agree that, during the term of this Agreement and five (5) years, thereafter, the receiving PARTY shall keep confidential and shall not publish or otherwise disclose or use for any purpose, other than as provided for in this Agreement, any CONFIDENTIAL INFORMATION furnished to it by the other PARTY. (b) The restrictions shall not apply to the extent that it can be established by the receiving PARTY that such CONFIDENTIAL INFORMATION: (i) was already known to the receiving PARTY, other than under an obligation of confidentiality, at the time of disclosure by the other PARTY; (ii) was generally available to the public or otherwise part of the public domain at the time of its disclosure to the receiving PARTY; 21. (iii) became generally available to the public or otherwise part of the public domain after its disclosure and other than through any act or omission of the receiving PARTY in breach of this Agreement; or (iv) was disclosed to the receiving PARTY, other than under an obligation of confidentiality, by a THIRD PARTY who had no obligation to the disclosing PARTY not to disclose such information to others. 9.2 AUTHORIZED DISCLOSURE Each PARTY may disclose CONFIDENTIAL INFORMATION hereunder to the extent such disclosure is reasonably necessary in filing or prosecuting patent applications, prosecuting or defending litigation, complying with applicable governmental regulations or conducting preclinical or clinical trials, provided that if a PARTY is required by law or regulation to make any such disclosure of the other PARTY's CONFIDENTIAL INFORMATION it will, except where impracticable for necessary disclosures, (for example, in the event of medical emergency), give reasonable advance notice to the other PARTY of such disclosure requirement and, except to the extent inappropriate in the case of PATENT applications, will use its reasonable efforts to secure confidential treatment of such CONFIDENTIAL INFORMATION required to be disclosed and to minimize the extent of such disclosure. Each PARTY also may disclose to its collaborators according to Art. 2.4, under confidentiality obligations, CONFIDENTIAL INFORMATION developed by such PARTY during the course of this collaboration. 22. 9.3 PUBLICATIONS BY CVT Contrary to Art. 9.1 and 9.2, CVT may publish the results developed earlier than the enforcement of this Agreement so long as such publication will not disclose confidential information regarding this Agreement. CVT will provide BAYER with a draft of any intended publication 90 days in advance of such publication to allow BAYER to identify any such confidential information and will delete from any proposed publication such relevant confidential: information as may be identified by BAYER. If BAYER identifies a strategic interest, not to publish certain results or the intended publication in total, BAYER will have the right to refuse such publication, which BAYER confirms not to request unreasonably. BAYER will be free to publish all results and information it deems necessary to support the project and to provide COMPOUNDS and PRODUCT. 10. TERM AND TERMINATION 10.1 TERM OF AGREEMENT This Agreement shall commence as of the EFFECTIVE DATE and, unless sooner terminated as provided herein, shall continue in effect until the expiration of the last to expire CVT PATENT licensed under this Agreement or after ten (10) year's marketing of the first PRODUCT [ ] according to Art. 4.4, whichever is later. 23. 10.2 TERMINATION AT BAYER'S DISCRETION Giving 30 (thirty) days written notice to CVT, BAYER may terminate this Agreement for any reason in its sole discretion, at any time, especially if there is no exclusivity according to Article 4.5 and/or according to Article 2.2.2. BAYER may invite CVT to discuss BAYER's reasons for its intent to terminate the Agreement and to allow CVT to give scientific and/or technical input to avoid such termination. Upon termination of the activities by BAYER, CVT would like to have a royalty-bearing grant-back option. Terms for this would be negotiable in good faith, at due time, taking into account the relative contribution of BAYER and CVT. Any such grant-back should also allow BAYER the first right to negotiate for products based on BAYER's activities under this Agreement which may subsequently be developed by CVT or a partner of CVT. 24. 10.3 TERMINATION OF BREACH 10.3.1 BREACH BY CVT If CVT materially breaches this Agreement at any time, and has not cured such breach within ninety (90) days after written notice thereof from BAYER, or, if such breach is not curable within such ninety day period, CVT fails to use diligent and continuing efforts to cure such breach, then [ ]. 10.3.2 BREACH BY BAYER If BAYER materially breaches this Agreement at any time, and has not cured such breach within ninety (90) days after written notice thereof from CVT, or, if such breach is not curable within such ninety day period, BAYER fails to use diligent and continuing efforts to cure such breach, then (a) [ ] and (b) [ ]. 25. 10.3.3 The breaching PARTY hereby authorizes, transfers and assigns to the non-breaching PARTY the right to prosecute, maintain and defend all PATENTS licensed hereunder in the event of such uncured breach. The breaching PARTY shall be liable for any damages resulting from its breach, costs and attorney's fees, and the non-breaching PARTY shall be relieved from its obligations under this Agreement except as provided in Art. 10.5. 10.4 TERMINATION FOR OTHER REASONS In the event either PARTY shall: (a) become insolvent or bankrupt; (b) make an assignment for the benefit of its creditors; (c) appoint a trustee or receiver for itself for all or a substantial part of its property; (d) have any case of proceeding commenced or other action taken by or against itself in bankruptcy; (e) seek liquidation, dissolution, a winding-up arrangement, composition or readjustment of its debts; (f) seek any other relief under any bankruptcy, insolvency, reorganization or other similar or law of any jurisdiction, now or hereafter in effect; or 26. (g) have issued against itself a warrant of attachment, execution, distraint or similar process against any substantial part of its property of the other PARTY; then within sixty (60) days of the event, the other PARTY may, at its sole option, either (i) terminate this Agreement upon thirty (30) days written notice to the other PARTY; or (ii) continue the performance of this Agreement thereafter. 10.5 SURVIVING RIGHTS The following provisions of this Agreement shall survive termination of this Agreement, in addition to any provisions which survive by their terms: Articles 1, 8, 9, 13, 14. 10.6 ACCRUED RIGHTS: SURVIVING OBLIGATIONS Termination, relinquishment or expiration of the Agreement for any reason shall be without prejudice to any rights which shall have accrued to the benefit of either PARTY prior to such termination, relinquishment or expiration, including damages arising from any breach hereunder. Such termination, relinquishment or expiration shall not relieve either PARTY from obligations 27. which are expressly indicated to survive termination or expiration of the Agreement. 11. DISPUTE RESOLUTION 11.1 DISPUTES The PARTIES recognize that disputes as to certain matters may from time to time arise during the term of this Agreement which relate to either PARTY's rights and/or obligations hereunder. The PARTIES shall follow the procedures set forth in this Article 11.1 to facilitate the resolution of disputes arising under this Agreement in an expedient manner by mutual cooperation and to attempt to avoid litigation between the PARTIES. In the event the PARTIES are not able to resolve such dispute within such 60-day period, either PARTY may then invoke any other remedies available to it in law or equity. Any dispute or controversy arising out of or related to this Agreement which is not resolved between the PARTIES shall be submitted to a United States federal court located in the County of Santa Clara, California. The PARTIES hereby consent to the jurisdiction of the State of California. 28. 12. REPRESENTATIONS AND WARRANTIES; EXCLUSIVITY 12.1 REPRESENTATIONS AND WARRANTIES Each PARTY hereby represents and warrants to the other that this Agreement is a legal and valid obligation binding upon such PARTY and enforceable in accordance with its terms. The execution, delivery and performance of and the rights granted under this Agreement by such PARTY does not conflict with any agreement, instrument or understanding, written or oral, to which it is a PARTY or by which it is bound, nor violate any law or regulation of any court, governmental body or administrative or other agency having jurisdiction over it. 12.2 PERFORMANCE BY AFFILIATES The PARTIES recognize that each may perform some or all of its obligations under this Agreement through AFFILIATES, provided, however, that each PARTY shall remain responsible and be guarantor of the performance by such AFFILIATES and shall cause such AFFILIATES to comply with the provisions of this Agreement in connection with such performance. Each PARTY waives any obligation on the other PARTY to seek performance by such PARTY's AFFILIATE before the other PARTY may enforce the foregoing guaranty. 29. 13. PRODUCTS LIABILITY AND INDEMNIFICATION 13.1 INDEMNIFICATION FOR SALES OF PRODUCTS With respect to PRODUCTS, BAYER hereby agrees to defend, indemnify, and hold harmless CVT and its directors, officers, employees, and agents from and against any and all suits, claims, actions, demands, liabilities, damages, costs, expenses and/or loss, including reasonable legal expenses and attorney's fees ("Losses"), resulting directly or indirectly from the manufacture, use, handling, storage, sale or other disposition of such PRODUCTS by BAYER, or its agents or sublicensees. In the event that CVT seeks indemnification under this Section 13.1, it shall inform BAYER of such claim as soon as practicable after it receives notice of the claim, shall permit BAYER to assume direction and control of the defense of the claim (including the right to settle the claim solely for monetary consideration), and shall cooperate as requested in the defense of the claim. 13.2 INDEMNIFICATION FOR NEGLIGENCE Each PARTY hereby agrees to defend, indemnify, and hold harmless the other PARTY and its directors, officers, employees, and agents from and against any and all losses resulting directly or indirectly from the indemnifying PARTY's negligence. 30. 14. MISCELLANEOUS 14.1 ASSIGNMENT. (a) Either PARTY may assign any of its rights or obligations under this Agreement to any AFFILIATES; provided, however, that such assignment shall not relieve the assigning PARTY of its responsibilities for performance of its obligations under this Agreement. (b) CVT may not assign its rights or obligations under this Agreement or its ownership interest in CVT PATENTS to a non-AFFILIATE without the prior written consent of BAYER, which consent shall not be unreasonably withheld, except that CVT may assign this Agreement and its interests in CVT PATENTS in connection with any merger, consolidation, or sale of all or substantially all of its assets. (c) This Agreement shall be binding upon and inure to the benefit of the successors and permitted assigns of the PARTIES. Any assignment not in accordance with this Agreement shall be void. 14.2 CHANGE IN CONTROL OF CVT. (a) In the event that (i) CVT is acquired by another entity by reason of merger, consolidation or sale of all or substantially all of its assets (except for a reorganization transaction in which the persons who held majority ownership of CVT prior to the transaction continue to hold 31. majority ownership of CVT, directly or through a parent company, after the transaction) or (ii) a single entity other than BAYER or an AFFILIATE of BAYER acquires ownership of a majority of the outstanding voting stock of CVT, this Agreement shall survive. A change in control shall not be deemed to be an assignment under Section 14.1. 14.3 CONSENTS NOT UNREASONABLY WITHHELD Whenever provision is made in this Agreement for either PARTY to secure the consent or approval of the other, that consent or approval shall not unreasonably be withheld or delayed, and whenever in this Agreement provision is made for one PARTY to object to or disapprove a matter, such objection or disapproval shall not unreasonably be exercised. 14.4 TERMINATION OF PRIOR AGREEMENT This Agreement supersedes all previous confidentiality agreements between the PARTIES and their respective AFFILIATES. All confidential information exchanged between the PARTIES and their respective AFFILIATES under such agreements shall be deemed CONFIDENTIAL INFORMATION and shall be subject to the terms of Article 9. 32. 14.5 FORCE MAJEURE Neither PARTY shall use any rights hereunder or be liable to the other PARTY for damages or losses on account of failure of performance by the defaulting PARTY if the failure is occasioned by government action, war, fire, explosion, flood, strike, lockout, embargo, act of God, or any other similar cause beyond the control of the defaulting PARTY, provided that the PARTY claiming force majeure has exerted all reasonable efforts to avoid or remedy such force majeure; provided, however, that in no event shall a PARTY be required to settle any labor dispute or disturbance. 14.6 FURTHER ACTIONS Each PARTY agrees to execute, acknowledge and deliver such further instruments, and to do all such other acts, as may be necessary or appropriate in order to carry out the purposes and intent of this Agreement. 14.7 NOTICES All notices hereunder shall be in writing and shall be deemed given if delivered personally or by facsimile transmission (receipt verified), telexed, mailed by registered or certified mail (return receipt requested), postage prepaid, or sent by express courier service, to the PARTIES at the following addresses (or at such other address for a PARTY as shall be specified by like notice; provided, that notices of a change of address shall be effective only upon receipt thereof): 33. If to CVT, addressed to: CV Therapeutics, Inc. 3172 Porter Drive Palo Alto, CA 94304 Attention: Chief Executive Officer Telephone: (415) 812-9540 Telecopy: (415) 858-0388 With copy to: COOLEY GODWARD CASTRO HUDDLESON & TATUM Five Palo Alto Square, 4th Floor Palo Alto, CA 94306 Attention: Deborah A. Marshall, Esq. Telephone: (415) 843-5000 Telecopy: (415) 857-0663 If to BAYER, addressed to: regarding research aspects 34. Bayer AG PH-R, Cardiovascular D-42096 Wuppertal Federal Republic of Germany [ ] regarding contractual aspects Bayer AG Licensing and Technical Cooperation D-51368 Leverkusen Federal Republic of Germany [ ] and Bayer AG Pharma-Business Planning and Administration International Cooperation and Licensing D-51368 Leverkusen Federal Republic of Germany [ ] 35. 14.8 WAIVER Except as specifically provided for herein, the waiver from time to time by either of the PARTIES of any of their rights or their failure to exercise any remedy shall not operate or be construed as a continuing waiver of same or of any other of such PARTY's fights or remedies provided in this Agreement. 14.9 SEVERABILITY If any term, covenant or condition of this Agreement or the application thereof to any PARTY or circumstance shall, to any extent, be held to be invalid or unenforceable, then (i) the remainder of this Agreement, or the application of such term, covenant or condition to PARTIES or circumstances other than those as to which it is held invalid or unenforceable, shall not be affected thereby and each term, covenant or condition of this Agreement shall be valid and be enforced to the fullest extent permitted by law; and (ii) the PARTIES hereto covenant and agree to renegotiate any such term, covenant or application thereof in good faith in order to provide a reasonably acceptable alternative to the term, covenant or condition of this Agreement or the application thereof that is invalid or unenforceable, it being the intent of the PARTIES that the basic purposes of this Agreement are to be effectuated. 36. 14.10 COUNTERPARTS This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 14.11 PRESS RELEASES The PARTIES agree that the specific material economic and specific material terms of the transaction and the principle shall be kept confidential and shall not be disclosed without the prior written consent of both PARTIES, subject to standard exceptions for disclosure of CONFIDENTIAL INFORMATION set forth in the Agreement and except: (i) as required in financial statements to comply with generally accepted accounting principles (as determined by the disclosing PARTY's independent auditors), (ii) by CVT to potential investors in connection with public and private financing of CVT, and (iii) as mutually agreed. 37. 14.12 ENTIRE AGREEMENT This Agreement sets forth all the covenants, promises, agreements, warranties, representations, conditions and understandings between the PARTIES hereto and supersedes and terminates all prior agreements and understanding between the PARTIES. There are no covenants, promises, agreements, warranties, representations, conditions or understandings, either oral or written, between the PARTIES other than as set forth herein and therein. No subsequent alteration, amendment, change or addition to this Agreement shall be binding upon the PARTIES hereto unless reduced to writing and signed by the respective authorized officers of the PARTIES. 14.13 GOVERNING LAW Resolution of all disputes arising out of or related to this Agreement or the performance, enforcement, breach or termination of this Agreement and any remedies relating thereto, shall be governed by and construed under the substantive laws of the State of California, as applied to Agreements executed and performed entirely in the State of California by residents of the State of California, without regard to conflicts of law rules and excluding the United Nations Convention on Sale of Goods. 38. IN WITNESS WHEREOF, the PARTIES have executed this Agreement in duplicate originals by their proper officers as of the date and year first above written. Palo Alto Leverkusen Date: 5/2/96 Date: 14.05.1996 CVT Therapeutics, Inc. BAYER AG /s/ Louis G. Lange /s/ [ ] 39. Annex 1 Preparation and Culture of [ ] Cells Producing [ ] This protocol reviews the methodology for generating a novel cell line capable of synthesizing [ ]. The starting cell structure was [ ] cells isolated from [ ] the basal media used throughout consists of Dulbecco's Modified Eagle's Medium (DME/low) mixed [ ] with [ ] penicillin, [ ] streptomycin, [ ] insulin [ ] transferring. [ ] the medium is supplemented with [ ]. [ ] cell cultures are cultured in [ ] tissue culture dishes. [ ] is dissolved in [ ] to give a final concentration of [ . ] in the laminar flow hood and then [ ]. The dishes can be used immediately or stored under sterile conditions. The methodology for generating [ ] was derived from the technique of [ .] 40. Primary cultures of [ ] were grown to [ ] confluency in 10 cm dishes, detached via [ ] and passed to [ ]. The cells were [ ]. [ ]Used: Classification:[ ] Agent:[ ] Strain:[ ] Original source:[ ] Commercial source: [ ] The cultures were fed and observed for [ ] at which time colonies of cells appeared, these were detached and replated after Dilution. Colonies were then isolated with cloning rings and passaged separately. Cell line [ ] was found to grow in a monolayer with [ ]. It is confluent in [ ] at a [ ] subculture. It displays biochemical and histochemical characteristics of [ ] including positive assays for [ ] and [ ]. It demonstrates [ ]. [ ] is unique for its capacity to specifically produce [ ]. 41. [ ]: [ ] As little as [ ] of conditioned medium yields a [ ] fraction whose [ ] activity for [ ] is equivalent to the maxiumum [ ] response to [ ] activity is detected in the medium by [ ] provides the best yields. Cells grown in [ ] produce [ ] constitutively because they [ ] results in continued, but slower, growth, with no production of [ ]. 42. Annex 2 CVT PATENTS means: patent status + full text of the patent applications. 43. -----END PRIVACY-ENHANCED MESSAGE-----