-----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, Mgwtv4em1XTH2sVDt9CITgR/DRa6X36wkFVfhdAPPWHibpHR77TJxVthXDXfRfKA 0jjICJh61JvZ2Mo7RxH0TA== 0000921506-02-000004.txt : 20020415 0000921506-02-000004.hdr.sgml : 20020415 ACCESSION NUMBER: 0000921506-02-000004 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 20011231 FILED AS OF DATE: 20020329 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CV THERAPEUTICS INC CENTRAL INDEX KEY: 0000921506 STANDARD INDUSTRIAL CLASSIFICATION: BIOLOGICAL PRODUCTS (NO DIAGNOSTIC SUBSTANCES) [2836] IRS NUMBER: 431570294 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-21643 FILM NUMBER: 02594318 BUSINESS ADDRESS: STREET 1: 3172 PORTER DR CITY: PALO ALTO STATE: CA ZIP: 94304 BUSINESS PHONE: 6508120585 MAIL ADDRESS: STREET 1: 3172 PORTER DRIVE CITY: PALO ALTO STATE: CA ZIP: 94304 10-K 1 tenk-fourthquarter2001.txt 10-K ________________________________________________________________________________ ________________________________________________________________________________ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 _______________________________________________________________ FORM 10-K ( X ) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001. ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM __________ TO __________ COMMISSION FILE NUMBER: 0-21643 _______________________________________________________________ CV THERAPEUTICS, INC. (Exact name of Registrant as specified in its charter) DELAWARE 43-1570294 (State of Incorporation) (I.R.S. Employer Identification No.) 3172 PORTER DRIVE, PALO ALTO, CALIFORNIA 94304 (Address of principal executive offices, including zip code) Registrant's telephone number, including area code: (650) 384-8500 Securities registered pursuant to Section 12(b) of the Act: NONE Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK, $.001 PAR VALUE Indicate by check whether the Registrant (1) has filed all reports to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained to the best Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. / / The aggregate market value of the Common Stock held by non-affiliates of the Registrant, based upon the last sale price of the Common Stock reported on the Nasdaq Stock Market was $792,423,704 as of February 28, 2002. The number of shares of Common Stock outstanding as of February 28, 2002 was 25,524,057. DOCUMENTS INCORPORATED BY REFERENCE Certain portions of the Registrant's Proxy Statement in connection with the Registrant's Annual Meeting of Stockholders are incorporated herein by reference into Part III of this report. ________________________________________________________________________________ ________________________________________________________________________________ PART I ITEM 1. BUSINESS OVERVIEW CV Therapeutics, Inc., headquartered in Palo Alto, CA, is a biopharmaceutical company focused on applying molecular cardiology to the discovery, development and commercialization of novel, small molecule drugs for the treatment of cardiovascular diseases. We currently have four compounds in clinical trials. Ranolazine, the first in a new class of compounds known as partial fatty acid oxidation (pFOX) inhibitors, is being developed for the potential treatment of chronic angina. CVT-510 (tecadenoson), an A1 adenosine receptor agonist, is being developed for the potential reduction of rapid heart rate during atrial arrhythmias. CVT-3146, an A2A adenosine receptor agonist, is being developed for the potential use as a pharmacologic agent in cardiac perfusion imaging studies. Adentri(TM), an A1 adenosine receptor antagonist, is being developed by our partner Biogen, Inc., for the potential treatment of acute and chronic congestive heart failure (CHF). In addition, we have several research and preclinical development programs designed to bring additional drug candidates into human clinical testing. Ranolazine for the potential treatment of chronic angina We recently completed the second of two pivotal Phase III trials for ranolazine, a potential treatment for chronic angina, and we plan on submitting a New Drug Application (NDA) to the United States Food and Drug Administration (FDA) for ranolazine for this indication. Chronic angina is marked by repeated and sometimes unpredictable attacks of cardiac pain that result from a shortage of oxygen-rich blood available to the heart relative to the oxygen required for the amount of work the heart needs to do. For many patients, this oxygen shortage occurs even when their hearts only need to do the minimal work necessary to support routine activities such as climbing stairs or carrying groceries from the car. Typically, this oxygen shortage is the result of obstructions in the coronary arteries that prevent proper circulation of oxygen-rich blood. According to the American Heart Association's 2001 Heart and Stroke Statistical Update, approximately 6.4 million patients in the United States suffer from angina. The key to treating angina is to bring the heart's need for oxygen into balance with its available supply. Current pharmaceutical therapies, such as beta blockers, calcium channel blockers and long-acting nitrates, all achieve this result by forcing a reduction in the demand for oxygen by lowering heart rate, blood pressure and/or the strength of contraction of the heart muscle. Patients on these therapies may be unable to tolerate sufficient reductions in heart rate, blood pressure or strength of contraction to treat their condition, and therefore, current therapies may prove unsatisfactory. We believe ranolazine balances the oxygen supply/demand equation by causing the heart to use oxygen more efficiently. In other words, ranolazine may allow a diseased heart to do more work with a limited supply of oxygen. By improving the heart's oxygen efficiency, ranolazine may be able to treat angina without forcing a reduction in the amount of work that the heart can do. This may allow patients to reduce their angina attacks without lowering heart rate, blood pressure or cardiac contraction strength, an outcome not currently available to patients. In November 2001, we announced initial results from our second pivotal Phase III trial of ranolazine for the potential treatment of chronic angina, at a Late Breaking Clinical Trial plenary session of the 2001 American Heart Association Scientific Sessions. The results of the trial, called Combination Assessment of Ranolazine in Stable Angina, or CARISA, indicated that in patients on a background anti-anginal therapy, ranolazine statistically significantly increased patients' symptom-limited exercise duration at trough drug concentrations compared to placebo, the primary endpoint for this trial. These results were statistically significant at the 98.8% level, or what is commonly referred to as p = 0.012. This means that, applying widely-used statistical methods, the chance that these results could have occurred by accident is less than 1 in 80. These results were comparable to the results from our other pivotal Phase III trial of ranolazine for chronic angina, called Monotherapy Assessment of Ranolazine in Stable Angina, or MARISA, which we announced in August 1999. CVT-510 (tecadenoson) for potential reduction of rapid heart rate during atrial arrhythmias CVT-510 (tecadenoson) is currently being developed for the potential reduction of rapid heart rate during acute atrial arrhythmias. A Phase III trial of CVT-510 is being conducted in patients with paroxysmal supraventricular tachycardia (PSVT), and a Phase IIb trial is being conducted in patients with atrial fibrillation. When a patient experiences an atrial arrhythmia, the heart beats too fast to accommodate effective pumping of blood throughout the body. According to hospital audit reports, atrial arrhythmias were involved in approximately 2.8 million hospital diagnoses in the United States in 2000. Current therapies to control heart rate during atrial arrhythmias may entail a number of undesirable features. Digoxin may not work quickly enough. Beta blockers and calcium channel blockers may reduce blood pressure in patients whose blood pressure is already dangerously low due to the arrhythmia itself. Finally, Adenocard(R), a brand of adenosine, also reduces blood pressure and may slow heart rate for too brief a time to be effective in treating many arrhythmias. CVT-510 is a new small molecule drug that we believe may address the shortcomings of current therapies. CVT-510 selectively stimulates the A1 adenosine receptor, which may slow heart rate. However, CVT-510 does not stimulate the A2 adenosine receptor, which may lower blood pressure. Thus, CVT-510 may offer alternatives to current therapies that are either relatively slow to act or that reduce blood pressure. CVT-3146 for potential use in cardiac perfusion imaging studies CVT-3146 is currently in a Phase II clinical trial for the potential use as a pharmacologic agent in cardiac perfusion imaging studies. Cardiac perfusion imaging studies help detect and characterize coronary artery disease by identifying areas of insufficient blood flow in the heart. In 1999, approximately 6.5 million cardiac perfusion imaging studies were performed in the United States, of which approximately 2.4 million were conducted using a pharmacologic agent. In July 2000, we entered into a collaboration with Fujisawa Healthcare, Inc. (FHI) to develop and market second generation pharmacologic cardiac stress agents. Under this agreement, FHI received exclusive North American rights to CVT-3146, a short acting selective A2A adenosine receptor agonist, and a backup compound. FHI reimburses us for 75% of the development costs, makes payments upon the achievement of research and clinical development milestones and, if approved by the FDA, we will receive a royalty based on product sales of CVT-3146 and may receive a royalty on another product sold by FHI. Research and preclinical programs We also have a number of preclinical and research programs in the areas of adenosine receptor research, cardiac metabolism, atherosclerosis and cell cycle inhibition. Our cardiovascular genomics program is designed to take advantage of the advances in genomics for the discovery of new therapeutic targets. In each of these programs, we are working to translate new molecular mechanisms into new pharmacology that will ultimately offer new hope and help for people with cardiovascular disease. CARDIOVASCULAR DISEASE BACKGROUND Cardiovascular disease is the leading cause of death in the United States, claiming almost one million lives in 1999. The American Heart Association (AHA) estimated the total amount spent on cardiovascular disease and stroke related drugs and other medical durables in the United States in 2001 at $27.1 billion. 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 volume of blood in the body and the balance of chemicals, such as sodium, potassium and chloride, in the blood, and the lungs put oxygen in the blood and remove carbon dioxide. To accomplish these tasks, the cardiovascular system must maintain adequate blood flow, or cardiac output. Cardiac output is determined by factors such as heart rate and blood pressure, which in turn are controlled by a variety of hormones such as adrenaline, angiotensin and adenosine. These hormones 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 diseases, including atherosclerosis, which is the hardening of the arteries, hypertension, which is high blood pressure, and others, may cause permanent damage to the heart and blood vessels, leading to CHF, angina and myocardial infarction, or heart attack. According to the AHA's 2001 Heart and Stroke Statistical Update, in the United States, there were 6.4 million patients with angina and 4.7 million patients with CHF. In 2000, there were 2.8 million hospital diagnoses of acute atrial arrhythmias in the United States. More than 20 years ago, drugs such as nitrates, beta blockers, calcium channel blockers and ACE inhibitors were developed to treat cardiovascular diseases. These drugs have contributed to an increase in the survival of patients who suffer from cardiovascular disease. However, these drugs also can cause a variety of undesirable side effects, including fatigue, depression, impotence, headaches, palpitations and edema. They also may lack effectiveness in various segments of the cardiovascular market. Molecular cardiology has provided new insight into the mechanisms underlying cardiovascular diseases, thus creating the opportunity for improved therapies. BUSINESS STRATEGY The key elements of our business strategy are as follows: Identify and develop new drugs for the treatment of cardiovascular diseases a single therapeutic area By focusing on one therapeutic area, cardiovascular disease, we believe that we can be relatively efficient in our drug discovery, development and commercialization efforts. Our concentrated focus on cardiovascular disease may add to our efficiency over a variety of areas, for example: * Research focus is on the molecular mechanisms of the cardiovascular system; * Regulatory discussions are with a single FDA division; * Clinical investigators investigators in one trial may be candidates for future trials; * Consultants thought leaders are engaged for numerous internal programs; * Clinical need key employees are experienced in cardiovascular and/or clinical science; and * Sales force efficiency detailing may be to the same cardiologists and other prescribing doctors. Focus on small molecule drug candidates Small molecule therapeutics can frequently be administered orally on an outpatient basis. By contrast, to date, "large molecule" therapeutics, such as proteins or monoclonal antibodies, can very rarely be formulated to accommodate oral outpatient administration. In addition, our emphasis on small molecule therapeutics means that our drug candidates can be produced by conventional pharmaceutical manufacturing methods, by using the outside production capabilities of the established contract pharmaceutical manufacturing industry. Commercialize products, in part, through a concentrated marketing effort targeted to cardiologists A focused commercialization effort can provide marketing cost efficiencies. Patients that have severe cardiovascular conditions are generally treated by cardiologists. In 1998, there were approximately 20,000 cardiologists in the United States. Cardiologists are generally concentrated in metropolitan communities near major medical centers. We believe that this relatively small number of subspecialists is responsible for a significant portion of the patient visits associated with prescriptions written for severe cardiovascular conditions. These market dynamics make it possible to sell the drugs in our pipeline with a focused sales force, like the one to be provided for ranolazine through our sales and marketing services agreement with Innovex, Inc. Participate in the sales and marketing in the United States of at least some of the drugs we develop In the biopharmaceutical industry, a substantial percentage of the profits generated from successful drug development are typically retained by the entity directly involved in the sales and marketing of the drug. Licensing our drug candidates to a third party who will complete development and provide sales and marketing resources in exchange for a sales royalty may reduce some of our risks. However, we believe that the risk-return tradeoff typically favors developing and then marketing and selling products ourselves. Therefore, a key element of our business strategy is to be involved, when practical, in the sales and marketing of our products in the United States. Though we may eventually become involved in direct sales and marketing activities in other parts of the world, our initial direct efforts will be in the United States. PRODUCT PORTFOLIO We have the following portfolio of product candidates: PRODUCT TARGET AREAS OF DEVELOPMENT DEVELOPMENT STATUS Ranolazine Fatty acid oxidation inhibition Angina Preparing for NDA submission CVT-510 A1 adenosine receptor in the heart Acute heart rate control during atrial Phase III arrhythmias-PSVT Acute heart rate control during atrial Phase IIb arrhythmias-atrial fibrillation CVT-3146 A2A adenosine receptor in the heart Cardiac imaging Phase II Adentri TM A1 adenosine receptor in the kidney Congestive heart failure Phase II CVT-3619 A1 adenosine receptor in the heart Chronic heart rate control during atrial Preclinical arrhythmias CVT-4325 Fatty acid oxidation inhibition Angina/CHF Preclinical CVT-2584 Inhibition of cell cycle enzyme (CDK2) Vascular stenosis Preclinical CVT-3634 A2B Adenosine receptor Vascular disease Preclinical Cholesterol Tangier disease gene/HDL elevation Atherosclerosis Research Transport
In the table, under the heading "Development Status," "Phase III" indicates evaluation of clinical efficacy and safety within an expanded patient population at geographically dispersed clinical trial sites. "Phase II" indicates safety testing and initial efficacy testing in healthy volunteers and/or a limited patient population. "Phase I" indicates initial safety testing in healthy volunteers and a limited patient population. "Preclinical" indicates lead compound selected for possible development which meets predetermined criteria for potency, specificity, manufacturability, toxicity and pharmacologic activity in animal and/or in vitro models. "Research" indicates lead candidate being tested against predetermined criteria. RANOLAZINE Ranolazine is a novel small molecule for the potential treatment of angina. Animal research indicates that ranolazine may cause a partial shift in the source of energy for the heart from fatty acid toward glucose, a more oxygen-efficient energy source. We are developing ranolazine for the potential treatment of angina because we believe ranolazine may significantly improve exercise tolerance, the standard clinical measurement for angina treatment. However, unlike current anti-anginal medicines, ranolazine may allow blood pressure and heart rate to remain essentially unchanged, and as a result, ranolazine may have an improved tolerability profile compared to currently available therapies. We licensed exclusive rights to ranolazine in the United States and specified foreign territories for use in cardiovascular indications, including angina, from Syntex (U.S.A.), Inc. in March 1996. We have recently completed the second of two pivotal Phase III trials for ranolazine for the potential treatment of angina, and we plan on submitting an NDA to the FDA. Potential Indication Angina Chronic angina is marked by repeated and sometimes unpredictable attacks of cardiac pain. These attacks are typically triggered by physical exertion or emotional stress. Angina is caused when the heart muscle does not get enough oxygen-carrying blood to meet its needs, generally because of obstructions in the coronary arteries feeding blood to the heart. These obstructions typically are caused by a buildup of cholesterol deposits in the coronary arteries. All the body's organs and tissues need oxygen to extract energy from the foods we eat. The heart also needs oxygen in order to fuel its mechanical work of pumping blood throughout the body. Angina occurs when the blood supply cannot provide enough oxygen to meet the heart muscle's demand. According to the American Heart Association's 2001 Heart and Stroke Statistical Update, approximately 6.4 million patients in the United States suffer from angina. Based on published data, we estimate that over half of these patients are currently being treated with multiple medications, including nitrates, beta blockers and calcium channel blockers. Current Approaches to Angina Treatment Currently available drugs to treat angina include beta blockers, calcium channel blockers and long-acting nitrates. These drugs decrease the heart's demand for oxygen by reducing the work it is asked to perform, by lowering heart rate, blood pressure and/or the strength of the heart's contraction. 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 may not relieve angina without unacceptable effects. pFOX Inhibition A Potential New Approach by Ranolazine Cardiac metabolism is the process by which the heart extracts the energy it needs to pump blood from fat or glucose by combining them with oxygen. Under normal conditions, cardiac metabolism uses both fat and glucose in a ratio of roughly 60% fat to 40% glucose. If fatty acid oxidation, which is the combination of fatty acids and oxygen into energy, is inhibited, then cardiac metabolism shifts to utilizing more glucose. Since the heart gets more energy from a unit of oxygen combined with glucose than it does from that same unit of oxygen combined with fat, causing a shift in cardiac metabolism from fat to glucose should improve cardiac efficiency. However, a complete shift away from metabolizing fatty acids could potentially lead to unwanted side effects. Consequently, only a partial inhibition of fatty acid oxidation is likely to be desirable. Animal studies indicate that ranolazine is a partial and reversible inhibitor of fatty acid oxidation, or a pFOX inhibitor. Inhibition of fatty acid oxidation indirectly stimulates glucose oxidation, which produces more energy per unit of available oxygen thereby increasing cardiac efficiency. Ranolazine therefore may correct the imbalance between oxygen demand and oxygen supply. As a pFOX inhibitor, ranolazine appears to operate via a completely different pathway than the existing anti-anginal drugs. Based on the CARISA and MARISA trial results, ranolazine does not appear to produce clinically meaningful lowering of heart rate or blood pressure. Consequently patients taking ranolazine may be able to maintain these hemodynamic measures at or near baseline levels, which they are unable to do if they take any of the currently available anti-anginal medications. The following table sets forth the mechanisms and effects of ranolazine and anti-anginal drugs. Heart Blood Mechanism Rate Pressure Ranolazine: - - Improves oxygen pFOX Inhibitor metabolism in heart muscle Beta [DOWN ARROW] [DOWN ARROW] Decreased Blockers pump function Calcium [DOWN ARROW] [DOWN ARROW] Decreased Channel pump function, Blockers vasodilation Long-Acting [UPWARD ARROW] [DOWN ARROW] Vasodilation Nitrates
For the above table, the data and the reflected mechanism of action indicated for ranolazine is based on animal and clinical trials to date. Unlike beta blockers, calcium channel blockers and long-acting nitrates, ranolazine has not yet been approved by the FDA as safe or effective for any use. Ranolazine Clinical Trial Status We have completed two pivotal Phase III trials for ranolazine. We are preparing an NDA for submission to the FDA, seeking approval to market ranolazine in the United States for chronic angina. To date, ranolazine has been tested in over 2,000 patients and volunteers. In November 2001, we announced initial results from our second pivotal Phase III trial of ranolazine at a Late Breaking Clinical Trial plenary session of the American Heart Association Scientific Sessions 2001. CARISA (Combination Assessment of Ranolazine In Stable Angina) was a Phase III multi-national, randomized, double-blind, placebo-controlled, parallel group trial of the safety and efficacy of a sustained release formulation of ranolazine. The clinical trial randomized 823 patients to assess the anti-anginal effects of 12 weeks of treatment with ranolazine in chronic angina patients also receiving a background anti-anginal medication. Patients received one of three background therapies (atenolol 50 mg, diltiazem CD 180 mg, or amlodipine 5 mg) and were randomized to twice daily doses of ranolazine 750 mg, ranolazine 1000 mg or placebo. Exercise testing was performed at trough (12 hours after dosing) and peak (four hours after dosing) plasma concentrations. The results of the trial are summarized below: * The CARISA prospectively defined primary efficacy endpoint was symptom-limited exercise duration at trough for all ranolazine patients compared to placebo at 12 weeks. At trough, ranolazine plasma concentrations are at their lowest point during the dosing cycle. In both ranolazine dose groups combined, symptom-limited exercise duration at trough plasma concentrations increased on ranolazine compared to placebo. These results were statistically significant at the 98.8% level, or what is commonly referred to as p = 0.012. This means that, applying widely used statistical methods, the chance that these results could have occurred by accident is less than 1 in 80. The CARISA primary efficacy endpoint of symptom-limited exercise duration at trough has historically been the primary endpoint that the FDA reviews when considering anti-anginal therapies. * For each ranolazine dose considered independently, symptom-limited exercise duration at trough plasma concentrations increased on ranolazine compared to placebo (p<= 0.03). The increases in exercise times on ranolazine were not significantly different among the three background therapies; insignificantly greater increases were seen over diltiazem and amlodipine-than over atenolol. * Statistically significant effects of ranolazine were also observed in other secondary efficacy endpoints. Ranolazine at doses of 750 mg and 1000 mg reduced the frequency of angina by an average of 1.3 and 1.7 attacks per week, respectively, compared to an average decrease of 0.6 attacks per week on placebo (p<=0.01 for each dose versus placebo). Compared to placebo, ranolazine at doses of 750 mg and 1000 mg increased the average time to electrocardiographic evidence of ischemia; those increases approached statistical significance at trough (p<=0.1) and achieved statistical significance at peak (p<0.005). In addition, compared to placebo, ranolazine at both doses statistically significantly increased the average time to onset of angina at both peak (p<=0.003) and trough (p<= 0.05). * The lack of clinically relevant hemodynamic effects was consistent with results observed in MARISA and in prior clinical trials of a different formulation of ranolazine. While increases in exercise duration were observed, ranolazine had no clinically meaningful impact on heart rate or blood pressure, either at rest or following exercise. * Adverse events, including dizziness, asthenia or weakness, and nausea were consistent with those observed in MARISA and in prior trials of a different formulation of ranolazine. Adverse event frequency increased as dose increased. * The rate of serious adverse events was 6% on placebo and 7% on each ranolazine dose group. * Small (<10 msec, similar to MARISA) but statistically significant (p<=0.002) increases in QTc, an electrocardiographic measurement, were observed compared to placebo. In August 1999, we completed our Monotherapy Assessment of Ranolazine In Stable Angina, or MARISA trial. MARISA was a randomized, double-blind, placebo-controlled trial of a sustained release formulation of ranolazine used in patients who were not receiving other anti-anginal drugs. Patients were evaluated by treadmill exercise testing during treatment with placebo and each of three doses of ranolazine, 500mg twice daily, 1000mg twice daily, and 1500mg twice daily. The results of the trial are summarized below: * The MARISA primary endpoint was treadmill exercise duration approximately 12 hours after the previous dose and just before the next dose. At this time, ranolazine plasma concentrations are at their lowest point during the dosing cycle, or at trough. Data from 175 patients appear to show that compared to placebo, ranolazine taken twice a day increased exercise duration at trough plasma concentrations, at all three active doses studied. These results were statistically significant at the 99.5% or greater level, or what is commonly referred to as p < 0.005. This means that, applying widely used statistical methods, the chance that these results could have occurred by accident is less than 1 in 200. * Key secondary endpoints, exercise time to onset of angina and exercise time to the electrocardiographic appearance of ischemia were increased at all three ranolazine doses studied compared to placebo. These results were statistically significant at the 99.5% or greater level, or p < 0.005. * While increases in exercise duration were observed, ranolazine had no clinically meaningful impact on heart rate or blood pressure, either at rest or following exercise. * Adverse events, including dizziness, asthenia or weakness, and nausea, and the electrocardiographic changes observed in this trial, were consistent with those observed in prior trials of an immediate release formulation of ranolazine. Adverse event frequency increased as dose increased. In addition, three Phase II trials completed by Syntex prior to 1994 indicated that an immediate release formulation of ranolazine statistically significantly increased the exercise duration of angina patients during exercise testing at peak dosage levels, compared to placebo. This result was observed both when ranolazine was given alone and in combination with beta blockers or calcium channel blockers. In these trials, ranolazine was administered on a three times daily schedule. To achieve a more commercially attractive product with a twice-daily dosing schedule, a sustained release formulation of ranolazine was developed, which we tested in both our Phase III clinical trials. To date, ranolazine has been tested in more than 2,000 patients and volunteers. Commercialization of Ranolazine In May 1999, we entered into a sales and marketing agreement with Innovex, Inc., a subsidiary of Quintiles Transnational Corp. and a provider of sales and marketing services to the pharmaceutical industry worldwide. Under the agreement, if ranolazine is approved for sale in the United States by the FDA, Innovex will hire and train a dedicated sales force for ranolazine and assist in funding marketing expenses for up to five years after launch. We will receive 100% of the revenues of ranolazine, and we will pay Innovex a fee that will not exceed 33% of those revenues in the first two years, and will decline to a maximum of 25% by the fourth and fifth years. Further, in exchange for giving us the option to retain this trained sales force at the end of the contract, we will pay Innovex a royalty on sales of 7% in the sixth and 4% in the seventh years after launch. CVT-510 (TECADENOSON) We are developing CVT-510 (tecadenoson) for the potential reduction of rapid heart rate during acute atrial arrhythmias. Atrial arrhythmias are abnormally rapid heart rates, and include the conditions of atrial fibrillation, atrial flutter and paroxysmal supraventricular tachycardias (PSVT). CVT-510 is an A1 adenosine receptor agonist which may act selectively on the conduction system of the heart to slow electrical impulses. CVT-510 may offer a new approach to rapid and sustained control of acute atrial arrhythmias by reducing heart rate without lowering blood pressure. We are currently conducting a Phase III trial of CVT-510 in patients with PSVT and a Phase IIb trial in patients with atrial fibrillation. Potential Indication Acute Heart Rate Control During Atrial Arrhythmias Atrial arrhythmias occur when the atria of the heart beat rapidly, or uncontrollably, sending multiple electrical impulses to the ventricles of the heart. An excessive increase in ventricular rate reduces the heart's cardiac output due to inadequate filling and emptying of the left ventricle. Potentially damaging consequences include low blood pressure and damage to the brain, heart and other vital organs; therefore, these rhythm disturbances often require immediate treatment. Prompt slowing of the heart rate is the goal of acute therapy. Because of the need to treat patients quickly, intravenous therapies allow for rapid stabilization of the patient while the underlying condition is treated. In the United States, atrial arrhythmias are involved in approximately 2.8 million hospital diagnoses annually. Atrial arrhythmias are a major complication of heart attacks, heart failure and cardiac surgery. The acute treatment of atrial arrhythmias involves slowing the heart rate. Later, when the heart rate is controlled, additional steps can be taken to reverse the abnormal electrical activity in the atria which underlie these arrhythmias. Current Approaches to Acute Heart Rate Control During Atrial Arrhythmias Current medical therapies, which include digoxin, calcium channel blockers, beta blockers and Adenocard(R), aim to slow the heart to a normal rate but have significant limitations in the acute care setting. Digoxin is effective in controlling heart rate, but requires a long time to take effect. This can be dangerous in patients whose condition requires prompt heart rate control to restore normal cardiac output. Calcium channel blockers, beta blockers and Adenocard(R) act quickly but reduce blood pressure and depress cardiac function. These drugs could potentially exacerbate the condition of patients already experiencing cardiac dysfunction as a complication of the arrhythmia. Furthermore, the effect of Adenocard(R) persists only for a few seconds, and as a result, this product is not indicated for treatment in patients with atrial fibrillation or flutter. Cardiac Conduction System During an atrial arrhythmia, the atria of the heart beat too rapidly, sending excessive electrical impulses to the ventricles of the heart. These electrical impulses are initiated at a set of specialized cells in the atria, known as the sinus node, and then run to another set of specialized cells known as the atrio-ventricular (AV) node. It is this AV node which controls the transmission of the electrical impulses to the ventricles. Since the rate at which electrical impulses pass through the AV node determines ventricular heart rate, slowing AV nodal transmission will result in a reduction in the ventricular heart rate. Since ventricular rate is a primary determinant of cardiac output, prompt slowing of rapid AV nodal conduction is one treatment approach to slowing the abnormally rapid heart rate of an atrial arrhythmia. Potential Treatment by CVT-510 CVT-510 is designed to selectively stimulate the A1 adenosine receptor. Stimulation of the A1 adenosine receptor in the AV node slows the speed of electrical conduction across the AV node, which in turn reduces the number of electrical impulses that reach the ventricle. Stimulation of the A2 adenosine receptor may lower blood pressure. Since CVT-510 is designed to selectively stimulate the A1 adenosine receptor without significantly stimulating the A2 adenosine receptor, it may be possible to use CVT-510 to intervene quickly in the arrhythmia process without the unwanted effect of lowering blood pressure. CVT-510 may offer cardiac patients and clinicians alternatives to current therapies that are either relatively slow to act or that reduce blood pressure. CVT-510 Clinical Trial Status In November 2001, we announced that in an open-label, dose ranging Phase II clinical trial in patients with atrial fibrillation or flutter, CVT-510 consistently reduced heart rate from baseline (p<0.05) without clinically meaningful changes in blood pressure. We have embarked on a Phase IIb development program aimed at defining an optimized dosage regimen in patients with this complex cardiac disease. In addition, in November 2000, at the annual meeting of the American Heart Association, we announced results from a Phase II trial of CVT-510 indicating that CVT-510 terminated paroxysmal supraventricular tachycardia (PSVT) without adversely affecting blood pressure. In this open-label, dose escalation study, CVT-510 was given as one or two bolus injections at least two minutes apart to 37 patients with inducible PSVT undergoing electrolphysiological study. The results indicated that in 32 of 37 patients, or 86%, the PSVT was terminated and normal sinus rhythm was restored. CVT-510 was well tolerated in these patients with no adverse effects on blood pressure, and no high-grade AV block or other serious adverse events were observed. Based on the results of this trial, we initiated a Phase III clinical trial of CVT-510 in patients with PSVT in June 2001. CVT-3146 We are developing CVT-3146 for the potential use as a pharmacologic agent in cardiac perfusion imaging studies. Cardiac perfusion imaging studies are used to detect and characterize coronary artery disease, by identifying areas of insufficient blood flow in the heart. Some of these studies are conducted using pharmacologic agents. CVT-3146 is an A2A adenosine receptor agonist which may act selectively on the heart to cause coronary vasodilation and thus increase coronary blood flow. Therefore, CVT-3146 may provide doctors with an alternative agent for cardiac perfusion imaging studies without unwanted side effects. We have entered into a collaboration with Fujisawa Healthcare to develop and market CVT-3146 in North America. We are currently in a Phase II trial for CVT-3146. Potential Indication A Pharmacologic Agent in Cardiac Perfusion Imaging Studies During cardiac perfusion imaging studies, the heart is subjected to a period of stress to stimulate maximal blood flow. Myocardial perfusion, or blood flow, is measured during stress and compared to myocardial perfusion when patients are at rest. Areas of relatively poor perfusion during stress as compared to rest indicates which areas of the heart may be affected by narrowed coronary arteries. To stress the heart sufficiently to perform the test, many patients exercise on a treadmill. However, more than a third of the patients who take the test are unable to exercise adequately because of medical conditions such as peripheral vascular disease or arthritis. For those patients, a pharmacologic agent that temporarily increases coronary blood flow is used to create the increase in blood flow which would otherwise be caused by exercise. In 1999, approximately 6.5 million cardiac perfusion imaging studies were performed in the United States, of which approximately 2.4 million were conducted using a pharmacologic agent. Current Approaches to Increasing Coronary Blood Flow During Cardiac Imaging Studies Current pharmacologic therapies used in cardiac imaging testing are dipyridamole and Adenoscan(R), the brand name for adenosine. Adenoscan(R) is used for cardiac imaging because it is the naturally occurring agent that causes coronary vasodilation and it has a short half-life. However, because Adenoscan(R) activates all four adenosine receptor subtypes, it can cause side effects including flushing, dyspnea and headache, and should not be used in asthma patients. Another current cardiac imaging agent, dipyridamole, is known to increase levels of adenosine by inhibiting its transport into cells. Due to its longer half-life, coronary vasodilation persists for long periods of time, and therefore, patients must be closely monitored at the completion of the test. In addition, one of the main side effects of dipryridamole is dizziness. Potential Treatment by CVT-3146 CVT-3146 has been designed to selectively activate the A2A adenosine receptor in the heart, in order to elicit the coronary vasodilation response while avoiding many of the side effects of Adenoscan(R) or dipyridamole. CVT-3146 Clinical Trial Status In May 2001, we announced that results from our Phase I trial of CVT-3146 met our previously established primary objective of providing data on safety and tolerability over a broad range of doses administered to healthy volunteers. Based on the results of this trial, we initiated a Phase II clinical trial of CVT-3146 in August 2001. The purpose of the Phase II trial is to determine the tolerability of CVT-3146 and its effect on coronary blood flow in patients undergoing a clinically indicated cardiac catheterization. ADENTRI(TM) PROGRAM Patients with congestive heart failure (CHF) have limited heart pumping function, and the corresponding reduction in blood flow impairs the kidney's ability to clear fluid wastes from the body. Current therapies for CHF tend to negatively impact other activities of the kidneys. Preclinical studies and clinical trials indicate that A1 adenosine receptor antagonists may increase the kidney's ability to clear fluid wastes without decreasing other functions of the kidneys. Thus, we believe that A1 adenosine receptor antagonists have the potential to be a new therapy for the treatment of CHF. In March 1997, we licensed the rights to our A1 adenosine receptor antagonist technology, patents and compounds, including CVT-124, to Biogen, Inc. Collectively, Biogen's efforts in this area are referred to as the AdentriTM program. As a result of the agreements we signed, Biogen has an exclusive worldwide license to develop, manufacture and commercialize CVT-124 and any other A1 adenosine receptor antagonists developed either by Biogen or us based on our patents or our technology. As long as Biogen retains its license for our A1 adenosine receptor antagonist technology and patents, Biogen is responsible for funding all development and commercialization expenses related to these compounds. In February 2000, Biogen announced that it had successfully completed a Phase II trial of CVT-124 in patients with moderate-to-severe CHF. However, Biogen also announced its intention to continue the AdentriTM program with a new molecule. Biogen is currently in Phase II clinical trials with the new molecule. Potential Indication Congestive Heart Failure CHF occurs when the heart muscle is weakened by disease so it cannot adequately pump blood throughout the body. As a result of this pump failure, fluid accumulates throughout the body, including in the lungs. This results in shortness of breath. Fluid also accumulates in the body because of adaptations by the kidneys during CHF. According to the AHA's 2001 Heart and Stroke Statistical update, approximately 4.7 million people in the United States suffered from CHF and an estimated 550,000 new cases arise each year. Almost one million patients in 2000 were hospitalized in the United States with a primary diagnosis of CHF. Current Approaches to Treating Congestive Heart Failure 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 kidneys. However, current diuretic therapies such as furosemide, thiazides and spironolactone become less effective over time as the disease progresses. Approximately one quarter of hospitalized CHF patients are resistant to current intravenous diuretic therapies. The dosage of the most commonly prescribed diuretics for CHF are often increased as the disease progresses, which can be associated with toxic side effects. One such side effect is potassium loss, which may lead to an increased incidence of cardiac arrhythmias if potassium is not monitored and replaced, and another is a decline in kidney function. Potential Treatment by A1 Adenosine Receptor Antagonists An A1 adenosine receptor antagonist blocks the action of the A1 adenosine receptors. Since the A1 adenosine receptor plays an important role in the kidneys to cause the kidneys to retain sodium and fluids, blocking the action of this receptor may reduce the amount of fluid that the kidneys retain. Clinical Trial Experience In Phase I and Phase II trials, CVT-124 appeared to be generally well tolerated and produced increases in urine, sodium and chloride excretion compared to placebo. This was observed both in healthy volunteers and in moderately severe CHF patients. Moreover, trials to date indicate that CVT-124 may be able to treat fluid overload without an associated reduction in the filtration function of the kidneys. Furosemide, which is currently the most commonly used treatment for fluid overload caused by CHF, has been shown in prior trials to be associated with a reduction in the filtration function of the kidneys. Program Status Biogen is developing Adentri for acute and chronic CHF and is currently in Phase II clinical trials. PRECLINICAL PIPELINE Our research and development team is creating new product opportunities through our expertise in molecular cardiology. We have preclinical research programs in the areas of: * Adenosine Receptor Research - Cardiac conduction - Angiogenesis * Metabolism - Cardiac energetics * Atherosclerosis - Increase HDL, "the good cholesterol" * Cell Cycle Inhibition * Cardiovascular Genomics Adenosine Receptor Research Adenosine is a naturally occurring small molecule that elicits pharmacological responses that tend to compensate for the imbalance in oxygen supply relative to demand that occurs when blood vessels are partially blocked by cardiovascular disease. Our adenosine receptor research program has discovered proprietary compounds that selectively elicit the desired effects of adenosine receptor stimulation for the treatment of certain electrical conductance disturbances, such as atrial arrhythmias, and regulate the mechanisms of new blood vessel growths, or angiogenesis. - Cardiac Conduction Electrical impulses within the heart muscle play a key role in causing the heart muscle to sequentially expand and then contract, which is required for the heart to pump blood throughout the body in a controlled rhythm. Failure of this electrical system to function properly will result in a poorly pumping heart, such as in atrial arrhythmias. We have discovered a series of novel, proprietary, orally bio-available, partial A1 adenosine receptor agonists, including CVT-3619, that selectively slow the electrical conductance in the heart to adjust the rate of a beating heart into the normal range. These compounds are similar to CVT-510, which is being developed for the acute care of atrial arrhythmias, but are targeted for the continued care of patients with chronic atrial arrhythmias. - Angiogenesis Our scientists have led the effort to fully characterize the role of adenosine in the initiation, maintenance, and growth of new vessels in vascular beds that are deprived of oxygen due to cardiovascular disease. We have discovered the receptor that is responsible for regulation of the known mitogens such as vascular endothelial growth factor and fibroblast growth factor, and have discovered small molecule agonists and antagonists of this process. The goal of these programs, which includes compounds such as CVT-3634, is to harness this naturally occurring process for the potential treatment of peripheral vascular disease or aberrant angiogenesis that causes diabetic retinopathy and macular degeneration. Metabolism In order for the heart to adequately pump blood, fuel in the form of fat, or fatty acids, and sugar, in the form of glucose, are metabolized with oxygen to yield ATP (a key molecule involved in th expenditure of cellular energy), water and carbon dioxide. When oxygen is in limited supply, for example when the vessels that feed the heart are blocked from atherosclerosis and cardiovascular disease, the normal utilization of glucose becomes impaired. This metabolic imbalance in favor of fatty acid oxidation (compared to glucose) can be partially restored by inhibiting fatty acid metabolism with a partial fatty acid oxidation (pFOX) inhibitor. The goals of our cardiac metabolism program are to further characterize the therapeutic potential of ranolazine in the treatment of indications other than angina, and to discover new, proprietary second generation ranolazine products. For example, in an animal model of congestive heart failure, ranolazine increased work output by the heart without increasing the consumption of oxygen. In other words, cardiac performance and cardiac efficiency were improved. We have also discovered several series of novel, proprietary pFOX inhibitors, including CVT-4325, that are potential second generation compounds to ranolazine. Atherosclerosis The goal of our HDL drug discovery program is to study the ways in which the body removes excess cholesterol from the walls of blood vessels, in an effort to prevent or reverse the buildup of arterial plaques that cause heart attacks. Roughly half of heart attacks occur in patients with low levels of high density lipoproteins, known as the "good" form of cholesterol, or HDL. Patients with the genetic disorder called Tangier disease have virtually no HDL in their blood, and are at a greatly increased risk for developing cardiovascular disease. Our scientists have used a new strategy combining gene expression microarrays and biochemical techniques to identify the gene that is defective in patients with Tangier disease. Having identified the gene that is responsible for the genetic disorder in Tangier disease patients, we have targeted this gene as part of a drug discovery program to identify novel, proprietary, small molecules that may increase reverse cholesterol transport and thus HDL. Cell Cycle Inhibition The goal of our cell cycle inhibition program is to develop new therapeutics that suppress abnormal cellular proliferation. 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. As part of our drug discovery strategy, we have focused upon enzymes called cell cycle enzymes that regulate cellular proliferation. CVT-2584 is a new compound that selectively inhibits CDK2, a critical cell cycle enzyme. Animal studies with CVT-2584 have shown a substantial reduction of blockages after vascular injury. Cardiovascular Genomics Our cardiovascular genomics program is working to utilize the latest tools of genomics and gene expression microarray technology to identify novel gene and protein targets for drug discovery. We have focused on evaluating the expression of tens of thousands of human genes that are involved in the accumulation of lipids in the vascular wall and in the response of blood vessels to injury. In this way, we are seeking to identify novel approaches to reduce the risk of heart attacks and to reduce the occurrence of restenosis following interventional vascular treatments such as angioplasty or bypass surgery. COLLABORATIONS AND LICENSES We have established, and intend to continue to establish, strategic partnerships to potentially expedite the development and commercialization of our drug candidates. For those programs with potential application outside of cardiovascular disease, we intend to identify additional corporate partners. In addition, we have licensed chemical compounds from academic collaborators and other companies. Our collaborations and licenses currently in effect include: University of Florida Research Foundation In June 1994, we entered into a license agreement with the University of Florida Research Foundation, Inc. under which we received exclusive worldwide rights to develop A1 adenosine receptor antagonists and agonists for the detection, prevention and treatment of human and animal diseases. In consideration for the license, we paid an initial license fee and are obligated to pay royalties based on net sales of products that utilize the licensed technology. Under this agreement, we must exercise commercially reasonable efforts to develop and commercialize one or more products covered by the licensed technology. In the event we fail to reach certain milestones under the agreement, the licensor may convert the exclusive license into a non-exclusive license. We sublicensed our rights under this license that relate to A1 adenosine receptor antagonists to Biogen in March 1997. Syntex In March 1996, we entered into a license agreement with Syntex (U.S.A.) Inc. to obtain United States and foreign patent rights to ranolazine for the treatment of angina and other cardiovascular indications. Pursuant to the agreement, Syntex provided quantities of the compound to us for use in clinical trials and related development activities. The license agreement is exclusive and worldwide except for the following countries which Syntex has 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, we paid an initial license fee. In addition, we are obligated to make certain milestone payments to Syntex, upon receipt of the first and second product approvals for ranolazine in any of certain major market countries (consisting of France, Germany, Italy, the United States and the United Kingdom). Unless the agreement is terminated, if the first product approval in one of the major market countries occurs before May 1, 2002, we will pay Syntex, on or before March 31, 2005, $7.0 million plus interest accrued thereon from the date of approval until the date of payment, and if the first such product approval occurs after May 1, 2002, we will pay Syntex, on or before March 31, 2005, $7.0 million plus interest accrued thereon from May 1, 2002 until the date of payment. Unless the agreement is terminated, if the second product approval in one of the major market countries occurs before May 1, 2004, we will pay Syntex, on or before March 31, 2006, $7.0 million plus interest accrued thereon from the date of approval until the date of payment, and if the second such product approval occurs after May 1, 2004 but before March 31, 2006, we will pay Syntex, on or before March 31, 2006, $7.0 million plus interest accrued thereon from May 1, 2004 until the date of payment. Unless the agreement is terminated, if the second product approval in one of the major market countries has not occurred by March 31, 2006, we will pay Syntex $3.0 million on or before March 31, 2006, and if we receive the second product approval after March 31, 2006, we will pay Syntex $4.0 million within thirty (30) days after the date of such second product approval. No amounts have been accrued to date in relation to these milestones. In addition, we will make royalty payments based on net sales of products that utilize the licensed technology. We are required to use commercially reasonable efforts to develop and commercialize the product for angina. We or Syntex may terminate the license agreement for material uncured breach, and we have the right to terminate the license agreement at any time on 120 days notice if we decide not to continue to develop and commercialize ranolazine. Biogen In March 1997, we entered into two research collaboration and license agreements with Biogen. The agreements grant Biogen the exclusive worldwide right to develop and commercialize any products which are produced based on our A1 adenosine receptor antagonist patents or technologies (including our rights under the University of Florida Research Foundation license) for all indications. In exchange, we received a $16.0 million payment consisting of research related funding, an equity investment and $3.0 million in funding under a general purpose loan facility. Biogen agreed to make milestone payments and equity investments, as well as the loan facility, all of which are subject to their achievement of clinical development and commercialization milestones. In February 1998, we terminated the research component of the agreements and, as a result, approximately $4.0 million of deferred revenue was recognized as there were no further research obligations related to this funding. In December 1998, Biogen released an additional $4.5 million under the loan facility. In February 2000, based on results of their Phase II clinical trial, Biogen announced its intention to proceed with the AdentriTM program, but with a backup compound, and subsequently paid us $6.5 million, consisting of a $2.0 million milestone payment and $4.5 million under the loan facility. In March 2001, based on Biogen's initiation of a Phase I oral development program, we recognized a $1.0 million milestone payment. Biogen will also make milestone payments in connection with development and commercialization of licensed products, and pay royalties on any future sales of products covered by the agreement. Biogen has control and responsibility for conducting, funding and pursuing all aspects of the development, submissions for regulatory approvals, manufacture and commercialization of A1 adenosine receptor antagonist products under the agreement. In March 2000, we repaid the initial $3.0 million installment under the loan facility. In October 2000, we exercised our right to convert $9.0 million in debt under the loan facility into 118,932 shares of our common stock at a price of $75.67 per share, in full repayment of the entire principal amount under this loan facility. In December 2000, we repaid all accrued and unpaid interest on the loan facility. Biogen may terminate the agreements for any reason upon 60 days written notice. If Biogen terminates the agreements, all rights to the technology will revert to us, and we will pay Biogen a royalty on future sales of any A1 adenosine receptor antagonist. Incyte In July 1998, we entered into a joint research collaboration agreement with Incyte Genomics, Inc. to develop a prototype gene expression database in the area of cardiovascular biology. We contribute our molecular cardiology expertise and Incyte contributes its genomics capabilities. Incyte owns the data produced, and we receive a perpetual, non-exclusive license to use the data in our drug development efforts. Each party bears its own costs of the research and neither party makes any payments to the other. Either party may terminate the agreement on 60 days written notice. In August 2001, we expanded the scope of our 1998 research collaboration, to focus on identifying genes involved in the development of atherosclerosis and coronary artery disease. Innovex In May 1999, we entered into a sales and marketing services agreement with Innovex, a subsidiary of Quintiles Transnational Corp. Under this agreement, if ranolazine is approved for sale in the United States by the FDA, Innovex will hire and train a dedicated sales force for ranolazine and assist in funding marketing expenses for up to five years after launch. We will receive 100% of the revenues from sales of ranolazine and we will pay Innovex a share of those revenues. The agreement calls for Innovex to conduct pre-launch activities, hire and train a dedicated cardiology sales force to launch and promote ranolazine, and provide post-launch marketing and sales services. To fund pre-launch activities, Quintiles will provide us with a $10 million credit facility at the time we file with the FDA for approval. We are required to spend a minimum of $10 million on ranolazine pre-launch marketing activities so long as Quintiles provides advances under the credit facility. Upon FDA approval, Quintiles will make a $10 million milestone payment to us, which we are obligated to use to repay any amounts outstanding under the credit facility. Should we file for FDA approval and draw down the credit facility, but never receive FDA approval, we are obligated to repay the loan within 10 years of the date we received the loan. Innovex has agreed to provide services for at least three years after launch and to provide services in years four and five after launch if minimum sales levels are met. The agreement also specifies the minimum number of sales representatives and the minimum level of dollars to be spent on marketing by Innovex during the first two years of the contract, regardless of sales levels. The minimum size of the sales force and the marketing expenses in year three or any subsequent year must be maintained by Innovex as long as minimum sales levels are met. In exchange for providing these sales and marketing services, Innovex will receive a fee equal to up to an average of 33% of our revenues related to the sale of ranolazine in the first two years of sales, up to 30% of revenues for the third year and up to 25% of revenues in years four and five. Also, for giving us the option to retain this trained sales force at the end of the contract, Innovex will receive a royalty on sales of 7% in the sixth year and 4% in the seventh year after launch. In connection with the agreement, Quintiles purchased 1,043,705 shares of our common stock for a total purchase price of $5.0 million. We or Innovex may terminate the agreement in the event of material uncured breach, bankruptcy or insolvency, our decision to not file an NDA for ranolazine or to terminate development of the product, notice from the United States Food and Drug Administration that it will not approve the product for marketing, or failure to achieve certain minimum sales levels. In addition, we or Innovex (subject to certain notice and response provisions) may terminate the agreement if product launch will not occur by a specific date. The agreement will terminate automatically if we no longer retain our license rights to ranolazine. Fujisawa Healthcare In July 2000, we entered into a collaboration with Fujisawa Healthcare, Inc. (FHI) to develop and market second generation pharmacologic cardiac stress agents. Under this agreement, FHI received exclusive North American rights to CVT-3146, a short acting selective A2A adenosine receptor agonist, and to a backup compound. We received $10.0 million from FHI consisting of a $6.0 million up-front payment, which will be recognized as revenue over the expected term of the agreement, and the purchase of 54,270 shares of our common stock for a total purchase price of $4.0 million. In September 2001, based on initiating a Phase II clinical trial for CVT-3146, FHI paid us a $2.0 million milestone payment. We may receive up to an additional $22.0 million in cash based on development and regulatory milestones such as initiation of clinical studies and certain regulatory filings and approval. FHI reimburses us for 75% of the development costs, and if the product is approved by the FDA, we will receive a royalty based on product sales of CVT-3146 and may receive a royalty on another product sold by FHI. The amount reimbursed for development costs was $0, $996,000 and $2.8 million for 1999, 2000 and 2001, respectively. FHI may terminate the agreement for any reason on 90 days written notice, and we may terminate the agreement if FHI fails to launch a product within a specified period after marketing approval. In addition, we or FHI may terminate the agreement in the event of material uncured breach, or bankruptcy or insolvency. MARKETING AND SALES Except for our sales and marketing services agreement with Innovex, we currently have no sales or distribution capabilities, and have only limited marketing capabilities. We may promote our products in collaboration with marketing partners or rely on relationships with one or more companies with established distribution systems and direct sales forces. For example, Innovex will provide sales and marketing for ranolazine in the United States. For our other products, and for ranolazine at the end of the term of our agreement with Innovex, we may elect to establish our own specialized sales force and marketing organization to market our products to cardiologists. MANUFACTURING We do not currently operate manufacturing facilities for clinical or commercial production of our proposed products. We have no experience in manufacturing, and currently lack the resources and capability to manufacture any of our proposed products on a clinical or commercial scale. Accordingly, we are, and will continue to be, dependent on corporate partners, licensees or other third parties for clinical and commercial scale manufacturing. We have entered into several manufacturing agreements relating to ranolazine, including for commercial scale-up of production of bulk active pharmaceutical ingredient, tableting and supply of a raw material component of the product. We do 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. In addition, prior to approval of an NDA for ranolazine, we will be required to demonstrate to the FDA's satisfaction the equivalence of the multiple sources of supply used in our clinical trials and their equivalence to the product to be commercially supplied. PATENTS AND PROPRIETARY TECHNOLOGY Patents and other proprietary rights are important to our business. Our policy is to file patent applications in the United States and internationally in order to protect our technology, including inventions and improvements to inventions that are commercially important to the development of our business. The evaluation of the patentability of United States and foreign patent applications can take several years to complete and can entail considerable expense. We own multiple patents issued by and/or patent applications pending with the United States Patent and Trademark Office and foreign patents or patent applications relating to our technology, including related to our clinical programs, ranolazine, CVT-510 and CVT-3146. We also have acquired a license, which is exclusive in specified territories, to specified patents issued by the United States Patent and Trademark Office (US PTO) and foreign corresponding patents and patent applications related to ranolazine. The United States composition of matter patent relating to ranolazine will expire in 2003 unless we are granted an extension based upon the Waxman-Hatch Act, which we anticipate would extend the patent protection for an additional five years; however, in 2001 we received an issued patent from the US PTO for a method of using sustained release formulations of ranolazine, including the formulation used in the MARISA and CARISA trials, for the treatment of chronic angina. This patent expires in 2019. In addition, we have acquired, and in turn have granted to Biogen, an exclusive license to issued patents and pending patent applications relating to A1 adenosine receptor antagonists. 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, and other federal and state statutes and regulations, govern, among other things, the research, development, testing, manufacture, storage, recordkeeping, labeling, promotion and marketing and distribution of pharmaceutical products. Failure to comply with applicable regulatory requirements may subject a company to a variety of administrative or judicially imposed sanctions. The steps ordinarily required before a new pharmaceutical product may be marketed in the United States include preclinical laboratory tests, animal tests and formulation studies, the submission to the FDA of an Investigational New Drug Application (or IND), which must become effective before clinical testing may commence, and adequate and well-controlled clinical trials to establish the safety and effectiveness of the drug for each indication for which it is being tested. Preclinical tests include laboratory evaluation of product chemistry and formulation, as well as animal trials to assess the potential safety and efficacy of the product. The conduct of the preclinical tests and formulation of compounds for testing must comply with federal regulations and 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 trials may begin. If the FDA has comments or questions, the applicant must answer the questions to the FDA's satisfaction 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 the FDA authorizes. 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 must be conducted in compliance with federal regulations and requirements, under protocols detailing the objectives of the trial, 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. The study protocol and informed consent information for patients in clinical trials must also be approved by the institutional review board at each institution where the trials will be conducted. 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 trials in a limited patient population, to determine dosage tolerance and optimal dosage, identify possible adverse effects and safety risks, and provide preliminary support for the efficacy of the drug in the indication being studied. 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 trial sites. There can be no assurance that Phase I, Phase II or Phase III testing of our product candidates will be completed successfully within any specified time period, if at all. After completion of the required clinical testing, generally a marketing application called a New Drug Application (NDA) is prepared and submitted to the FDA. FDA approval of the NDA is required before marketing of the product 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 the NDA is substantial. The FDA has 60 days from its receipt of the NDA to determine whether the application will be accepted for filing based on the agency's threshold determination that the NDA is sufficiently complete to permit substantive review. Once the submission is accepted for filing, the FDA begins an in-depth review of the NDA. Under federal law, 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 typically will 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 an approval letter, or, in some cases, an approvable letter followed by an approval letter. Both letters usually contain 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. The approval letter authorizes commercial marketing of the drug for specific indications. As a condition of NDA approval, the FDA may require postmarketing testing and surveillance to monitor the drug's safety or efficacy, or impose other conditions. Once granted, product approvals may be withdrawn if compliance with regulatory standards is not maintained or problems occur following initial marketing. 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. The not approvable letter outlines the deficiencies in the submission and often requires additional testing or information. The FDA ultimately may decide that the application does not satisfy the regulatory criteria for approval. Foreign Regulation of Drug Compounds Approval of a product by comparable regulatory authorities may be necessary in foreign countries prior to the commencement of marketing of the product in those countries, whether or not FDA approval has been obtained. The approval procedure varies among countries and can involve additional testing. The time required may differ from that required for FDA approval. Although there are some procedures for unified filings for some 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 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 Union 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. If we decide to pursue European approval for our clinical candidates, we will choose an 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 Our research and development processes involve the controlled use of hazardous materials, chemicals and radioactive materials and produce waste products. We are subject to federal, state and local laws and regulations governing the use, manufacture, storage, handling and disposing of hazardous materials and waste products. COMPETITION The pharmaceutical and biopharmaceutical industries are subject to intense competition and rapid and significant technological change. If regulatory approvals are received, ranolazine may compete with several classes of existing drugs for the treatment of angina, some of which, including calcium channel blockers, beta blockers and nitrates, are available in relatively inexpensive generic form. Surgical treatments such as coronary artery bypass grafting and percutaneous transluminal coronary angioplasty can be another option for angina patients. In addition, we are aware of companies that are developing products that may compete with our other drug candidates. For example, we believe that Aderis Pharmaceuticals and Fujisawa Healthcare have A1 adenosine receptor agonists under development which could compete with CVT-510. We believe King Pharmaceuticals Inc., Aderis Pharmaceuticals, DuPont Pharmaceuticals Company, and Adenosine Therapeutics LLC have A2A adenosine receptor agonists under development which could compete with CVT-3146. Finally, we believe Fujisawa Pharmaceutical Co., Ltd. and Aderis Pharmaceuticals are each developing A1 adenosine receptor antagonists which could compete with Biogen's AdentriTM program. We believe that the principal competitive factors in the potential markets for ranolazine, CVT-510, CVT-3146 and AdentriTM 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. We believe that we and our collaborative partners are or will be competitive with respect to these factors. Nonetheless, because our products are still under development, our relative competitive position in the future is difficult to predict. EMPLOYEES As of January 31, 2002, we employed 222 individuals full-time, including 52 who hold doctoral degrees. Of our full-time work force, 171 employees are engaged in or directly support research and development activities and 51 are engaged in business development, finance and administrative activities. Our employees are not represented by a collective bargaining agreement. We believe that our relations with our employees are good. RISK FACTORS OUR PRODUCT CANDIDATES WILL TAKE AT LEAST SEVERAL YEARS TO DEVELOP, AND WE CANNOT ASSURE YOU THAT WE WILL SUCCESSFULLY DEVELOP, MARKET AND MANUFACTURE THESE PRODUCTS. Since our inception in 1990, we have dedicated substantially all of our resources to research and development. We do not have any marketed products, and we have not generated any product revenue. Because all of our potential products are in research, preclinical or clinical development, we will not realize product revenues for at least several years, if at all. We have not applied for or received regulatory approval in the United States or any foreign jurisdiction for the commercial sale of any of our products. All of our product candidates are either in clinical trials under an Investigational New Drug, or IND, or applicable foreign authority submission, or are in preclinical research and development. We have not submitted an NDA to the FDA or an equivalent application to any other foreign regulatory authorities for any of our product candidates, and the products have not been determined to be safe or effective in humans for their intended uses. Conducting clinical trials is a lengthy, time-consuming and expensive process. Before obtaining regulatory approvals for the commercial sale of any products, we must demonstrate through preclinical testing and clinical trials that our product candidates are safe and effective for use in humans. We will incur substantial expense for, and devote a significant amount of time to, preclinical testing and clinical trials. Drug discovery methods based upon molecular cardiology are relatively new. We cannot be certain that these methods will lead to commercially viable pharmaceutical products. In addition, some of our compounds within our adenosine receptor research, metabolism, atherosclerosis and cell cycle inhibition programs are in the early stages of research and development. We have not submitted IND applications or commenced clinical trials for these new compounds. We cannot be certain when these clinical trials will commence, if at all. Because these compounds are in the early stages of product development, we could abandon further development efforts before they reach clinical trials. We cannot be certain that any of our product development efforts will be completed or that any of our products will be shown to be safe and effective. Even if we believe that any product is safe and effective, we may not obtain the required regulatory approvals. Furthermore, we may not be able to manufacture our products in commercial quantities or market any products successfully. IF WE ARE UNABLE TO SATISFY THE REGULATORY REQUIREMENTS FOR OUR CLINICAL TRIALS, WE WILL NOT BE ABLE TO COMMERCIALIZE OUR DRUG CANDIDATES. All of our products may require additional development, preclinical studies and clinical trials, and will require regulatory approval, prior to commercialization. Any delays in our clinical trials would delay market launch, increase our cash requirements and result in additional operating losses. We currently have only four products in clinical development: ranolazine, CVT-510 (tecadenoson), CVT-3146 and AdentriTM. On June 29, 2001, we announced that we initiated a Phase III trial of CVT-510 in patients with paroxysmal supraventricular tachycardia. On August 21, 2001, we announced that we commenced a Phase II clinical trial of CVT-3146. On November 19, 2001, we announced that in an open-label, dose-ranging Phase II clinical trial in patients with atrial fibrillation or flutter, CVT-510 consistently reduced patients' heart rate from baseline (p<0.05) without clinically meaningful changes in blood pressure. We subsequently embarked on a Phase IIb development program aimed at defining an optimized dosage regimen in patients with this complex cardiac disease. Many factors could delay completion of our clinical trials, including: * slower than anticipated patient enrollment; * difficulty in obtaining sufficient supplies of clinical trial materials; and * adverse events occurring during the clinical trials. For example, our first Phase III clinical trial of ranolazine, called Monotherapy Assessment of Ranolazine In Stable Angina or MARISA, had challenging enrollment criteria. As a result, enrollment for this trial was slower than anticipated. In addition, data obtained from preclinical and clinical activities are susceptible to different interpretations, which could delay, limit or prevent regulatory approval. Delays or rejections may be based upon many factors, including regulatory requests for additional analyses, data and/or studies, regulatory questions regarding data and results, and/or changes in regulatory policy during the period of product development. For example, the initial clinical trials with ranolazine used an immediate release formulation of ranolazine, while a sustained release formulation was used in the MARISA and CARISA trials. The NDA for ranolazine will contain data from trials using two different formulations, which is subject to interpretation by the FDA. An unfavorable interpretation could delay potential approval. Furthermore, regulatory attitudes towards the data and results required to demonstrate safety and efficacy change over time. We cannot be sure whether future changes to the regulatory environment will be favorable or unfavorable to our business prospects. We may be unable to maintain our proposed schedules for IND applications and clinical protocol submissions to the FDA, initiations of clinical trials and completions of clinical trials as a result of FDA reviews or complications that may arise in any phase of the clinical trial program. Furthermore, even if our clinical trials occur on schedule, the results may differ from those obtained in preclinical studies and earlier clinical trials. Clinical trials may not demonstrate sufficient safety and efficacy to obtain the necessary approvals. For example, in November 1995, based on unfavorable efficacy data from a Phase II trial, we terminated a prior development program. IF WE ARE UNABLE TO SATISFY GOVERNMENTAL REGULATIONS RELATING TO THE DEVELOPMENT OF OUR DRUG CANDIDATES, WE MAY BE UNABLE TO OBTAIN OR MAINTAIN NECESSARY REGULATORY APPROVALS TO COMMERCIALIZE OUR PRODUCTS. The research, testing, manufacturing and marketing of drug products are 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. These include: * warning letters; * civil penalties; * criminal penalties; * injunctions; * product seizure or detention; * product recalls; * total or partial suspension of manufacturing; and * FDA refusal to review or approve pending NDAs or supplements to approved NDAs. 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, this approval process is extremely expensive and uncertain. We cannot guarantee that any of our products under development will be approved for marketing by the FDA or corresponding foreign regulatory authorities. Even if marketing approval of a product is granted, we cannot be certain that we will be able to obtain the labeling claims necessary or desirable for the promotion of those products. Even if we obtain marketing approval, we may be required to undertake post-marketing trials. In addition, identification of side effects after a drug is on the market or the occurrence of manufacturing problems could cause or require subsequent withdrawal of approval, reformulation of the drug, additional preclinical testing or clinical trials, changes in labeling of the product, and/or additional regulatory approvals. If we receive marketing approval, we will also be subject to ongoing FDA obligations and continued regulatory review, such as continued safety reporting requirements, and we may also be subject to additional FDA post-marketing obligations. In addition, we or our third party manufacturers will be required to adhere to federal regulations setting forth current good manufacturing practices, known as cGMP. The regulations require, among other things, that we manufacture our products and maintain our records in a prescribed manner with respect to manufacturing, testing and quality control activities. Furthermore, we or our third party manufacturers must pass a preapproval inspection of manufacturing facilities by the FDA and corresponding foreign regulatory authorities before obtaining marketing approval, and will be subject to periodic inspection by the FDA and corresponding foreign regulatory authorities under reciprocal agreements with the FDA. We cannot guarantee that such inspections will not result in compliance issues that could prevent or delay marketing approval, or require us to expend money or other resources to correct. In addition, drug product manufacturing facilities in California must be licensed by the State of California, and other states may have comparable requirements. We cannot assure you that we will be able to obtain such licenses. If we receive marketing approval and if any of our products or services become reimbursable by a government health care program, such as Medicare or Medicaid, we will become subject to certain federal and state health care fraud and abuse and reimbursement laws. These laws include the federal "Anti-Kickback Statute," "False Claims Act," "Prescription Drug Marketing Act," and "Physician Self-Referral Law," and their state counterparts. If and when we become subject to such laws, our arrangements with third parties, including health care providers, physicians, vendors, distributors, wholesalers and Innovex, will need to comply with these laws, as applicable. We do not know whether our existing or future arrangements will be found to be compliant. Violations of these statutes could result in substantial criminal and civil penalties and exclusion from governmental health care programs. In addition, the regulatory environment in which our regulatory submissions may be reviewed changes over time. For example, average review times at the FDA for marketing approval applications have fluctuated substantially over the last 10 years, with review times for marketing applications for new chemical entities having recently increased from 12 to 15 months after having declined previously. In addition, review times at the FDA can be impacted by a variety of factors, including federal budget and funding levels and statutory and regulatory changes. For example, the current federal statutory and regulatory framework for funding of FDA reviews under the Prescription Drug User Fee Act (PDUFA) is set to expire in 2002, unless further Congressional action and regulatory implementation occurs, and a delay in such actions could negatively impact review times at the FDA. OUR PRODUCTS, EVEN IF APPROVED BY THE FDA OR FOREIGN REGULATORY AGENCIES, MAY NOT BE ACCEPTED BY PHYSICIANS, INSURERS OR PATIENTS. If any of our products, after receiving FDA or other foreign regulatory approval, fail to achieve market acceptance, our ability to become profitable in the future will be adversely affected. We believe that market acceptance will depend on our ability to provide acceptable evidence of safety, efficacy and cost effectiveness. In addition, we believe that market acceptance depends on the effectiveness of our marketing strategy and the availability of government and private insurance reimbursement for our products. WE HAVE NO MARKETING OR SALES EXPERIENCE, AND IF WE ARE UNABLE TO ENTER INTO OR MAINTAIN COLLABORATIONS WITH MARKETING PARTNERS OR IF WE ARE UNABLE TO DEVELOP OUR OWN SALES AND MARKETING CAPABILITY, WE MAY NOT BE SUCCESSFUL IN COMMERCIALIZING OUR PRODUCTS. We currently have no sales or distribution capability and only limited marketing capability. As a result, we depend on collaborations with third parties, such as Innovex, Biogen and Fujisawa, which have established distribution systems and direct sales forces. To the extent that we enter into co-promotion or other licensing arrangements, our revenues will depend upon the efforts of third parties, over which we may have little control. For instance, we have entered into a sales and marketing services agreement with Innovex with respect to ranolazine. Innovex will market and sell ranolazine in the United States using a dedicated sales force if and when the FDA approves the marketing of ranolazine. Our successful commercialization of ranolazine depends on Innovex performing their contractual obligations. Similarly, Biogen is responsible for worldwide marketing and sales of any product that results from the AdentriTM program, and Fujisawa is responsible for marketing and sales of CVT-3146 in North America. If we are unable to reach and maintain agreement with one or more pharmaceutical companies or collaborative partners, we may be required to market our products directly. We may elect to establish our own specialized sales force and marketing organization to market our products to cardiologists. In order to do this, we would have to develop a marketing and sales force with technical expertise and with supporting distribution capability. Developing a marketing and sales force is expensive and time consuming and could delay any product launch. We cannot be certain that we will be able to develop this capacity. IF WE ARE UNABLE TO ATTRACT AND RETAIN COLLABORATORS, LICENSORS AND LICENSEES, THE DEVELOPMENT OF OUR PRODUCTS COULD BE DELAYED AND OUR FUTURE CAPITAL REQUIREMENTS COULD INCREASE SUBSTANTIALLY. We may not be able to retain current or attract new corporate and academic collaborators, licensors, licensees and others. Our business strategy requires us to enter into various arrangements with these parties, and we are dependent upon the success of these parties in performing their obligations. If we fail to obtain and maintain these arrangements, the development of our products would be delayed. We may be unable to proceed with the development, manufacture or sale of products or we might have to fund development of a particular product candidate internally. If we have to fund the development and commercialization of all of our products internally, our future capital requirements will increase substantially. The collaborative arrangements that we may enter into in the future may place responsibility on the collaborative partner for preclinical testing and clinical trials, manufacturing and preparation and submission of applications for regulatory approval of potential pharmaceutical products. We cannot control the amount and timing of resources which our collaborative partners devote to our programs. If a collaborative partner fails to successfully develop or commercialize any product, product launch would be delayed. In addition, our collaborators may pursue competing technologies or product candidates. Under our collaborative arrangements, we or our collaborative partners may also have to meet performance milestones. If we fail to meet our obligations under our collaborative arrangements, our collaborators could terminate their arrangements or we could lose our rights to the compounds under development. For example, under our agreement with Innovex, we are required to launch the product by a specific date. If we fail to reach this milestone, Innovex will no longer be obligated to provide sales and marketing services for ranolazine. Under our agreement with Biogen, in order for us to receive development milestone payments, Biogen must meet development milestones. Under our license agreement with Syntex for ranolazine, we are required to use commercially reasonable efforts to develop and commercialize ranolazine for angina, and have related milestone payment obligations. Under our agreement with Fujisawa, we are responsible for development activities and must meet development milestones in order to receive development milestone payments. In addition, collaborative arrangements in our industry are extremely complex, particularly with respect to intellectual property rights. Disputes may 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 us and our collaborators could lead to delays in the collaborative research, development or commercialization of product candidates. These disputes could also result in litigation or arbitration, which is time consuming and expensive. WE EXPECT TO CONTINUE TO OPERATE AT A LOSS AND MAY NEVER ACHIEVE PROFITABILITY. We cannot be certain that we will ever achieve and sustain profitability. Since our inception, we have been engaged in research and development activities. We have generated no product revenues. As of December 31, 2001, we had an accumulated deficit of $210.8 million. The process of developing our products requires significant additional research and development, preclinical testing and clinical trials, as well as regulatory approvals. These activities, together with our general and administrative expenses, are expected to result in operating losses for the foreseeable future. IF WE ARE UNABLE TO SECURE ADDITIONAL FINANCING, WE MAY BE UNABLE TO COMPLETE OUR RESEARCH AND DEVELOPMENT ACTIVITIES OR COMMERCIALIZE ANY PRODUCTS. We may require substantial additional funding in order to complete our research and development activities and commercialize any of our products. In the past, we have financed our operations primarily through the sale of equity and debt securities, payments from our collaborators, equipment and leasehold improvement financing and other debt financing. We have generated no product revenue and do not expect to for at least several years. We anticipate that our existing resources and projected interest income will enable us to maintain our current and planned operations for at least the next 24 months. However, we may require additional funding prior to that time. Additional financing may not be available on acceptable terms or at all. If we are unable to raise additional funds, we may, among other things: * have to delay, scale back or eliminate some or all of our research or development programs; * lose rights under existing licenses; * have to relinquish more of, or all of, our rights to product candidates at an earlier stage of development or on less favorable terms than we would otherwise seek; and * be unable to operate as a going concern. Our future capital requirements will depend on many factors, including: * scientific progress in our research and development programs; * the size and complexity of our programs; * the timing, scope and results of preclinical studies and clinical trials; * our ability 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; and * the cost of manufacturing or obtaining preclinical and clinical material. If additional funds are raised by issuing equity securities, substantial dilution to existing stockholders may result. There may be additional factors that could affect our need for additional financing. Many of these factors are not within our control. IF WE ARE UNABLE TO COMPETE SUCCESSFULLY IN OUR MARKET, IT WILL HARM OUR BUSINESS. The pharmaceutical and biopharmaceutical industries, and the market for cardiovascular drugs in particular, are intensely competitive. If our products receive marketing approvals, they will often compete with well-established, proprietary and generic cardiovascular therapies that have generated substantial sales over a number of years. Many of these therapies are reimbursed from government health administration authorities and private health insurers. In addition, we are aware of companies which are developing products that may compete in the same markets as our products. Many of these potential competitors have substantially greater product development capabilities and financial, scientific, marketing and sales resources. Other companies may succeed in developing products earlier or obtain approvals from the FDA more rapidly than either we or our corporate partners are able to achieve. Competitors may also develop products that are safer or more effective than those under development or proposed to be developed by us and our corporate partners. In addition, research and development by others could render our technology or our products obsolete or non-competitive. IF WE ARE UNABLE TO EFFECTIVELY PROTECT OUR INTELLECTUAL PROPERTY, WE MAY BE UNABLE TO COMPLETE DEVELOPMENT OF ANY PRODUCTS AND WE MAY BE PUT AT A COMPETITIVE DISADVANTAGE; AND IF WE ARE INVOLVED IN AN INTELLECTUAL PROPERTY RIGHTS DISPUTE, WE MAY NOT PREVAIL AND MAY BE SUBJECT TO SIGNIFICANT LIABILITIES OR REQUIRED TO LICENSE RIGHTS FROM A THIRD PARTY. Our success will depend to a significant degree on our ability to: * obtain patents and licenses to patent rights; * maintain trade secrets; and * operate without infringing on the proprietary rights of others. In 2001, we received an issued patent from the U.S. Patent and Trademark Office for a method of using ranolazine sustained release formulations, including the formulation used in the MARISA and CARISA trials, for the treatment of chronic angina. However, in general we cannot be certain that patents will issue from any of our pending or future patent applications, that any issued patent will not be lost through an interference or opposition proceeding, reexamination request, infringement litigation or otherwise, that any issued patent will be sufficient to protect our technology and investments, or that we will be able to obtain extensions of patents beyond the initial term. Although United States patent applications are now published 18 months after their filing date, as provided by federal legislation enacted in 1999, this statutory change applies only to applications filed on or after November 29, 2000. Applications filed in the United States prior to this date are maintained in secrecy until a patent issues. As a result, we can never be certain that others have not filed patent applications for technology covered by our pending applications or that we were the first to invent the technology. There may be third party patents, patent applications and other intellectual property relevant to our products and technology which are not known to us and that block or compete with our compounds, products or processes. 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 ours. We may have to participate in interference proceedings declared by the Patent and Trademark Office. These proceedings determine the priority of invention and, thus, the right to a patent for the technology in the United States. In addition, litigation may be necessary to enforce any patents issued to us or to determine the scope and validity of the proprietary rights of third parties. Litigation and interference proceedings, even if they are successful, are expensive to pursue, and we could use a substantial amount of our limited financial resources in either case. Just as it is important to protect our proprietary rights, we also must not infringe patents issued to competitors or breach the licenses that might cover technology used in our potential products. If our competitors own or have rights to technology that we need in our product development efforts, we will need to obtain a license to those rights. We cannot assure you that we will be able to obtain such licenses on economically reasonable terms. If we fail to obtain any necessary licenses, we may be unable to complete product development. We also rely on trade secrets to develop and maintain our competitive position. Although we protect our proprietary technology in part by confidentiality agreements with employees, consultants, collaborators, advisors and corporate partners, these agreements may be breached. We cannot assure you that the parties to these agreements will not breach them or that these agreements will provide meaningful protection or adequate remedies in the event of unauthorized use or disclosure of our proprietary technology. In that event, we may not have adequate remedies for any breach. As a result, third parties may gain access to our trade secrets, and our trade secrets and confidential technology may become public. In addition, it is possible that our trade secrets will otherwise become known or be discovered independently by our competitors. Patent litigation is widespread in the biopharmaceutical industry. Although no third party has asserted a claim of infringement against us, we cannot assure you that third parties will not assert patent or other intellectual property infringement claims against us with respect to our products or technology or other matters. If they do, we may not prevail and, as a result, may be subject to significant liabilities to third parties or may be required to license the disputed rights from the third parties or cease using the technology. We may not be able to obtain any necessary licenses on reasonable terms, if at all. Any such claims against us, with or without merit, as well as claims initiated by us against third parties, can be time-consuming and expensive to defend or prosecute. WE HAVE NO MANUFACTURING EXPERIENCE AND WILL DEPEND ON THIRD PARTIES TO MANUFACTURE OUR PRODUCTS. We do not currently operate manufacturing facilities for clinical or commercial production of our products under development. We have no experience in manufacturing and currently lack the resources or capability to manufacture any of our products on a clinical or commercial scale. As a result, we are dependent on corporate partners, licensees or other third parties for the manufacturing of clinical and commercial scale quantities of our products. For example, we have entered into agreements with third party manufacturers for clinical scale production of ranolazine's active pharmaceutical ingredient and for ranolazine tableting, which we believe are sufficient to support the remainder of the clinical program to support filing of an NDA for ranolazine for chronic angina. In addition, we have entered into several other manufacturing agreements relating to ranolazine, including for commercial scale or scale-up of bulk active pharmaceutical ingredient, tableting, and supply of a raw material component of the product. However, the commercial launch of ranolazine is dependent on these third party arrangements, and could be affected by delays or difficulties in performance. In addition, because we have used different manufacturers for ranolazine in different clinical trials and for potential commercial supply prior to FDA approval of ranolazine, in order to obtain marketing approval we will be required to demonstrate to the FDA's satisfaction the bioequivalence of the multiple sources of ranolazine used in our clinical trials and their bioequivalence to the product to be commercially supplied. An unfavorable regulatory interpretation by the FDA could delay potential approval. FAILURE TO OBTAIN ADEQUATE REIMBURSEMENT FROM GOVERNMENT HEALTH ADMINISTRATION AUTHORITIES, PRIVATE HEALTH INSURERS AND OTHER ORGANIZATIONS COULD MATERIALLY ADVERSELY AFFECT OUR FUTURE BUSINESS, RESULTS OF OPERATIONS AND FINANCIAL CONDITION. Our ability and the ability of our existing and future corporate partners to market and sell our products will depend in part on the extent to which reimbursement for the cost of our 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 our products in Europe, we will be required to seek reimbursement on a country-by-country basis. We cannot be certain that any products approved for marketing will be considered cost effective or that reimbursement will be available or that allowed reimbursement in foreign countries will be adequate. In addition, payors' reimbursement policies could adversely affect our or any corporate partner's ability to sell our products on a profitable basis. OUR BUSINESS DEPENDS ON CERTAIN KEY EXECUTIVES, THE LOSS OF WHOM COULD WEAKEN OUR MANAGEMENT TEAM, AND ON ATTRACTING AND RETAINING QUALIFIED PERSONNEL. The growth of our business and success depends in large part on our ability to attract and retain key management, technical, sales and marketing and other operating personnel. We cannot assure you that we will be able to attract and retain the qualified personnel or develop the expertise in these areas as needed for our business. Although we have entered into executive severance agreements with certain executives, we have not entered into any employment agreements with key executives. The loss of the services of one or more members of these groups or the inability to attract and retain additional personnel and develop expertise as needed could limit our ability to develop and commercialize our existing drugs and future drug candidates. Such persons are in high demand and often receive competing employment offers. OUR OPERATIONS INVOLVE HAZARDOUS MATERIALS, WHICH COULD SUBJECT US TO SIGNIFICANT LIABILITY. Our research and development activities involve the controlled use of hazardous materials, including hazardous chemicals, radioactive materials and pathogens, and the generation of waste products. Accordingly, we are subject to federal, state and local laws governing the use, handling and disposal of these materials. We may have to incur significant costs to comply with additional environmental and health and safety regulations in the future. Although we believe that our safety procedures for handling and disposing of hazardous materials comply with regulatory requirements, we cannot eliminate the risk of accidental contamination or injury from these materials. In the event of an accident or environmental discharge, we may be held liable for any resulting damages, which may exceed our financial resources and may materially adversely affect our business, financial condition and results of operations. Although we believe that we are in compliance in all material respects with applicable environmental laws and regulations, there can be no assurance that we will not be required to incur significant costs to comply with environmental laws and regulations in the future. There can also be no assurance that our operations, business or assets will not be materially adversely affected by current or future environmental laws or regulations. WE MAY BE SUBJECT TO PRODUCT LIABILITY CLAIMS IF OUR PRODUCTS HARM PEOPLE, AND WE HAVE ONLY LIMITED PRODUCT LIABILITY INSURANCE. The manufacture and sale of human therapeutic products involve an inherent risk of product liability claims and associated adverse publicity. We currently have only limited product liability insurance for clinical trials and no commercial product liability insurance. We do not know if we will be able to maintain existing or obtain additional product liability insurance on acceptable terms or with adequate coverage against potential liabilities. This type of insurance is expensive and may not be available on acceptable terms. If we are unable to obtain or maintain sufficient insurance coverage on reasonable terms or to otherwise protect against potential product liability claims, we may be unable to commercialize our products. A successful product liability claim brought against us in excess of our insurance coverage, if any, may require us to pay substantial amounts. This could adversely affect our results of operations and our need for and the timing of additional financing. IF THE MARKET PRICE OF OUR STOCK CONTINUES TO BE HIGHLY VOLATILE, THE VALUE OF YOUR INVESTMENT IN OUR COMMON STOCK MAY DECLINE. Within the last 12 months, our common stock has traded between $23.75 and $60.85. The market price of the shares of common stock for our company has been and may continue to be highly volatile. Announcements may have a significant impact on the market price of our common stock. These announcements may include: * results of our clinical trials and preclinical studies, or those of our corporate partners or our competitors; * our operating results; * developments in our relationships with corporate partners; * developments affecting our corporate partners; * negative regulatory action or regulatory approval with respect to our announcement or our competitors' announcement of new products; * government regulations, reimbursement changes and governmental investigations or audits related to us or to our products; * developments related to our patents or other proprietary rights or those of our competitors; * changes in the position of securities analysts with respect to our stock; * operating results below the expectations of public market analysts and investors ; and * market conditions for biopharmaceutical or biotechnology stocks in general. The stock market has from time to time experienced extreme price and volume fluctuations, which have particularly affected the market prices for emerging biotechnology and biopharmaceutical companies, and which have often been unrelated to their operating performance. These broad market fluctuations may adversely affect the market price of our common stock. In addition, sales of substantial amounts of our common stock in the public market could lower the market price of our common stock. PROVISIONS OF DELAWARE LAW AND IN OUR CHARTER, BY-LAWS AND OUR RIGHTS PLAN MAY PREVENT OR FRUSTRATE ANY ATTEMPT BY OUR STOCKHOLDERS TO REPLACE OR REMOVE OUR CURRENT MANAGEMENT AND MAY MAKE THE ACQUISITION OF OUR COMPANY BY ANOTHER COMPANY MORE DIFFICULT. In February 1999, our board of directors adopted a stockholder rights plan and authorized executive severance benefit agreements in the event of a change of control for key executives, into which severance agreements we have subsequently entered. The board of directors amended the stockholders rights plan in July 2000 to lower the triggering ownership percentage and increase the exercise price. Our rights plan and these agreements may delay or prevent a change in our current management team and may render more difficult an unsolicited merger or tender offer. The following provisions of our Amended and Restated Certificate of Incorporation, as amended, and our by-laws, may have the effects of delaying or preventing a change in our current management and making the acquisition of our company by a third party more difficult: our board of directors is divided into three classes with approximately one third of the directors to be elected each year, necessitating the successful completion of two proxy contests in order for a change in control of the board to be effected; any action required or permitted to be taken by our stockholders must be effected at a duly called annual or special meeting of the stockholders and may not be effected by a consent in writing; advance written notice is required for a stockholder to nominate a person for election to the board of directors and for a stockholder to present a proposal at any stockholder meeting; directors may be removed only for cause by a vote of a majority of the stockholders and vacancies on the board of directors may only be filled by a majority of the directors in office. In addition, our board of directors has the authority to issue up to 5,000,000 shares of preferred stock without stockholders' approval, which also could make it more difficult for stockholders to replace or remove our current management and for another company to acquire us. We are subject to the provisions of Section 203 of the Delaware General Corporation Law, an anti-takeover law, which could delay a merger, tender offer or proxy contest or make a similar transaction more difficult. 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. IF SHARES OF COMMON STOCK ARE SOLD IN OUR EQUITY LINE OF CREDIT ARRANGEMENT, EXISTING COMMON STOCKHOLDERS WILL EXPERIENCE IMMEDIATE DILUTION AND, AS A RESULT, OUR STOCK PRICE MAY GO DOWN. We have entered into a common stock purchase agreement with Acqua Wellington North American Equities Fund, Ltd. pursuant to which Acqua Wellington may purchase shares of our common stock at a discount between 4.0% and 6.0%, to be determined based on our market capitalization at the start of the draw-down period, unless we agree with Acqua Wellington to a different discount. As a result, our existing common stockholders will experience immediate dilution upon the purchase of any shares of our common stock by Acqua Wellington. The purchase agreement with Acqua Wellington provides that, at our request, Acqua Wellington will purchase a certain dollar amount of shares, with the exact number of shares to be determined based on the per share market price of our common stock over the draw-down period for such purchase. As a result, if the per share market price of our common stock declines over the draw-down period, Acqua Wellington will receive a greater number of shares for its purchase price, thereby resulting in further dilution to our stockholders and potential downward pressure of the price of our stock. ITEM 2. PROPERTIES We currently lease two buildings in Palo Alto, California. The first building has 61,081 square feet and a lease with an initial term that expires in April 2012 with an option to renew for thirteen years. In November and December 2000, we entered into two lease agreements for the second building, which has 73,172 square feet. The first of these two agreements is a sublease with a term that expires in February 2005. The second agreement is with the master landlord and has a term from March 2005 through April 2012. Both buildings are used for general administration, research and development. We believe that these facilities will be adequate to meet our needs through 2002. We are currently investigating additional properties to meet our needs beyond this period. ITEM 3. LEGAL PROCEEDINGS We are not a party to any material pending legal proceedings. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS None. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS MARKET INFORMATION Our common stock trades on the Nasdaq National Market under the symbol "CVTX". The following table sets forth, for the periods indicated, the high and low price per share of the common stock on the Nasdaq National Market.
High Low --------- --------- Fiscal Year Ended December 31, 1999 First Quarter ended March 31, 1999 $ 7.250 $ 3.688 Second Quarter ended June 30, 1999 $ 6.375 $ 4.000 Third Quarter ended September 30, 1999 $ 21.000 $ 5.375 Fourth Quarter ended December 31, 1999 $ 27.875 $ 10.375 Fiscal Year Ended December 31, 2000 First Quarter ended March 31, 2000 $ 69.000 $ 22.500 Second Quarter ended June 30, 2000 $ 75.625 $ 26.500 Third Quarter ended September 30, 2000 $ 82.750 $ 49.750 Fourth Quarter ended December 31, 2000 $ 93.125 $ 58.875 Fiscal Year Ended December 31, 2001 First Quarter ended March 31, 2001 $ 70.016 $ 21.078 Second Quarter ended June 30, 2001 $ 57.750 $ 23.750 Third Quarter ended September 30, 2001 $ 57.000 $ 36.430 Fourth Quarter ended December 31, 2001 $ 60.850 $ 31.880
On February 28, 2002, the closing price for our common stock was $38.64 per share. As of February 28, 2001, we had approximately 87 holders of record of our common stock. DIVIDENDS We have never declared or paid any cash dividends on our capital stock. We currently intend to retain any future earnings to finance the growth and development of our business and therefore, do not anticipate paying any cash dividends in the foreseeable future. ITEM 6. SELECTED FINANCIAL DATA The data set forth below is not necessarily indicative of the results of future operations and should be read in conjunction with the consolidated financial statements and notes thereto included elsewhere in this document and also with "Management's Discussion and Analysis of Financial Condition and Results of Operations". No dividends were declared or paid for any periods presented.
Year Ended December 31, ------------------------------------------------------------------ 1997 1998 1999 2000 2001 ---------- ---------- ---------- ---------- ---------- (in thousands, except per share data) Statements of Operations Data Revenues: Collaborative research $ 2,578 $ 4,509 $ - $ 3,309 $ 6,762 Operating expenses: Research and development 10,568 14,578 20,342 40,761 81,196 General and administrative 4,169 4,158 4,659 7,601 13,756 ---------- ---------- ---------- ---------- ---------- Total operating expenses 14,737 18,736 25,001 48,362 94,952 ---------- ---------- ---------- ---------- ---------- Loss from operations (12,159) (14,227) (25,001) (45,053) (88,190) Interest income 1,760 2,749 2,795 15,785 19,184 Interest expense (875) (759) (892) (8,993) (10,464) Other expense, net (51) (365) (24) (119) (227) ---------- ---------- ---------- ---------- ---------- Net loss $(11,325) $(12,602) $(23,122) $(38,380) $(79,697) ========== ========== ========== ========== ========== Basic and diluted net loss per share (1) $ (1.58) $ (1.16) $ (1.75) $ (2.06) $ (3.74) ========== ========== ========== ========== ========== Shares used in computing basic and diluted net loss per share (1) 7,157 10,905 13,207 18,664 21,308 ========== ========== ========== ========== ==========
December 31, -------------------------------------------------------------------- 1997 1998 1999 2000 2001 ---------- ---------- ---------- ---------- ---------- (in thousands) Balance Sheet Data Cash, cash equivalents and marketable securities $ 38,090 $ 44,804 $ 91,257 $ 296,193 $ 478,425 Working capital $ 32,904 $ 40,698 $ 88,038 $ 285,590 $ 470,412 Total assets $ 42,644 $ 49,330 $ 96,907 $ 311,633 $ 507,244 Long-term debt $ 5,052 $ 7,838 $ 7,855 $ 197,815 $ 197,036 Accumulated deficit $(56,951) $(69,553) $(92,675) $(131,055) $(210,752) Total stockholders' equity $ 26,557 $ 34,738 $ 82,147 $ 91,782 $ 288,393
______________________ (1) See Note 1 of Notes to Consolidated Financial Statements for a description of the shares used in calculating basic and diluted net loss per share. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) The following table sets forth the quarterly results of operations for the year ended December 31, 2000:
Quarter Quarter Quarter Quarter Ended Ended Ended Ended (in thousands, except per share amounts) Mar. 31 Jun. 30 Sep. 30 Dec. 31 ---------- ---------- ---------- ---------- Revenues: Collaborative research $ - $ 2,000 $ 469 $ 840 Operating expenses: Research and development 6,694 9,346 9,994 14,727 General and administrative 1,532 1,585 2,366 2,118 ---------- ---------- ---------- ---------- Total operating expenses 8,226 10,931 12,360 16,845 ---------- ---------- ---------- ---------- Loss from operations (8,226) (8,931) (11,891) (16,005) Interest income 2,048 4,265 4,513 4,959 Interest expense (894) (2,711) (2,766) (2,622) Other expense, net (11) (6) (9) (93) ---------- ---------- ---------- ---------- Net loss $ (7,083) $ (7,383) $(10,153) $(13,761) ========== ========== ========== ========== Basic and diluted net loss per share $ (0.39) $ (0.40) $ (0.54) $ (0.71) ========== ========== ========== ========== Shares used in computing basic and diluted net loss per share 18,247 18,379 18,667 19,364 ========== ========== ========== ==========
The following table sets forth the quarterly results of operations for the year ended December 31, 2001:
Quarter Quarter Quarter Quarter Ended Ended Ended Ended (in thousands, except per share amounts) Mar. 31 Jun. 30 Sep. 30 Dec. 31 ---------- ---------- ---------- ---------- Revenues: Collaborative research $ 1,818 $ 1,014 $ 2,862 $ 1,068 Operating expenses: Research and development 16,858 19,479 20,502 24,357 General and administrative 2,299 2,927 3,285 5,245 ---------- ---------- ---------- ---------- Total operating expenses 19,157 22,406 23,787 29,602 ---------- ---------- ---------- ---------- Loss from operations (17,339) (21,392) (20,925) (28,534) Interest income 4,916 4,676 4,731 4,861 Interest expense (2,625) (2,618) (2,613) (2,608) Other expense, net (32) (37) (37) (121) ---------- ---------- ---------- ---------- Net loss $(15,080) $(19,371) $(18,844) $(26,402) ========== ========== ========== ========== Basic and diluted net loss per share $ (0.77) $ (0.96) $ (0.85) $ (1.13) ========== ========== ========== ========== Shares used in computing basic and diluted net loss per share 19,653 20,172 22,114 23,290 ========== ========== ========== ==========
ITEM 7. 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 Report contain forward-looking statements which involve risks and uncertainties. Our 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 CV Therapeutics is a biopharmaceutical company engaged in the discovery, development and commercialization of new small molecule drugs for the treatment of cardiovascular diseases. Since our inception in December 1990, substantially all of our resources have been dedicated to research and development. To date, we have not generated any product revenues and do not expect to generate any product revenues for at least several years. As of December 31, 2001, we had an accumulated deficit of $210.8 million. We expect our sources of revenues, if any, to consist of payments under corporate partnerships and interest income until such point that one of our products receives marketing approval. The process of developing our products requires significant additional research and development, preclinical testing and clinical trials, as well as marketing approvals. These activities, together with our general and administrative expenses, are expected to result in substantial operating losses for the foreseeable future. We will not receive product revenues unless and until we or our collaborative partners complete clinical trials, obtain marketing approval, and successfully commercialize one or more of our products. We are subject to risks common to biopharmaceutical companies, including risks inherent in our 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 us and, in some cases, our collaborators, to conduct preclinical tests and clinical trials, demonstrate efficacy and safety of our product candidates, obtain regulatory clearances, enter into manufacturing, distribution and marketing arrangements and obtain market acceptance. We cannot provide assurance that we will generate revenues or achieve and sustain profitability in the future. CRITICAL ACCOUNTING POLICIES AND THE USE OF ESTIMATES We believe the only critical accounting policy which presently involves our more significant judgements and estimates used in the preparation of our consolidated financial statements is our policy regarding revenue recognition. Revenue under our collaborative research arrangements is recognized based on the performance requirements of the contract. Amounts received under such arrangements consist of up-front license and periodic milestone payments. Up-front or milestone payments which are still subject to future performance requirements are recorded as deferred revenue and are amortized over the performance period. The performance period is estimated at the inception of the arrangement and is periodically reevaluated. The reevaluation of the performance period may shorten or lengthen the period during which the deferred revenue is recognized. We evaluate the appropriate period based on research progress attained and events such as changes in the regulatory and competitive environment. Payments received related to substantive, at-risk milestones are recognized upon achievement of the scientific or regulatory event specified in the underlying agreement. Payments received for research activities are recognized as the related research effort is performed. RESULTS OF OPERATIONS Years Ended December 31, 2001 and 2000 Collaborative Research Revenues. Collaborative research revenues were $6.8 million for the year ended December 31, 2001, compared to $3.3 million for the year ended December 31, 2000. The increase was primarily due to greater amortization of up-front payments and reimbursement of certain development costs related to our collaboration with Fujisawa which began in July 2000. Milestones recognized for the year ended December 31, 2001, included $2.0 million from Fujisawa which was earned in conjunction with our initiation of a Phase II clinical trial for CVT-3146, and $1.0 million from Biogen which was earned in conjunction with their initiation of a Phase I oral development program for AdentriTM. Research and Development Expenses. Research and development expenses increased to $81.2 million for the year ended December 31, 2001, compared to $40.8 million for the year ended December 31, 2000. The increase was due to greater external costs associated with our continued development of ranolazine and our other clinical programs in addition to hiring additional employees to provide support for an increased level of activity in our research, development and clinical programs. We expect research and development expenses to continue to increase in the future as we further expand product development efforts and clinical trials. Management categorizes research and development expenditures into amounts related to pre-clinical research and amounts related to clinical development programs. During the year ended December 31, 2001, we allocated approximately 82% of our research and development expenditures, or approximately $66.5 million, on three clinical development programs, listed in rank order of estimated expenditures: ranolazine, CVT-510 (tecadenoson) and CVT-3146. The remaining 18% of our research and development expenditures, or $14.7 million, was spent on pre-clinical research programs. By comparison, during the year December 31, 2000, we allocated approximately 78% of our research and development expenditures, or $31.9 million, on the same three clinical development programs, listed in rank order of estimated expenditures: ranolazine, CVT-510 (tecadenoson) and CVT-3146. The remaining 22% of our research and development expenditures, or $8.9 million, was spent on pre-clinical research programs. The increased allocation of resources to development projects compared to pre-clinical research reflects the increased costs of advancing all three clinical programs into later stage clinical development. According to industry statistics, it generally takes 10 to 15 years to research, develop and bring to market a new prescription medicine in the United States. Drug development in the U.S. is a process that includes multiple steps defined by the FDA under applicable statutes, regulations and guidance documents. After the pre-clinical research process of identifying, selecting and testing in animals a potential pharmaceutical compound, the clinical development process begins with the filing of an Initial Drug Application (or IND). If successful, an IND allows opportunity for clinical study of the potential new medicine. Clinical development typically involves three phases of study: Phase I, II, and III. The most significant costs associated with clinical development are the Phase III trials, which tend to be the longest and largest studies conducted during the drug development process. After the completion of a successful preclinical and clinical development program, a New Drug Application (NDA) must be filed with the FDA, which includes among other things very large amounts of preclinical and clinical data and results and manufacturing-related information necessary to support requested approval of the product. The NDA must be reviewed by the FDA. In light of the steps and complexities involved, the successful development of our products is highly uncertain. Actual product timelines and costs are subject to enormous variability and are very difficult to predict, as our clinical development programs are updated and changed to reflect the most recent clinical and pre-clinical data and other relevant information. In addition, various statutes and regulations also govern or influence the manufacturing, safety reporting, labeling, storage, recordkeeping and marketing of each product. The lengthy process of seeking these regulatory reviews and approvals, and the subsequent compliance with applicable statutes and regulations, require the expenditure of substantial resources. Any failure by us to obtain, or any delay in obtaining, regulatory approvals could materially adversely affect our business. In responding to an NDA submission, the FDA may grant marketing approval, may request additional information, may deny the application if it determines that the application does not provide an adequate basis for approval, and may also refuse to review an application that has been submitted if it determines that the application does not provide an adequate basis for filing and review. We can not assure you that any approval required by the FDA will be obtained on a timely basis, if at all. For additional discussion of the regulatory processes for pharmaceuticals and of risks and uncertainties associated with completing development of potential products, see "Government Regulations", above, and the "Risk Factors" entitled "Our product candidates will take at least several years to develop, and we cannot assure you that we will successfully develop, market and manufacture these products"; "If we are unable to satisfy the regulatory requirements for our clinical trials, we will not be able to commercialize our drug candidates"; "If we are unable to satisfy governmental regulations relating to the development of our drug candidates, we may be unable to obtain or maintain necessary regulatory approvals to commercialize our products"; and "We have no manufacturing experience and will depend on third parties to manufacture our products". General and Administrative Expenses. General and administrative expenses increased to $13.8 million for the year ended December 31, 2001, compared to $7.6 million for the year ended December 31, 2000. The increase was due to fees paid in connection with outside consulting services and additional personnel and facility expenses to support our increased research and development efforts. We expect general and administrative expenses to increase in the future in line with our research, development and commercialization activities. Interest Income. Interest income increased to $19.2 million for the year ended December 31, 2001, compared to $15.8 million for the year ended December 31, 2000. The increase was due to higher average investment balances as the result of the sale of convertible subordinated notes in March 2000 and the proceeds received from our follow-on public offerings in June 2001 and December 2001, offset by lower average interest rates. We expect that interest income will fluctuate with average investment balances and market interest rates. Interest and Other Expense. Interest and other expense increased to $10.7 million for the year ended December 31, 2001, compared to $9.1 million for the year ended December 31, 2000. The increase was due to interest expense related to the convertible subordinated notes issued in March 2000 which equaled $9.3 million in 2001 and $7.6 million in 2000. We expect that interest and other expense will fluctuate with average loan balances. Taxes. We have not generated taxable income to date. At December 31, 2001, the net operating losses potentially available to offset future taxable income for federal and California income tax purposes were approximately $214 million and $40 million, respectively. Because we have experienced ownership changes, future utilization of these carryforwards are likely to be limited in any one fiscal year pursuant to Internal Revenue Code regulations. The federal carryforwards expire at various dates beginning in 2006 through 2021 if not utilized. The California carryforwards expire at various dates beginning in 2002 through 2006 if not utilized. As a result of the annual limitation, a portion of these carryforwards may expire before becoming available to reduce our federal and California income tax liabilities. Years Ended December 31, 2000 and 1999 Collaborative Research Revenues. Collaborative research revenues were $3.3 million for the year ended December 31, 2000, while there were none for the year ended December 31, 1999. The collaborative research revenues for the year ended December 31, 2000 included a $2.0 million milestone payment from our partner, Biogen Inc., which was released in connection with its completion of a Phase II trial of AdentriTM and its decision to continue with the A1 adenosine receptor antagonist program. The remaining revenues relate to our collaboration with Fujisawa Healthcare, Inc. and consisted of both the amortization of up-front payments and the reimbursement of certain development costs. Research and Development Expenses. Research and development expenses increased to $40.8 million for the year ended December 31, 2000, compared to $20.3 million for the year ended December 31, 1999. The increase was primarily due to greater external costs associated with ranolazine and CVT-510 clinical trials, in addition to hiring additional employees to provide support for an increased level of activity in our research, development and clinical programs. General and Administrative Expenses. General and administrative expenses increased to $7.6 million for the year ended December 31, 2000, compared to $4.7 million for the year ended December 31, 1999. The increase was primarily due to greater use of outside consultants for general business matters. Interest Income. Interest income increased to $15.8 million for the year ended December 31, 2000, compared to $2.8 million for the year ended December 31, 1999. The increase was primarily due to higher average investment balances as the result of our follow-on public offering in October 1999 and the sale of convertible subordinated notes in March 2000. Interest and Other Expense. Interest and other expense increased to $9.1 million for the year ended December 31, 2000, compared to $916,000 for the year ended December 31, 1999. The increase was primarily due to interest expense related to the convertible subordinated notes issued in March 2000, which totaled $7.6 million for the year. RECENT ACCOUNTING PRONOUNCEMENTS In July 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 141, "Business Combinations" and SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141 requires that all business combinations be accounted for by the purchase method of accounting and changes the criteria for recognition of intangible assets acquired in a business combination. The provisions of SFAS No. 141 apply to all business combinations initiated after June 30, 2001. We do not expect that the adoption of SFAS No. 141 will have a material effect on our financial position or results of operations. SFAS No. 142 requires that goodwill and intangible assets with indefinite useful lives no longer be amortized; however, these assets must be reviewed at least annually for impairment. Intangible assets with finite useful lives will continue to be amortized over their respective useful lives. The standard also establishes specific guidance for testing for impairment of goodwill and intangible assets with indefinite useful lives. The provisions of SFAS No. 142 will be effective for our fiscal year 2002. We do not expect that the adoption of SFAS No. 142 will have a material effect on our financial statements. In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS No. 144 amends existing accounting guidance on asset impairment and provides a single accounting model for long-lived assets to be disposed of. Among other provisions, the new rules change the criteria for classifying an asset as held-for-sale. The standard also broadens the scope of businesses to be disposed of that qualify for reporting as discontinued operations, and changes the timing of recognizing losses on such operations. The provisions of SFAS No. 144 will be effective for our fiscal year 2002. We do not expect that the adoption of SFAS No. 144 will have a material effect on our financial statements. LIQUIDITY AND CAPITAL RESOURCES We have financed our operations since inception primarily through private placements and public offerings of debt and equity securities, equipment and leasehold improvement financing, other debt financing and payments under corporate collaborations. For at least the next 24 months, operations will be funded from our cash, cash equivalents and marketable securities which totaled $478.4 million as of December 31, 2001. In May 1999, we entered into a sales and marketing services agreement with Innovex Inc. pursuant to which Innovex's parent, Quintiles Transnational Corp., purchased 1,043,705 shares of our common stock for a total investment of $5.0 million. In addition, we entered into two promissory notes with Quintiles. The first promissory note in the amount of $10.0 million may be drawn down by us upon filing an NDA for ranolazine. The second promissory note shall be for an amount to be determined after commercial launch of ranolazine. Both notes are convertible into shares of common stock at the option of Quintiles upon the occurrence of certain events. In October 1999, we completed a follow-on public offering and raised net proceeds of approximately $64.3 million. In March 2000, we entered into a purchase agreement pursuant to which we sold to certain purchasers $196.3 million in aggregate principal amount of convertible subordinated notes. The offering of the notes was made to qualified institutional buyers under Rule 144A of the Securities Act of 1933, as amended. Interest on the notes will accrue at a rate of 4.75% per year, subject to adjustment in certain circumstances. The notes will mature on March 7, 2007 and are convertible into shares of our common stock at a conversion price of $63.84 per share, subject to adjustment in certain circumstances. We may, at our option, redeem the notes at any time after March 7, 2003, or earlier if our stock price reaches certain defined levels. In March 2000, we repaid the initial $3.0 million installment under a general purpose loan facility with Biogen, Inc., bringing the outstanding balance to $4.5 million. In August 2000, we drew down an additional $4.5 million under this Biogen loan facility, bringing the outstanding balance to $9.0 million. In October 2000, we exercised our right to convert $9.0 million in debt from the Biogen loan facility into 118,932 shares of our common stock at a price of $75.67 per share, in full repayment of the entire principal amount under this loan facility. In December 2000, we repaid all accrued and unpaid interest on the loan facility, in full repayment of the loan facility. In July 2000, we entered into a collaboration with Fujisawa to develop and market second generation pharmacologic cardiac stress agents. In connection with the signing of this agreement, we received $10.0 million from Fujisawa consisting of an up-front payment and the purchase of our common stock. In September 2001, we received a $2.0 million milestone payment under this collaboration for initiating a Phase II clinical trial for CVT-3146. In August 2000, we entered into a financing arrangement with Acqua Wellington to purchase up to $120.0 million of our common stock through November 2002 under the terms of a common stock purchase agreement. Under the purchase agreement, as presently amended, we may sell a total of $149.0 million of our common stock to Acqua Wellington through December 2003. The purchase agreement provides that from time to time, in our sole discretion, we may present Acqua Wellington with draw down notices constituting offers to sell our common stock for specified total proceeds over a specified trading period. Once presented with a draw down notice, Acqua Wellington is required to purchase a pro rata portion of shares of our common stock as allocated on each trading day during the trading period on which the daily volume weighted average price for our common stock exceeds a threshold price that we determine and state in the draw down notice. The per share price then equals the daily volume weighted average price on each date during the pricing period, less a 4% to 6% discount (based on our market capitalization). However, if the daily volume weighted average price falls below the threshold price on any day in the pricing period, Acqua Wellington is not required to purchase the pro rata portion of shares allocated to that day, but can elect to buy that pro rata portion of shares at the threshold price less the applicable 4% to 6% discount. Further, if during a draw down pricing period we enter into an agreement with a third party to issue common stock or securities convertible into common stock (excluding, stock or options granted pursuant to our stock option, stock purchase or shareholder rights plans, common stock or warrants issued in connection with licensing agreements and/or collaborative agreements and warrants issued in connection with equipment financings) at a net discount to the then current market price, if we issue common stock with warrants (other than provided in the prior parenthetical), or if we implement a mechanism for the reset of the purchase price of our common stock below the then current market price, then Acqua Wellington can elect to purchase the shares so requested by us in the draw down notice at the price established pursuant to the prior paragraph, to purchase such share at the third party's price, net of discount or fees, or to not purchase our common stock during that draw down pricing period. The purchase agreement also provides that from time to time, in our sole discretion, we may grant Acqua Wellington a right to exercise one or more call options to purchase additional shares of our common stock during a drawn down pricing period, in an amount and for a threshold price that we determine and state in the draw down notice. However, the total call amount for any given draw down cannot exceed a specified maximum amount, and the amount of proceeds we may receive by exercise of a call option for any given trading day is also limited. If Acqua Wellington exercises the call option, we will issue and sell the shares of our common stock subject to the call option at a price equal to the greater of the daily volume weighted average price of our common stock on the day Acqua Wellington exercises its call option, or the threshold price for the call option that we have determined, less a 4% to 6% discount (based on our market capitalization). The combined total value of shares that we may sell to Acqua Wellington through draw downs and call option exercises may not exceed $149.0 million. As of December 31, 2001, we have issued 1,161,873 shares representing $59.0 million under this arrangement. In June 2001, we sold 2,020,203 shares of our common stock in an underwritten public offering at a price to the public of $49.50 per share pursuant to a prospectus supplement under a shelf registration statement. We intend to use the net proceeds of approximately $95.9 million for general corporate purposes, which may include funding research, development and product manufacturing, increasing our working capital, reducing indebtedness, acquisitions or investments in businesses, products or technologies that are complementary to our own, and capital expenditures. In December 2001, we sold 2,875,000 shares of our common stock in an underwritten public offering at a price to the public of $52.50 per share pursuant to a prospectus supplement under a shelf registration statement. We intend to use the net proceeds of approximately $143.3 million for general corporate purposes, which may include funding research, development and product manufacturing, development of clinical trials, preparation and filing of a new drug application, product commercialization, increasing our working capital, reducing indebtedness, acquisitions or investments in businesses, products or technologies that are complementary to our own, and capital expenditures. Cash, cash equivalents and marketable securities at December 31, 2001 totaled $478.4 million compared to $296.2 million at December 31, 2000. The increase was due to raising $239.2 million from the follow-on public offerings and $29.0 million from Acqua Wellington, partially offset by utilizing $81.0 million to fund operations and $11.9 million for capital expenditures. Net cash used in operations for the year ended December 31, 2001 was $81.0 million compared to $24.3 million for the year ended December 31, 2000. The increase was primarily due to increased research and development efforts. As of December 31, 2001, we have invested $21.5 million in property and equipment with the rate of investment having increased as we expand our facilities and in line with increased research and development efforts. We expect to continue to make investments in property and equipment to support our growth. We may require substantial additional funding in order to complete our research and development activities and commercialize any potential products. We currently estimate that our existing resources and projected interest income, including the proceeds from our offering of convertible subordinated notes and recently completed common stock financings, will enable us to maintain our current and planned operations for at least the next 24 months. However, we cannot assure you that we will not require additional funding prior to then or that additional financing will be available on acceptable terms or at all. Our future capital requirements will depend on many factors, including scientific progress in our research and development programs, the size and complexity of these programs, the scope and results of preclinical studies and clinical trials, our ability 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 our control. We cannot guarantee that the additional financing to meet our capital requirements will be available on acceptable terms or at all. Insufficient funds may require us to delay, scale back or eliminate some or all of our 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 we would otherwise choose or may adversely affect our ability to operate as a going concern. If additional funds are raised by issuing equity securities, substantial dilution to existing stockholders may result. CONTRACTUAL OBLIGATIONS AND SIGNIFICANT COMMERCIAL COMMITMENTS The following summarizes our contractual obligations for the years ended December 31, 2002 through December 31, 2006 and thereafter:
2002 2003 2004 2005 2006 Thereafter Total -------- -------- -------- -------- -------- --------- --------- (in thousands) Convertible subordinated notes $ 9,322 $ 9,322 $ 9,322 $ 9,322 $ 9,322 $197,959 $244,569 Capital leases 885 448 410 - - - 1,743 Operating leases 10,928 11,918 12,298 9,795 13,256 76,019 134,214 -------- -------- -------- -------- -------- --------- --------- $21,135 $21,688 $22,030 $19,117 $22,578 $273,978 $380,526 ======== ======== ======== ======== ======== ========= =========
Our other material commitments relate to our license agreement with Syntex. Under the license agreement, we paid an initial license fee. In addition, we are obligated to make certain milestone payments to Syntex, upon receipt of the first and second product approvals for ranolazine in any of certain major market countries (consisting of France, Germany, Italy, the United States and the United Kingdom). Unless the agreement is terminated, if the first product approval in one of the major market countries occurs before May 1, 2002, we will pay Syntex, on or before March 31, 2005, $7.0 million plus interest accrued thereon from the date of approval until the date of payment, and if the first such product approval occurs after May 1, 2002, we will pay Syntex, on or before March 31, 2005, $7.0 million plus interest accrued thereon from May 1, 2002 until the date of payment. Unless the agreement is terminated, if the second product approval in one of the major market countries occurs before May 1, 2004, we will pay Syntex, on or before March 31, 2006, $7.0 million plus interest accrued thereon from the date of approval until the date of payment, and if the second such product approval occurs after May 1, 2004 but before March 31, 2006, we will pay Syntex, on or before March 31, 2006, $7.0 million plus interest accrued thereon from May 1, 2004 until the date of payment. Unless the agreement is terminated, if the second product approval in one of the major market countries has not occurred by March 31, 2006, we will pay Syntex $3.0 million on or before March 31, 2006, and if we receive the second product approval after March 31, 2006, we will pay Syntex $4.0 million within thirty (30) days after the date of such second product approval. No amounts have been accrued to date in relation to these milestones. In addition, we will make royalty payments based on net sales of products that utilize the licensed technology. We are required to use commercially reasonable efforts to develop and commercialize the product for angina. We or Syntex may terminate the license agreement for material uncured breach, and we have the right to terminate the license agreement at any time on 120 days notice if we decide not to continue to develop and commercialize ranolazine. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Our exposure to market rate risk for changes in interest rates relates primarily to our investment portfolio and our long-term debt. We do not use derivative financial instruments in our investment portfolio. We place our investments with high quality issuers and, by policy, limit the amount of credit exposure to any one issuer. We are averse to principal loss and ensure the safety and preservation of our invested funds by limiting default, market and reinvestment risk. We classify our cash equivalents and marketable securities as "fixed-rate" if the rate of return on such instruments remains fixed over their term. These "fixed-rate" investments include U.S. government securities, commercial paper, asset backed securities, corporate bonds, and foreign bonds. Fixed-rate securities may have their fair market value adversely affected due to a rise in interest rates and we may suffer losses in principal if forced to sell securities that have declined in market value due to a change in interest rates. We classify our cash equivalents and marketable securities as "variable-rate" if the rate of return on such investments varies based on the change in a predetermined index or set of indices during their term. These "variable-rate" investments primarily included money market accounts. Our long-term debt includes $196,250,000 of 4.75% convertible subordinated notes due March 7, 2007. Interest on the notes is fixed and payable semi-annually on March 7th and September 7th each year. The notes are convertible into shares of our common stock at any time prior to maturity, unless previously redeemed or repurchased, subject to adjustment in certain events. The market value of our long-term-debt will fluctuate with movements of interest rates and with movements in the value of our common stock. The table below presents the amounts and related average interest rates of our investment portfolio and our long-term debt:
Average Market ($ in thousands) Interest Rate Value ------------- ---------- Cash equivalents: Variable rate 2.22% $ 50,901 Fixed rate 1.82% $ 29,968 Marketable securities: Fixed rate (mature in 2002) 5.58% $ 98,311 Fixed rate (mature in 2003) 5.34% $238,478 Fixed rate (mature in 2004) 4.63% $ 60,725 Long-term debt: Subordinated convertible notes (mature in 2007) 4.75% $204,740
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Our Financial Statements and notes thereto appear beginning on page F-1 of this Report. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Information required by this item, insofar as it relates to directors and officers, will be contained under the captions "Election of Directors", "Management" and "Compliance with Section 16(a) of the Securities Exchange Act of 1934" in the Company's definitive proxy statement with respect to the Company's 2001 Annual Meeting of Stockholders (the "Proxy Statement"), which we anticipate will be filed no later than 120 days after the end of our fiscal year pursuant to Regulation 14A, and is hereby incorporated by reference thereto. ITEM 11. EXECUTIVE COMPENSATION The information required by this item will be contained in the Proxy Statement, which we anticipate will be filed no later than 120 days after the end of our fiscal year pursuant to Regulation 14A, under the caption "Executive Compensation", and is hereby incorporated by reference thereto. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this item will be contained in the Proxy Statement, which we anticipate will be filed no later than 120 days after the end of our fiscal year pursuant to Regulation 14A, under the caption "Security Ownership of Certain Beneficial Owners and Management", and is hereby incorporated by reference thereto. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this item will be contained in the Proxy Statement, which we anticipate will be filed no later than 120 days after the end of our fiscal year pursuant to Regulation 14A, under the caption "Security Ownership of Certain Beneficial Owners and Management", and is hereby incorporated by reference thereto. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a)(1) Index to Financial Statements and Report of Ernst &Young LLP, Independent Auditors The Consolidated Financial Statements required by this item are submitted in a separate section beginning on page F-1 of this report. PAGE Report of Ernst & Young LLP, Independent Auditors F-1 Consolidated Balance Sheets F-2 Consolidated Statements of Operations F-3 Consolidated Statement of Stockholders' Equity F-4 Consolidated Statements of Cash Flows F-5 Notes to Consolidated Financial Statements F-6 (a)(2) Index to Financial Statements Schedules All financial statement schedules are omitted because they are not applicable, or the information is included in the financial statements or notes thereto. (a)(3) Exhibits EXHIBIT NUMBER 3.1 Amended and Restated Certificate of Incorporation of the Registrant, incorporated by reference to Exhibit 3.1 filed with the Registrant's Annual Report on Form 10-K, for the year ended December 31, 1999. 3.2 Amendment No. 1 to the Amended and Restated Certificate of Incorporation, incorporated by reference to Exhibit 4.2 filed with the Registrant's Registration Statement on Form S-3 No. 333-53206. 3.3 Restated Bylaws of the Registrant, incorporated by reference to Exhibit 3.5 filed with the Registrant's Registration Statement on form S-1, No 333-12675, as amended. 10.1* 1992 Stock Option Plan, as amended, incorporated by reference to Exhibit 10.1 filed with the Registrant's Registration Statement on Form S-1, No 333-12675, as amended. 10.2* 1994 Equity Incentive Plan, as amended, incorporated by reference to Exhibit 10.46 filed with the Registrant's Statement of Form S-8 No. 333-44717. 10.3 Non-Employee Directors' Stock Option Plan, as amended. 10.4* Form of Incentive Stock Option Grant, incorporated by reference to Exhibit 10.4 filed with the Registrant's Registration Statement on Form S-1, No 333-12675, as amended. 10.5* Form of Non-Incentive Stock Option Grant, incorporated by reference to Exhibit 10.5 filed with the Registrant's Registration Statement on Form S-1, No 333-12675, as amended. 10.6 Form of Non-Statutory Stock Option Grant under Non-Employee Directors' Stock Option Plan, incorporated by reference to Exhibit 99.6 filed with the Registrant's Registration Statement on Form S-8, No 333-19389. EXHIBIT NUMBER 10.7* Employee Stock Purchase Plan, as amended, incorporated by reference to Exhibit 10.7 filed with the Registrant's Annual Report on Form 10-K, for the year ended December 31, 2000. 10.8* Amended and Restated Promissory Note for $500,000 between Registrant and Louis G. Lange, M.D., Ph.D., effective as of September 23, 1996, incorporated by reference to Exhibit 10.7 filed with the Registrant's Amendment No. 3 to Registration Statement on Form S-1, No 333-12675, as amended. 10.9* Amended and Restated Promissory Note for $37,500 between Registrant and Louis G. Lange, M.D., Ph.D., effective as of September 23, 1996, incorporated by reference to Exhibit 10.26 filed with the Registrant's Amendment No 3 to Registration Statement on Form S-1, No. 333-12675, as amended. 10.10* Amended and Restated Promissory Note for $25,000 between Registrant and Louis G. Lange, M.D., Ph.D., effective as of September 23, 1996, incorporated by reference to Exhibit 10.27 filed with the Registrant's Amendment No. 3 to Registration Statement on Form S-1, No 333-12675, as amended. 10.11* Amended and Restated Promissory Note for $25,000 between Registrant and Louis G. Lange, M.D., Ph.D., effective as of September 23, 1996, incorporated by reference to Exhibit 10.28 filed with the Registrant's Amendment No 3 to Registration Statement on Form S-1, No. 333-12675, as amended. 10.12* Form of Indemnification Agreement between Registrant and its directors and officers, incorporated by reference to Exhibit 10.10 filed with the Registrant's Registration Statement on Form S-1, No. 333-12675, as amended. 10.13 Amended and Restated Investor Rights Agreement between Registrant and the stockholders named therein, dated May 29, 1996, incorporated by reference to Exhibit 10.11 filed with the Registrant's Registration Statement on Form S-1, No. 333-12675, as amended. 10.14** License Agreement between Registrant and University of Florida Research Foundation, Inc., dated June 7, 1994, incorporated by reference to Exhibit 10.21 filed with the Registrant's Registration Statement on Form S-1, No. 333-12675, as amended. 10.15** Research Agreement between Registrant and University of Florida, dated June 27, 1994, incorporated by reference to Exhibit 10.22 filed with the Registrant's Registration Statement on Form S-1, No 333-12675, as amended. 10.16** License Agreement between Registrant and Syntex (U.S.A.) Inc., dated March 27,1996, incorporated by reference to Exhibit 10.25 to Amendment No. 2 to Registrant's Statement No 333-59318, as amended. 10.17 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, incorporated by reference to Exhibit 10.25 filed with the Registrant's Registration Statement on Form S-1, No. 333-12675, as amended. 10.18** Research Collaboration and License Agreement (U.S.) between the Registrant and Biogen, Inc., dated March 7, 1997, incorporated by reference to Exhibit 10.39 filed with the Registrant's Quarterly Report on Form 10-Q, for the First Quarter 1997. 10.19** Research Collaboration and License Agreement (Europe) between the Registrant and Biogen Manufacturing Ltd., dated March 7, 1997, incorporated by reference to Exhibit 10.40 filed with the Registrant's Quarterly Report on Form 10-Q, for the First Quarter 1997. EXHIBIT NUMBER 10.20 Common Stock Purchase Agreement between the Registrant and Biotech Manufacturing Ltd., dated March 7, 1997. 10.21 Loan Agreement between the Registrant and Biotech Manufacturing Ltd., dated March 7, 1997. 10.22** Letter Agreement, dated March 7, 1997, between the Registrant and the University of Florida Research Foundation, Inc., incorporated by reference to Exhibit 10.43 filed with the Registrant's Quarterly Report on Form 10-Q, for the Second Quarter 1997. 10.23** First amendment to License Agreement, effective as of July 3, 1997, between the Registrant and Syntex (U.S.A.), Inc., incorporated by reference to Exhibit 10.32 to Amendment No. 2 to Registration Statement No. 333-59318. 10.24 Common Stock Purchase Agreement, dated October 7, 1997, between the Registrant and Biotech Target S.A., incorporated by reference to Exhibit 10.45 filed with the Registrant's Quarterly Report on Form 10-Q, for the Third Quarter 1997. 10.25 Transition Agreement between the Registrant and Kathy Stafford dated September 15, 1997, incorporated by reference to Exhibit 10.47 filed with the Registrant's Quarterly Report on Form 10-Q, for the Third Quarter 1997. 10.26 Amendment to Research Collaboration and License Agreement (U.S.), dated June 12, 1998, between the Registrant and Biogen, Inc., incorporated by reference to Exhibit 10.54 filed with the Registrant's Quarterly Report on Form 10-Q, for the Second Quarter 1998. 10.27 Amendment No. 1 to Loan Agreement, dated as of June 12, 1998, between the Registrant and Biotech Manufacturing Ltd., incorporated by reference to Exhibit 10.55 filed with the Registrant's Quarterly Report on Form 10-Q, for the Second Quarter 1998. 10.28** Letter agreement regarding termination of research program of the Research Collaboration and License Agreement, dated June 12, 1998, between the Registrant and Biogen, Inc., incorporated by reference to Exhibit 10.56 filed with the Registrant's Quarterly Report on Form 10-Q, for the Second Quarter 1998. 10.29* Executive Severance Benefits Agreement between the Registrant and Louis G. Lange, M.D., Ph.D., dated February 2, 1999, incorporated by reference to Exhibit 10.57 filed with the Registrant's Quarterly Report on Form 10-Q, for the First Quarter 1999. 10.30* Executive Severance Benefits Agreement between the Registrant and Daniel K. Spiegelman, dated February 2, 1999, incorporated by reference to Exhibit 10.58 filed with the Registrant's Quarterly Report on Form 10-Q, for the First Quarter 1999. 10.31* Executive Severance Benefits Agreement between the Registrant and Andrew A. Wolff, M.D., dated February 2, 1999, incorporated by reference to Exhibit 10.59 filed with the Registrant's Quarterly Report on Form 10-Q, for the First Quarter 1999. 10.32* Executive Severance Benefits Agreement between the Registrant and Cynthia L. Clark, Esq., dated February 2, 1999, incorporated by reference to Exhibit 10.60 filed with the Registrant's Quarterly Report on Form 10-Q, for the First Quarter 1999. 10.33* Executive Severance Benefits Agreement between the Registrant and Brent K. Blackburn, Ph.D., dated February 2, 1999, incorporated by reference to Exhibit 10.61 filed with the Registrant's Quarterly Report on Form 10-Q, for the First Quarter 1999. 10.34* Executive Severance Benefits Agreement between the Registrant and Richard M. Lawn, Ph.D., dated February 2, 1999, incorporated by reference to Exhibit 10.62 filed with the Registrant's Quarterly Report on Form 10-Q, for the First Quarter 1999. EXHIBIT NUMBER 10.35* Executive Severance Benefits Agreement between the Registrant and Luiz Belardinelli, M.D., dated February 2, 1999, incorporated by reference to Exhibit 10.63 filed with the Registrant's Quarterly Report on Form 10-Q, for the First Quarter 1999. 10.36* Executive Severance Benefits Agreement between the Registrant and Stephen J. Grana, dated February 2, 1999, incorporated by reference to Exhibit 10.64 filed with the Registrant's Quarterly Report on Form 10-Q, for the First Quarter 1999. 10.37 Stock Purchase Agreement dated May 5, 1999 between the Registrant and Quintiles Transnational Corp., incorporated by reference to Exhibit 10.65 filed with the Registrant's Quarterly Report on Form 10-Q, for the Second Quarter 1999. 10.38** Sales and Marketing Services Agreement dated May 5, 1999 between the Registrant, Innovex Inc. and Quintiles Transnational Corp., incorporated by reference to Exhibit 10.66 filed with the Registrant's Quarterly Report on Form 10-Q, for the Second Quarter 1999. 10.39** Loan Agreement dated May 5, 1999 between the Registrant and Quintiles Transnational Corp, incorporated by reference to Exhibit 10.67 filed with the Registrant's Quarterly Report on Form 10-Q, for the Second Quarter 1999. 10.40 Security Agreement dated May 5, 1999 between the Registrant and Quintiles Transnational Corp., incorporated by reference to Exhibit 10.68 filed with the Registrant's Quarterly Report on Form 10-Q, for the Second Quarter 1999. 10.41 Promissory Note dated May 5, 1999 to Quintiles in principal amount of $10.0 million, incorporated by reference to Exhibit 10.69 filed with the Registrant's Quarterly Report on Form 10-Q, for the Second Quarter 1999. 10.42 Promissory Note dated May 5, 1999 to Quintiles Transnational in principal amount specified therein, incorporated by reference to Exhibit 10.70 filed with the Registrant's Quarterly Report on Form 10-Q, for the Second Quarter 1999. 10.43 Amendment to Loan Agreement dated April 30, 1999 between the Registrant and Biotech Manufacturing Ltd., incorporated by reference to Exhibit 10.71 filed with the Registrant's Quarterly Report on Form 10-Q, for the Second Quarter 1999. 10.44 Indenture dated March 7, 2000 between the Registrant and Norwest Bank Minnesota, incorporated by reference to Exhibit 10.72 filed with the Registrant's Quarterly Report on Form 10-Q, for the First Quarter 2000. 10.45 Convertible subordinated note dated March 7, 2000, incorporated by reference to Exhibit 10.73 filed with the Registrant's Quarterly Report on Form 10-Q, for the First Quarter 2000. 10.46 Purchase agreement dated March 1, 2000 between the Registrant and Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated, J.P. Morgan Securities Inc., FleetBoston Robertson Stephens Inc. and SG Cowen Securities Corporation as Representatives(s) of the several Initial Purchasers, incorporated by reference to Exhibit 10.74 filed with the Registrant's Quarterly Report on Form 10-Q, for the First Quarter 2000. 10.47 Resale Registration Rights agreement dated March 7, 2000 between the Registrant and Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated, J.P. Morgan Securities Inc., FleetBoston Robertson Stephens Inc. and SG Cowen Securities Corporation as Representatives(s) of the several Initial Purchasers, incorporated by reference to Exhibit 10.75 filed with the Registrant's Quarterly Report on Form 10-Q, for the First Quarter 2000. EXHIBIT NUMBER 10.48* 2000 Equity Incentive Plan, as amended. 10.49 First Amended and Restated Rights Agreement dated July 19, 2000 between the Registrant and Wells Fargo Bank Minnesota, N.A., incorporated by reference to Exhibit 10.77 filed with the Registrant's Quarterly Report on Form 10-Q, for the Second Quarter 2000. 10.50 Certificate of Designation of Series A Junior Participating Preferred Stock dated February 2, 1999, incorporated by reference to Exhibit 10.78 filed with the Registrant's Quarterly Report on Form 10-Q, for the Second Quarter 2000. 10.51 Form of Right Certificate dated July 19, 2000, incorporated by reference to Exhibit 10.79 filed with the Registrant's Quarterly Report on Form 10-Q, for the Second Quarter 2000. 10.52 Summary of Rights to Purchase Preferred Shares dated July 19, 2000, incorporated by reference to Exhibit 10.80 filed with the Registrant's Quarterly Report on Form 10-Q, for the Second Quarter 2000. 10.53* Executive Severance Benefits Agreement between the Registrant and David McCaleb dated October 15, 1999, incorporated by reference to Exhibit 10.81 filed with the Registrant's Quarterly Report on Form 10-Q, for the Third Quarter 2000. 10.54 Stock Purchase Agreement between the Registrant and Fujisawa Healthcare, Inc. dated as of July 10, 2000, incorporated by reference to Exhibit 10.82 filed with the Registrant's Quarterly Report on Form 10-Q, for the Third Quarter 2000. 10.55** Collaboration and License Agreement between the Registrant and Fujisawa Healthcare, Inc. dated as of July 10, 2000, incorporated by reference to Exhibit 10.83 filed with the Registrant's Quarterly Report on Form 10-Q, for the Third Quarter 2000. 10.56* Executive Severance Benefits Agreement between the Registrant and Tricia Borga Suvari dated August 31, 2000, incorporated by reference to Exhibit 10.84 filed with the Registrant's Quarterly Report on Form 10-Q, for the Third Quarter 2000. 10.57 Sublease Agreement between the Registrant and Systemix, Inc. dated as of November 1, 2000, incorporated by reference to Exhibit 10.68 filed with the Registrant's Annual Report on Form 10-K, for the year ended December 31, 2000. 10.58 Lease between the Registrant and Kaiser Marquardt, Inc. dated as of December 1, 2000, incorporated by reference to Exhibit 10.69 filed with the Registrant's Annual Report on Form 10-K, for the year ended December 31, 2000. 10.59* 2000 Nonstatutory Incentive Plan, as amended. 10.60 Amended and Restated Common Stock Purchase Agreement, dated as of August 7, 2000, between the Registrant and Acqua Wellington North American Equities Fund, Ltd., incorporated by reference to Exhibit 4.6 filed with the Registrant's Registration Statement on Form S-3 No. 333-59318. 10.61 Third Amendment to Lease, dated February 16, 2001, between the Registrant and Jack R. Wheatley dba Matadero Creek., incorporated by reference to Exhibit 10.72 filed with the Registrant's Quarterly Report on Form 10-Q, for the First Quarter 2001. 10.62 Amendment No. 2 to License Agreement, effective as of November 30, 1999, between the Registrant and Syntex (U.S.A.), Inc., incorporated by reference to Exhibit 10.73 to Amendment No. 2 to Registration Statement No. 333-59318. EXHIBIT NUMBER 10.63 Underwriting agreement, dated June 6, 2001, by and between the Registrant and SG Cowen Securities Corporation, incorporated by reference to Exhibit 1.1 to the Current Report on Form 8-K, Filed by the Registrant on June 12, 2001. 10.64 Underwriting agreement, dated December 3, 2001, by and between the Registrant and JP Morgan Securities Inc., incorporated by reference to Exhibit 1.2 to the Current Report on Form 8-K, filed by the Registrant on December 4, 2001. 23.1 Consent of Ernst & Young LLP, Independent Auditors. _____________________ * Management contract or compensatory plan or arrangement. ** Confidential treatment has previously been granted for portions of this exhibit. (b) Reports on Form 8-K The Registrant filed current reports on Form 8-K with the Commission; * on October 5, 2001 with respect to the sale of 212,593 shares of its common stock to Acqua Wellington North American Equities Fund, Ltd., * on October 31, 2001 with respect to a press release dated October 30, 2001, * on November 19, 2001 with respect to press releases dated November 12, 2001, November 14, 2001 and November 19, 2001, * on December 4, 2001 with respect to an Underwriting Agreement, dated December 3, 2001, by and between the Registrant and J.P. Morgan Securities Inc. and a press release dated December 4, 2001, and * on December 10, 2001 with respect to a press release dated December 6, 2001. (c) Exhibits See Exhibits listed under Item 14(a)(3) above. (d) Financial Statements and Schedules The financial statement schedules required by this Item are listed under 14(a)(1) and (2) above. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report on Form 10-K 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 March 27, 2002. CV THERAPEUTICS, INC. By: /s/ LOUIS G. LANGE, M.D., PH.D. Louis G. Lange, M.D., Ph.D. Chairman of the Board of CV Therapeutics Chief Executive Officer PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS HAS BEEN SIGNED BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED. SIGNATURE TITLE DATE /s/ LOUIS G. LANGE, M.D., PH.D. Chairman of the Board & Chief March 29, 2002 Louis G. Lange, M.D., Ph.D. Executive Officer (Principal Executive Officer) /s/ DANIEL K. SPIEGELMAN Chief Financial Officer March 29, 2002 Daniel K. Spiegelman (Principal Financial and Accounting Officer) /s/ SANTO J. COSTA Director March 29, 2002 Santo J. Costa /s/ R. SCOTT GREER Director March 29, 2002 R. Scott Greer /s/ JOHN GROOM Director March 29, 2002 John Groom /s/ THOMAS L. GUTSHALL Director March 29, 2002 Thomas L. Gutshall /s/ PETER BARTON HUTT, ESQ. Director March 29, 2002 Peter Barton Hutt, Esq. /s/ KENNETH B. LEE, JR. Director March 29, 2002 Kenneth B. Lee, Jr. /s/ BARBARA J. MCNEIL, M.D., PH.D. Director March 29, 2002 Barbara J. McNeil, M.D., Ph.D. /s/ COSTA G. SEVASTOPOULOS, PH.D. Director March 29, 2002 Costa G. Sevastopoulos, Ph.D. REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS The Board of Directors and Stockholders CV Therapeutics, Inc. We have audited the accompanying consolidated balance sheets of CV Therapeutics, Inc. as of December 31, 2000 and 2001, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2001. 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 auditing standards generally accepted in the United States. 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. at December 31, 2000 and 2001, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2001, in conformity with accounting principles generally accepted in the United States. /s/ Ernst & Young LLP Palo Alto, California February 13, 2002 CV THERAPEUTICS, INC. CONSOLIDATED BALANCE SHEETS (in thousands, except share and per share amounts)
December 31, -------------------------- 2000 2001 ---------- ---------- ASSETS Current assets: Cash and cash equivalents $ 54,028 $ 80,911 Marketable securities 242,165 397,514 Other current assets 5,739 9,938 ---------- ---------- Total current assets 301,932 488,363 Notes receivable from related parties 303 951 Property and equipment, net 3,400 12,889 Other assets 5,998 5,041 ---------- ---------- Total assets $ 311,633 $ 507,244 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 5,206 $ 5,529 Accrued liabilities 9,343 10,614 Current portion of capital lease obligations 764 779 Current portion of deferred revenue 1,029 1,029 ---------- ---------- Total current liabilities 16,342 17,951 Capital lease obligations 1,565 786 Convertible subordinated notes 196,250 196,250 Deferred revenue 5,659 3,630 Other liabilities 35 234 ---------- ---------- Total liabilities 219,851 218,851 Commitments Stockholders' equity: Preferred stock, $0.001 par value, 5,000,000 shares authorized, none issued and outstanding - - Common stock, $0.001 par value, 85,000,000 shares authorized, 19,523,045 and 25,482,343 shares issued and outstanding at December 31, 2000 and 2001, respectively; at amounts paid in 222,223 494,604 Deferred compensation (589) (194) Accumulated deficit (131,055) (210,752) Cumulative other comprehensive income 1,203 4,735 ---------- ---------- Total stockholders' equity 91,782 288,393 ---------- ---------- Total liabilities and stockholders' equity $ 311,633 $ 507,244 ========== ==========
See accompanying notes CV THERAPEUTICS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share amounts)
Year ended December 31, ------------------------------------- 1999 2000 2001 --------- --------- --------- Revenues: Collaborative research $ - $ 3,309 $ 6,762 Operating expenses: Research and development 20,342 40,761 81,196 General and administrative 4,659 7,601 13,756 --------- --------- --------- Total operating expenses 25,001 48,362 94,952 --------- --------- --------- Loss from operations (25,001) (45,053) (88,190) Interest income 2,795 15,785 19,184 Interest expense (892) (8,993) (10,464) Other expense, net (24) (119) (227) --------- --------- --------- Net loss $(23,122) $(38,380) $(79,697) ========= ========= ========= Basic and diluted net loss per share $ (1.75) $ (2.06) $ (3.74) ========= ========= ========= Shares used in computing basic and diluted net loss per share 13,207 18,664 21,308 ========= ========= =========
See accompanying notes
CV THERAPEUTICS, INC. CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (in thousands, except share amounts) Notes Cumulative Common Stock Receivable Other Total -------------------------- From Deferred Accumulated Comprehensive Stockholders Shares Amount Officers Compensation Deficit Income Equity ------------ ---------- ---------- ---------- ---------- ---------- --------- Balances at December 31, 1998 11,209,078 $105,436 $ (108) $ (1,049) $ (69,553) $ 12 $ 34,738 Issuance of common stock, net of repurchases 6,948,183 69,972 - - - - 69,972 Deferred compensation related to grants of certain stock options - 374 - (374) - - - Repayment of notes receivable - - 21 - - - 21 Amortization and reduction of deferred compensation - (5) - 732 - - 727 Comprehensive loss: Net loss - - - - (23,122) - (23,122) Unrealized losses on investments - - - - - (189) (189) --------- Total comprehensive loss (23,311) ------------ ---------- ---------- ---------- ---------- ---------- --------- Balances at December 31, 1999 18,157,261 175,777 (87) (691) (92,675) (177) 82,147 Issuance of common stock, net of repurchases 1,365,784 45,945 - - - - 45,945 Deferred compensation related to grants of certain stock options - 516 - (516) - - - Repayment of notes receivable - - 87 - - - 87 Amortization and reduction of deferred compensation - (15) - 618 - - 603 Comprehensive loss: Net loss - - - - (38,380) - (38,380) Unrealized gains on investments - - - - - 1,380 1,380 --------- Total comprehensive loss (37,000) ------------ ---------- ---------- ---------- ---------- ---------- --------- Balances at December 31, 2000 19,523,045 222,223 - (589) (131,055) 1,203 91,782 Issuance of common stock, net of repurchases 5,959,298 271,605 - - - - 271,605 Compensation related to grants of certain stock options - 995 - - - - 995 Amortization and reduction of deferred compensation - (219) - 395 - - 176 Comprehensive loss: Net loss - - - - (79,697) - (79,697) Unrealized gains on investments - - - - - 3,532 3,532 --------- Total comprehensive loss (76,165) ------------ ---------- ---------- ---------- ---------- ---------- --------- Balances at December 31, 2001 25,482,343 $494,604 $ - $ (194) $(210,752) $ 4,735 $288,393 ============ ========== ========== ========== ========== ========== =========
See accompanying notes CV THERAPEUTICS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)
Year Ended December 31, ------------------------------------- 1999 2000 2001 --------- --------- --------- CASH FLOWS FROM OPERATING ACTIVITIES Net loss $(23,122) $(38,380) $(79,697) Adjustments to reconcile net loss to net cash used in operating activities: Gain on the sale of investments - - (1,695) Loss on the disposal of fixed assets - - 84 Non cash stock compensation 727 603 1,171 Depreciation and amortization 1,437 1,505 3,605 Change in assets and liabilities: - - - Other current assets (1,211) (3,292) (4,199) Other assets 97 - - Accounts payable 540 3,665 323 Accrued and other liabilities 293 5,912 1,470 Deferred revenue - 5,688 (2,029) --------- --------- --------- Net cash used in operating activities (21,239) (24,299) (80,967) CASH FLOWS FROM INVESTING ACTIVITIES Purchases of investments (65,392) (239,590) (386,464) Maturities of investments 27,246 54,576 172,613 Sales of investments - 15,431 63,388 Capital expenditures (136) (655) (11,880) Notes receivable from related parties 23 232 (648) --------- --------- --------- Net cash used in investing activities (38,259) (170,006) (162,991) CASH FLOWS FROM FINANCING ACTIVITIES Payments on capital lease obligations (165) (424) (764) Borrowings under convertible subordinated debt, net of issuance costs - 189,549 - Borrowings under long-term debt - 4,500 - Repayments of long-term debt (1,500) (3,000) - Net proceeds from issuance of common stock, net of repurchases 69,972 36,945 271,605 --------- --------- --------- Net cash provided by financing activities 68,307 227,570 270,841 --------- --------- --------- Net increase in cash and cash equivalents 8,809 33,265 26,883 Cash and cash equivalents at beginning of year 11,954 20,763 54,028 --------- --------- --------- Cash and cash equivalents at end of year $ 20,763 $ 54,028 $ 80,911 ========= ========= ========= SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid for interest $ 551 $ 6,611 $ 10,464 SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES Equipment purchased under financing arrangements $ 1,000 $ 1,500 $ - Conversion of long-term debt into common stock $ - $ 9,000 $ -
See accompanying notes CV THERAPEUTICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The Company CV Therapeutics is a biopharmaceutical company focused on the application of molecular cardiology to the discovery, development and commercialization of novel small molecule drugs for the treatment of cardiovascular disease. Since our inception in December 1990, substantially all of our resources have been dedicated to research and development activities, including a portion performed on behalf of collaborators. Principles of Consolidation The financial statements include the accounts of the Company and its wholly-owned subsidiary, CVT Adenosine Company, which was incorporated in February 1999 in the Cayman Islands. The subsidiary was dissolved in December 2000. All significant intercompany balances have been eliminated. 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. Recent Accounting Pronouncements In July 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 141, "Business Combinations" and SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141 requires that all business combinations be accounted for by the purchase method of accounting and changes the criteria for recognition of intangible assets acquired in a business combination. The provisions of SFAS No. 141 apply to all business combinations initiated after June 30, 2001. We do not expect that the adoption of SFAS No. 141 will have a material effect on our financial position or results of operations. SFAS No. 142 requires that goodwill and intangible assets with indefinite useful lives no longer be amortized; however, these assets must be reviewed at least annually for impairment. Intangible assets with finite useful lives will continue to be amortized over their respective useful lives. The standard also establishes specific guidance for testing for impairment of goodwill and intangible assets with indefinite useful lives. The provisions of SFAS No. 142 will be effective for our fiscal year 2002. We do not expect that the adoption of SFAS No. 142 will have a material effect on our financial statements. In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS No. 144 amends existing accounting guidance on asset impairment and provides a single accounting model for long-lived assets to be disposed of. Among other provisions, the new rules change the criteria for classifying an asset as held-for-sale. The standard also broadens the scope of businesses to be disposed of that qualify for reporting as discontinued operations, and changes the timing of recognizing losses on such operations. The provisions of SFAS No. 144 will be effective for our fiscal year 2002. We do not expect that the adoption of SFAS No. 144 will have a material effect on our financial statements. CV THERAPEUTICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Cash Equivalents and Investments We consider all highly liquid debt investments with a maturity from date of purchase of three months or less to be cash equivalents. Cash equivalents consist of money market funds and commercial paper. All other liquid investments are classified as marketable securities. We limit concentration of risk by diversifying investments among a variety of issuers. No one issuer or group of issuers from the same holding company is to exceed 10% of market value of the portfolio except for securities issued by the U.S. treasury or by one of its agencies. We also limit risk by specifying a minimum credit quality of A1/P1 for commercial paper and A-/A3 for all other investments. We determine the appropriate classification of investment securities at the time of purchase and reaffirm such designation as of each balance sheet date. At December 31, 2000 and 2001, all investment securities are designated as available-for-sale. We view our available for sale portfolio as available for use in current operations. Accordingly, we have classified all investments as short term, even though the stated maturity date may be one year or more beyond the current balance sheet date. Available-for-sale securities are carried at fair value, with the unrealized gains and losses reported in stockholders' equity as a component of other comprehensive income (loss). The amortized cost of debt securities in this category is adjusted for amortization of premiums and accretion of discounts to maturity. Such amortization and accretion is included in interest income. The cost of securities sold is based on the specific identification method. Realized gains on available-for-sale securities included in the statement of operations were $0, $50,000 and $1.7 million for 1999, 2000 and 2001, respectively, while realized losses were $0, $29,000 and $49,000. Other Assets Other assets include $4,962,000 of issuance costs, net of related amortization, associated with the sale of $196,250,000 aggregate principal amount of convertible subordinated notes in March 2000 (see Note 7). These issuance costs are being amortized to interest expense over the seven-year life of the notes. Comprehensive Income Statement of Financial Accounting Standards No. 130 "Reporting Comprehensive Income" ("SFAS 130"), established standards for the reporting and display of comprehensive income and its components. SFAS 130 requires unrealized gains or losses on our available-for-sale securities, which prior to adoption were reported separately in stockholders' equity, to be included in other comprehensive income (loss). Revenue Recognition Revenue under our collaborative research arrangements is recognized based on the performance requirements of the contract. Amounts received under such arrangements consist of up-front license and periodic milestone payments. Up-front or milestone payments, which are still subject to future performance requirements, are recorded as deferred revenue and are amortized over the performance period. The performance period is estimated at the inception of the arrangement and is periodically reevaluated. The reevaluation of the performance period may shorten or lengthen the period during which the deferred revenue is recognized. We evaluate the appropriate period based on research progress attained and events such as changes in the regulatory and competitive environment. Payments received related to substantive, at-risk milestones are recognized upon achievement of the scientific or regulatory event specified in the underlying agreement. Payments received for research activities are recognized as the related research effort is performed. CV THERAPEUTICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Stock-Based Compensation We account for stock options granted to employees using the intrinsic-value method and, thus, recognize no compensation expense for options granted with exercise prices equal to the fair market value of our common stock on the date of the grant. We recognize compensation for options granted to consultants based on the Black-Scholes option pricing model in accordance with Emerging Issues Task Force Consensus No. 96-18. Deferred compensation is recorded when stock options are granted to employees at prices lower than the fair market value. The amount is amortized to expense over the vesting period of the related options. 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. Research and Development Research and development expenses include related salaries, contractor fees, administrative expenses and allocations of administrative overhead costs. License and milestone obligations due prior to regulatory approval to market the product are charged to research and development expense. Such obligations due at, or following regulatory approval, if any, will be capitalized and amortized to expense over the estimated life of the product. Net Loss Per Share In accordance with Statement of Financial Accounting Standards No. 128 "Earnings Per Share" ("SFAS 128"), basic and diluted net loss per share has been computed using the weighted average number of shares of common stock outstanding during the period. Had we been in a net income position for the years ended December 31, 1999, 2000 and 2001, diluted earnings per share would have included the shares used in the computation of basic net loss per share, as well as the dilutive effect of 1,753,000, 2,153,000 and 3,692,000 stock options and 443,078, 40,000 and 0 warrants to purchase common stock (prior to the application of the treasury stock method). We have excluded the impact of our convertible subordinated notes from the computation of diluted shares outstanding because the impact of an assumed conversion of these notes into 3,074,091 shares of our common stock is anti-dilutive for all periods presented. CV THERAPEUTICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 2. LICENSE AND COLLABORATION AGREEMENTS University of Florida Research Foundation In June 1994, we entered into a license agreement with the University of Florida Research Foundation, Inc. under which we received exclusive worldwide rights to develop A1 adenosine receptor antagonists and agonists for the detection, prevention and treatment of human and animal diseases. In consideration for the license, we paid an initial license fee and are obligated to pay royalties based on net sales of products that utilize the licensed technology. Under this agreement, we must exercise commercially reasonable efforts to develop and commercialize one or more products covered by the licensed technology. In the event we fail to reach certain milestones under the agreement, the licensor may convert the exclusive license into a non-exclusive license. We sublicensed our rights under this license that relate to A1 adenosine receptor antagonists to Biogen in March 1997. Syntex In March 1996, we entered into a license agreement with Syntex (U.S.A.) Inc. to obtain United States and foreign patent rights to ranolazine for the treatment of angina and other cardiovascular indications. Pursuant to the agreement, Syntex provided quantities of the compound to us for use in clinical trials and related development activities. The license agreement is exclusive and worldwide except for the following countries which Syntex has 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, we paid an initial license fee. In addition, we are obligated to make certain milestone payments to Syntex, upon receipt of the first and second product approvals for ranolazine in any of certain major market countries (consisting of France, Germany, Italy, the United States and the United Kingdom). Unless the agreement is terminated, if the first product approval in one of the major market countries occurs before May 1, 2002, we will pay Syntex, on or before March 31, 2005, $7.0 million plus interest accrued thereon from the date of approval until the date of payment, and if the first such product approval occurs after May 1, 2002, we will pay Syntex, on or before March 31, 2005, $7.0 million plus interest accrued thereon from May 1, 2002 until the date of payment. Unless the agreement is terminated, if the second product approval in one of the major market countries occurs before May 1, 2004, we will pay Syntex, on or before March 31, 2006, $7.0 million plus interest accrued thereon from the date of approval until the date of payment, and if the second such product approval occurs after May 1, 2004 but before March 31, 2006, we will pay Syntex, on or before March 31, 2006, $7.0 million plus interest accrued thereon from May 1, 2004 until the date of payment. Unless the agreement is terminated, if the second product approval in one of the major market countries has not occurred by March 31, 2006, we will pay Syntex $3.0 million on or before March 31, 2006, and if we receive the second product approval after March 31, 2006, we will pay Syntex $4.0 million within thirty (30) days after the date of such second product approval. No amounts have been accrued to date in relation to these milestones. In addition, we will make royalty payments based on net sales of products that utilize the licensed technology. We are required to use commercially reasonable efforts to develop and commercialize the product for angina. We or Syntex may terminate the license agreement for material uncured breach, and we have the right to terminate the license agreement at any time on 120 days notice if we decide not to continue to develop and commercialize ranolazine. CV THERAPEUTICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 2. LICENSE AND COLLABORATION AGREEMENTS (CONTINUED) Biogen In March 1997, we entered into two research collaboration and license agreements with Biogen. The agreements grant Biogen the exclusive worldwide right to develop and commercialize any products which are produced based on our A1 adenosine receptor antagonist patents or technologies (including our rights under the University of Florida Research Foundation license) for all indications. In exchange, we received a $16.0 million payment consisting of research related funding, an equity investment and $3.0 million in funding under a general purpose loan facility. Biogen agreed to make milestone payments and equity investments, as well as the loan facility, all of which are subject to their achievement of clinical development and commercialization milestones. In February 1998, we terminated the research component of the agreements and, as a result, approximately $4.0 million of deferred revenue was recognized as there were no further research obligations related to this funding. In December 1998, Biogen released an additional $4.5 million under the loan facility. In February 2000, based on results of their Phase II clinical trial, Biogen announced its intention to proceed with the AdentriTM program, but with a backup compound, and subsequently paid us $6.5 million, consisting of a $2.0 million milestone payment and $4.5 million under the loan facility. In March 2001, based on Biogen's initiation of a Phase I oral development program, we recognized a $1.0 million milestone payment. Biogen will also make milestone payments in connection with development and commercialization of licensed products, and pay royalties on any future sales of products covered by the agreement. Biogen has control and responsibility for conducting, funding and pursuing all aspects of the development, submissions for regulatory approvals, manufacture and commercialization of A1 adenosine receptor antagonist products under the agreement. In March 2000, we repaid the initial $3.0 million installment under the loan facility. In October 2000, we exercised our right to convert $9.0 million in debt under the loan facility into 118,932 shares of our common stock at a price of $75.67 per share, in full repayment of the entire principal amount under this loan facility. In December 2000, we repaid all accrued and unpaid interest on the loan facility. Biogen may terminate the agreements for any reason upon 60 days written notice. If Biogen terminates the agreements, all rights to the technology will revert to us, and we will pay Biogen a royalty on future sales of any A1 adenosine receptor antagonist. Incyte In July 1998, we entered into a joint research collaboration agreement with Incyte Genomics, Inc. to develop a prototype gene expression database in the area of cardiovascular biology. We contribute our molecular cardiology expertise and Incyte contributes its genomics capabilities. Incyte owns the data produced, and we receive a perpetual, non-exclusive license to use the data in our drug development efforts. Each party bears its own costs of the research and neither party makes any payments to the other. Either party may terminate the agreement on 60 days written notice. In August 2001, we expanded the scope of our 1998 research collaboration to focus on identifying genes involved in the development of atherosclerosis and coronary artery disease. CV THERAPEUTICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 2. LICENSE AND COLLABORATION AGREEMENTS (CONTINUED) Innovex In May 1999, we entered into a sales and marketing services agreement with Innovex, a subsidiary of Quintiles Transnational Corp. Under this agreement, if ranolazine is approved for sale in the United States by the FDA, Innovex will hire and train a dedicated sales force for ranolazine and assist in funding marketing expenses for up to five years after launch. We will receive 100% of the revenues from sales of ranolazine and we will pay Innovex a share of those revenues. The agreement calls for Innovex to conduct pre-launch activities, hire and train a dedicated cardiology sales force to launch and promote ranolazine, and provide post-launch marketing and sales services. To fund pre-launch activities, Quintiles will provide us with a $10 million credit facility at the time we file with the FDA for approval. We are required to spend a minimum of $10 million on ranolazine pre-launch marketing activities so long as Quintiles provides advances under the credit facility. Upon FDA approval, Quintiles will make a $10 million milestone payment to us, which we are obligated to use to repay any amounts outstanding under the credit facility. Should we file for FDA approval and draw down the credit facility, but never receive FDA approval, we are obligated to repay the loan within 10 years of the date we received the loan. Innovex has agreed to provide services for at least three years after launch and to provide services in years four and five after launch if minimum sales levels are met. The agreement also specifies the minimum number of sales representatives and the minimum level of dollars to be spent on marketing by Innovex during the first two years of the contract, regardless of sales levels. The minimum size of the sales force and the marketing expenses in year three or any subsequent year must be maintained by Innovex as long as minimum sales levels are met. In exchange for providing these sales and marketing services, Innovex will receive a fee equal to up to an average of 33% of our revenues related to the sale of ranolazine in the first two years of sales, up to 30% of revenues for the third year and up to 25% of revenues in years four and five. Also, for giving us the option to retain this trained sales force at the end of the contract, Innovex will receive a royalty on sales of 7% in the sixth year and 4% in the seventh year after launch. In connection with the agreement, Quintiles purchased 1,043,705 shares of our common stock for a total purchase price of $5.0 million. We or Innovex may terminate the agreement in the event of material uncured breach, bankruptcy or insolvency, our decision to not file an NDA for ranolazine or to terminate development of the product, notice from the United States Food and Drug Administration that it will not approve the product for marketing, or failure to achieve certain minimum sales levels. In addition, we or Innovex (subject to certain notice and response provisions) may terminate the agreement if product launch will not occur by a specific date. The agreement will terminate automatically if we no longer retain our license rights to ranolazine. CV THERAPEUTICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 2. LICENSE AND COLLABORATION AGREEMENTS (CONTINUED) Fujisawa Healthcare In July 2000, we entered into a collaboration with Fujisawa Healthcare, Inc. (FHI) to develop and market second generation pharmacologic cardiac stress agents. Under this agreement, FHI received exclusive North American rights to CVT-3146, a short acting selective A2A adenosine receptor agonist, and to a backup compound. We received $10.0 million from FHI consisting of a $6.0 million up-front payment, which will be recognized as revenue over the expected term of the agreement, and the purchase of 54,270 shares of our common stock for a total purchase price of $4.0 million. In September 2001, based on initiating a Phase II clinical trial for CVT-3146, FHI paid us a $2.0 million milestone payment. We may receive up to an additional $22.0 million in cash based on development and regulatory milestones such as initiation of clinical studies and certain regulatory filings and approval. FHI reimburses us for 75% of the development costs, and if the product is approved by the FDA, we will receive a royalty based on product sales of CVT-3146 and may receive a royalty on another product sold by FHI. The amount reimbursed for development costs was $0, $996,000 and $2.8 million for 1999, 2000 and 2001, respectively. FHI may terminate the agreement for any reason on 90 days written notice, and we may terminate the agreement if FHI fails to launch a product within a specified period after marketing approval. In addition, we or FHI may terminate the agreement in the event of material uncured breach, or bankruptcy or insolvency. 3. INVESTMENTS Following is a summary of available-for-sale securities at December 31, 2000:
Gross Gross Amortized Unrealized Unrealized Market Cost Basis Gains Losses Value ---------- --------- --------- ---------- (in thousands) Cash equivalents: Money market funds $ 29,266 $ - $ - $ 29,266 Commercial paper 24,744 - - 24,744 ---------- --------- --------- ---------- $ 54,010 $ - $ - $ 54,010 ========== ========= ========= ========== Marketable securities: Commercial paper $ 34,545 $ 36 $ - $ 34,581 US government securities 10,042 80 - 10,122 Asset backed securities 13,970 81 - 14,051 Corporate bonds 177,418 1,046 16 178,448 Foreign bonds 4,987 - 24 4,963 ---------- --------- --------- ---------- $ 240,962 $ 1,243 $ 40 $ 242,165 ========== ========= ========= ==========
As of December 31, 2000, we had marketable securities with maturities of one year or less of $74.5 million and greater than one year of $167.7 million. The average contractual maturity as of December 31, 2000 was approximately fifteen months, with no single investment's maturity exceeding thirty-six months. CV THERAPEUTICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 3. INVESTMENTS (CONTINUED) Following is a summary of available-for-sale securities at December 31, 2001:
Gross Gross Amortized Unrealized Unrealized Market Cost Basis Gains Losses Value ---------- --------- --------- ---------- (in thousands) Cash equivalents: Money market funds $ 50,901 $ - $ - $ 50,901 Commercial paper 29,968 - - 29,968 ---------- --------- --------- ---------- $ 80,869 $ - $ - $ 80,869 ========== ========= ========= ========== Marketable securities: Commercial paper $ 8,941 $ 9 $ - $ 8,950 US government securities 100,794 654 18 101,430 Asset backed securities 13,588 91 - 13,679 Corporate bonds 260,971 4,280 262 264,989 Foreign bonds 8,485 - 19 8,466 ---------- --------- --------- ---------- $ 392,779 $ 5,034 $ 299 $ 397,514 ========== ========= ========= ==========
As of December 31, 2001, we had marketable securities with maturities of one year or less of $98.3 million and greater than one year of $299.2 million. The average contractual maturity as of December 31, 2001 was approximately eighteen months, with no single investment's maturity exceeding thirty-six months. 4. PROPERTY AND EQUIPMENT Property and equipment are recorded at cost and consist of the following:
December 31, -------------------- 2000 2001 -------- -------- (in thousands) Machinery and equipment $5,682 $ 8,228 Furniture and fixtures 833 1,328 Leasehold improvements 4,124 11,910 -------- -------- 10,639 21,466 Less accumulated depreciation and amortization (7,239) (8,577) -------- -------- $3,400 $12,889 ======== ========
Property and equipment include $2.9 million recorded under capital leases at December 31, 2000 and 2001. Accumulated amortization related to leased assets totaled $950,000 and $1.9 million at December 31, 2000 and 2001, respectively (see Note 6). Depreciation expense, including depreciation of assets under capital leases, was $608,000, $670,000 and $1.2 million for 1999, 2000 and 2001, respectively. Amortization expense for leasehold improvements was $517,000, $761,000 and $1.1 million for 1999, 2000 and 2001, respectively. CV THERAPEUTICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 5. ACCRUED LIABILITIES Accrued liabilities consists of the following:
December 31, --------------------- 2000 2001 -------- --------- (in thousands) Accrued interest $2,952 $ 2,952 Compensation related accruals 1,456 3,651 Accrued research obligation 308 - Clinical trials 1,562 364 Other 3,065 3,647 -------- --------- $9,343 $10,614 ======== =========
6. LEASES We lease some of our fixed assets under four capital leases. We lease two facilities under noncancellable operating leases. The lease for one facility expires in April 2012. The lease for the second facility incorporates a sublease which expires in February 2005 and a master lease which expires in April 2012. Following is a schedule of future minimum lease payments:
Operating Capital Leases Leases --------- ------ (in thousands) Year ending December 31, 2002 $ 10,928 $ 885 2003 11,918 448 2004 12,298 410 2005 9,795 - 2006 13,256 - 2007 and thereafter 76,019 - --------- ------ Total minimum payments $134,214 1,743 ========= Less amount representing interest (178) ------ Present value of future lease payments 1,565 Less current portion (779) ------ Long-term portion $ 786 ======
Rent expense for the years ended December 31, 1999, 2000, and 2001 was $1.4 million, $1.7 million and $8.7 million, respectively, net of sublease rental income of $1.0 million, $567,000 and $1.2 million, respectively. CV THERAPEUTICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 7. CONVERTIBLE SUBORDINATED NOTES In March 2000, we completed a private placement of $196,250,000 aggregate principal amount of 4.75% convertible subordinated notes due March 7, 2007. The notes are unsecured and subordinated in right of payment to all existing and future senior debt as defined in the indenture governing the notes. We pay interest semi-annually on March 7th and September 7th of each year. The conversion rate is 15.66 shares of common stock per $1,000 principal amount of notes. This is equivalent to a conversion price of $63.84 per share. The conversion price is subject to adjustment upon the occurrence of the following events: * if we pay a dividend or make a distribution to the holders of our common stock in shares of our common stock, then the conversion price will be reduced; * if we subdivide or combine the outstanding shares of our common stock, then the conversion price then in effect will be proportionately reduced or increased, respectively; * if we issue rights or warrants (other than as described in the next bullet points below) to all holders of our outstanding common stock entitling them to subscribe for or purchase more shares of our common stock (or securities convertible into our common stock) at a price per share (or with a conversion price per share) less than the current market price of our common stock, then the conversion price will be reduced; * if we distribute to all holders of our common stock shares of capital stock (other than any dividends or distributions covered by the first bullet point above) or evidence of our indebtedness, cash or other assets, including securities, but excluding: * any rights or warrants referred to above, * any stock, securities or other property or assets distributed in connection with a reclassification, change, merger, consolidation, statutory share exchange, combination, sale or conveyance to which the indenture's recapitalization provisions apply, and * dividends and distributions paid exclusively in cash, then, in each such case, and subject to certain limitations, the conversion price will be reduced; * if we distribute to all our common stockholders cash (excluding cash distributed upon a reclassification, change, merger, consolidation, statutory share exchange, combination, sale or conveyance to which the indenture's recapitalization provisions apply) in an aggregate amount that, combined with: * the aggregate amount of any other cash distributions to all of our common stockholders made within the preceding 12 months and for which no adjustment pursuant to this bullet point has been made, and CV THERAPEUTICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 7. CONVERTIBLE SUBORDINATED NOTES (CONTINUED) * the aggregate of any cash plus the fair market value (as determined by our board of directors), as of the expiration of the tender or exchange offer referred to below, of consideration payable in respect of any tender or exchange offer by us for all or any portion of our common stock concluded within the preceding 12 months and for which no adjustment pursuant to the bullet point below has been made, exceeds 10% of the product of the then current market price of our common stock times the number of shares of common stock then outstanding, then the conversion price will be reduced; * if a tender or exchange offer made by us expires and such offer requires that we pay stockholders an aggregate consideration having a fair market value (as determined by our board of directors) that combined with: * the aggregate of the cash plus the then fair market value (as determined by our board of directors) of consideration payable in respect of any other tender or exchange offers by us expiring within the preceding 12 months and for which no adjustment pursuant to this bullet point has been made, and * the aggregate amount of any distributions to all holders of our common stock made in cash within the preceding 12 months and for which no adjustment pursuant to the fifth bullet point above, exceeds 10% of the product of the then current market price times the number of shares of then outstanding common stock (including any tendered or exchanged shares), then the conversion price will be reduced; * if our board of directors determines it advisable to avoid or diminish any income tax to holders of common stock or rights to purchase common stock resulting from any dividend or distribution of stock (or rights to acquire stock) or from any event treated as such for income tax purposes, then the conversion price will be reduced; and * if the distribution date for the rights provided in our rights agreement, if any, occurs prior to the date a security is converted, the holder of the security who converts such security after the distribution date will not be entitled to receive the rights that would otherwise be attached (but for the date of conversion) to the shares of common stock received upon such conversion; provided, however, that an adjustment will be made to the conversion price pursuant to the second bullet point above as if the rights were being distributed to our common stockholders prior to such conversion. We have reserved 3,074,091 shares of authorized common stock for issuance upon conversion of the notes. We may redeem the notes on or after March 7, 2003 and prior to maturity, at a premium or earlier if our stock price reaches certain defined levels. We incurred issuance costs related to this private placement of approximately $6,701,000 which have been recorded as other assets and are being amortized to interest expense over the seven-year life of the notes. The fair value of our convertible subordinated notes, based upon the last publicly-traded price for the notes at December 31, 2001, approximates $204,740,000. CV THERAPEUTICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 8. RELATED PARTY TRANSACTIONS From 1992 through 2001, we issued loans to certain of our officers, employees and a consultant related to relocation and other purposes. Such loans aggregating $358,000 and $951,000 were outstanding at December 31, 2000 and 2001, respectively. These loans bear interest at 4.13% to 10.00% per annum. The amounts are repayable on various dates through November 20, 2006. Loans outstanding at December 31, 2001 in the amount of $801,000, are secured by secondary deeds of trust. 9. STOCKHOLDERS' EQUITY Equity Line of Credit and Significant Equity Transactions In August 2000, we entered into a financing arrangement with Acqua Wellington to purchase up to $120.0 million of our common stock through November 2002 under the terms of a common stock purchase agreement. Under the purchase agreement, as presently amended, we may sell a total of $149.0 million of our common stock to Acqua Wellington through December 2003. The purchase agreement provides that from time to time, at our sole discretion, subject to a minimum per share market price specified in the agreement, we may present Acqua Wellington with draw down notices constituting offers to sell our common stock for specified total proceeds over a specified trading period, both subject to limits specified in the agreement. Once presented with a draw down notice, Acqua Wellington is required to purchase a pro rata portion of shares of our common stock as allocated on each trading day during the trading period on which the daily volume weighted average price for our common stock exceeds a threshold price that we determine and state in the draw down notice. The per share price then equals the daily volume weighted average price on each date during the pricing period, less a 4% to 6% discount (based on our market capitalization). However, if the daily volume weighted average price falls below the threshold price on any day in the pricing period, Acqua Wellington is not required to purchase the pro rata portion of shares allocated to that day, but can elect to buy that pro rata portion of shares at the threshold price less the applicable 4% to 6% discount. Further, if during a draw down pricing period we enter into an agreement with a third party to issue common stock or securities convertible into common stock (excluding stock or options granted pursuant to our stock option, stock purchase or shareholder rights plans, common stock or warrants issued in connection with licensing agreements and/or collaborative agreements and warrants issued in connection with equipment financings) at a net discount to the then current market price, if we issue common stock with warrants (other than provided in the prior parenthetical), or if we implement a mechanism for the rest of the purchase price of our common stock below the then current market price, then Acqua Wellington can elect to purchase the shares so requested by us in the draw down notice at the price established pursuant to the prior paragraph, to purchase such shares at the third party's price, net of discount or fees, or to not purchase our common stock during the draw down pricing period. The purchase agreement also provides that from time to time, in our sole discretion, we may grant Acqua Wellington a right to exercise one or more call options to purchase additional shares of our common stock during a drawn down pricing period, in an amount and for a threshold price that we determine and state in the draw down notice. However, the total call amount for any given draw down cannot exceed a specified maximum amount, and the amount of proceeds we may receive by exercise of a call option for any given trading day is also limited. If Acqua Wellington exercises the call option, we will issue and sell the shares of our common stock subject to the call option at a price equal to the greater of the daily volume weighted average price of our common stock on the day Acqua Wellington exercises its call option, or the threshold price for the call option that we have determined, less a 4% to 6% discount (based on our market capitalization). CV THERAPEUTICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 9. STOCKHOLDERS' EQUITY (CONTINUED) Equity Line of Credit and Significant Equity Transactions (Continued) The combined total value of shares that we may sell to Acqua Wellington through draw downs and call option exercises may not exceed $149.0 million. As of December 31, 2001, we have issued 1,161,873 shares representing $59.0 million under this arrangement. In June 2001, we sold 2,020,203 shares of our common stock in an underwritten public offering at a price to the public of $49.50 per share pursuant to a prospectus supplement under a shelf registration statement. We intend to use the net proceeds of approximately $95.9 million for general corporate purposes, which may include funding research, development and product manufacturing, increasing our working capital, reducing indebtedness, acquisitions or investments in businesses, products or technologies that are complementary to our own, and capital expenditures. In December 2001, we sold 2,875,000 shares of our common stock in an underwritten public offering at a price to the public of $52.50 per share pursuant to a prospectus supplement under a shelf registration statement. We intend to use the net proceeds of approximately $143.3 million for general corporate purposes, which may include funding research, development and product manufacturing, development of clinical trials, preparation and filing of a new drug application, product commercialization, increasing our working capital, reducing indebtedness, acquisitions or investments in businesses, products or technologies that are complementary to our own, and capital expenditures. Employee Stock Purchase Plan In September 1996, the board of directors adopted the Employee Stock Purchase Plan (the "Purchase Plan") covering an aggregate of 150,000 shares of our common stock. In May 2000, our stockholders approved an additional 75,000 shares for the Purchase Plan with annual increases through 2005 in an amount equal to the least of (i) one-half of one percent of the number of outstanding shares of our common stock, (ii) 100,000 shares, or (iii) a smaller number of shares determined by the board of directors. The Purchase Plan is designed to allow eligible employees of ours or an affiliate of ours to purchase shares of our common stock at quarterly intervals through their periodic payroll deductions, which may not exceed 15 percent of any employee's compensation, at a price not less than the lesser of an amount equal to 85 percent of the fair market value of our common stock at the beginning of the offering period or an amount equal to 85 percent of the fair market value of our common stock on each purchase date. Employees may end their participation in the offering at any time during the offering period, and participation ends automatically on termination of employment with us. Shares in the amount of 323,889 have been authorized for issuance and 198,818 shares have been issued under the Purchase Plan through December 31, 2001. Stock Option Plans We reserved 345,000 shares of common stock for issuance under our amended and restated 1992 Stock Option Plan, which provided for common stock options to be granted to employees, consultants, officers, and directors. No additional grants will be made under the 1992 Stock Option Plan. CV THERAPEUTICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 9. STOCKHOLDERS' EQUITY (CONTINUED) Stock Option Plans (Continued) We reserved 1,800,000 shares of common stock for issuance under our amended and restated 1994 Equity Incentive Plan which provided for common stock options to be granted to employees of and consultants to us and our affiliates. No additional grants will be made under the 1994 Equity Incentive Plan. Our Non-Employee Directors' Stock Option Plan was amended and restated in 1996 to allow the granting of up to 250,000 shares of common stock to our directors who are not otherwise an employee of, or consultant of ours or any affiliate of ours. In May 2000, our stockholders approved an additional 150,000 shares for this plan. 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 market value of the stock subject to such option on the date such option is granted. In August 2000, the board of directors approved amending the plan to increase the number of shares automatically granted to new members of the board of directors. The options covered by such initial grants generally vest in increments over a period of three years from the date of grant for new directors. Also in August 2000, the board of directors approved amending the plan to increase the number of shares automatically granted each year to existing members of the board of directors as replenishment grants. This amendment also modified the vesting schedule for all new replenishment grants, from the previous full vesting one year from the date of grant to vesting in increments over a period of one year from the date of grant. In May 2000, our stockholders approved the 2000 Equity Incentive Plan and the issuance of up to 1,500,000 shares of common stock under the plan. The 2000 Equity Incentive Plan provides for common stock options to be granted to our employees and consultants and those of our affiliates. This Plan (as amended by the board of directors in February 2002-see Note 12) allows for the grant of incentive stock options and nonstatutory stock options. Options granted under this plan expire no later than 10 years from the date of grant. The exercise price of each incentive stock option and nonstatutory stock option shall be not less than 100% of the fair market value of the stock subject to the option on the date the option is granted, unless granted to a person who owns 10% or more of the total of voting stock of the company and its affiliates, in which case the exercise price shall be not less than 110% of the fair market value of the stock subject to the option on the date of grant. 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. In July 2000, the board of directors approved the 2000 Nonstatutory Incentive Plan and the issuance of up to 250,000 shares of common stock under the plan. In February 2001, July 2001, December 2001 and February 2002 (see Note 12), the board of directors approved the issuance of up to an additional 350,000, 250,000, 285,325 and 200,000 shares of common stock, respectively, for a total of up to 1,335,325 shares under the plan. The 2000 Nonstatutory Incentive Plan provides for common stock options to be granted to our employees and consultants and those of our affiliates. The Plan (as amended by the board of directors in February 2002-see Note 12) allows for the grant of nonstatutory stock options. Options granted under this plan expire no later than 10 years from the date of grant. The exercise price of each nonstatutory option shall be not less than 100% of the fair market 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. CV THERAPEUTICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 9. STOCKHOLDERS' EQUITY (CONTINUED) Stock Option Plans (Continued) The following table summarizes option activity under all option plans:
Outstanding Options ----------------------- Shares Number Weighted Available of Average for Grant Shares Exercise Price ------- ------- --------- (in thousands, except per share amounts) Balance at December 31, 1998 661 1,415 $6.45 Options granted (472) 472 $7.41 Options forfeited 52 (52) $6.16 Options exercised - (82) $3.45 ------- ------- Balance at December 31, 1999 241 1,753 $6.86 Shares authorized 1,900 - - Options granted (900) 900 45.75 Options forfeited 51 (51) 25.95 Options exercised - (449) 5.15 ------- ------- Balance at December 31, 2000 1,292 2,153 23.02 Shares authorized 885 - - Options granted (1,844) 1,844 45.84 Options forfeited 62 (62) 35.68 Options exercised - (268) 7.44 ------- ------- Balance at December 31, 2001 395 3,667 35.43 ======= =======
The following table summarizes information about stock options outstanding at December 31, 2001:
Outstanding Options - --------------------------------------------------------------------------------------------------------------- Weighted Exercisable Options Average -------------------------- Shares Remaining Weighted Number of Weighted Outstanding Contractual Life Average Exercise Shares Average Exercise Range of Exercise Prices (in thousands) (in years) Price (in thousands) Price - ------------------------ ------- -------- -------- ------ --------- $ 0.80 - $14.63 1,003 6.3 $ 7.77 767 $ 7.72 $15.88 - $40.61 1,159 8.9 $37.34 258 $36.70 $40.85 - $55.15 923 9.2 $45.81 59 $48.29 $56.75 - $86.56 582 9.5 $62.82 71 $72.05 ------- ------ $ 0.80 - $86.56 3,667 8.4 $35.43 1,155 $20.21 ======= ======
CV THERAPEUTICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 9. STOCKHOLDERS' EQUITY (CONTINUED) Pro Forma Information Stock-Based Compensation We have elected to follow Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25") and related interpretations, in accounting for our employee stock options because, as discussed below, the alternative fair value accounting provided for under FASB Statement No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123") requires use of option valuation models that were not developed for use in valuing employee stock options. Under APB 25, if the exercise price of our employee stock options equals the fair market value of the underlying stock on the date of grant, no compensation expense is recognized. Pro forma information regarding net loss and loss per share is required by SFAS 123 as if we had accounted for our stock-based awards to employees under the fair value method of SFAS 123. The fair value of our stock-based awards to employees was estimated using a Black-Scholes option pricing model. The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options, which have no vesting restrictions and are fully transferable. In addition, the Black-Scholes model requires the input of highly subjective assumptions including the expected stock price volatility. Because our stock-based awards to employees have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in our opinion, the existing models do not necessarily provide a reliable single measure of the fair value of our stock-based awards to employees. The fair value of our stock-based awards to employees was estimated assuming no expected dividends and the following weighted-average assumptions:
Options -------------------- 1999 2000 2001 ---- ---- ---- Expected life (years) 5.1 4.9 5.2 Expected volatility .60 .65 .65 Risk-free interest rate 5.5% 6.5% 4.5%
For pro forma purposes, the estimated fair value of our stock-based awards to employees is amortized over the options' vesting period. Our pro forma information follows for the years ended December 31 (in thousands except for per share information):
1999 2000 2001 --------- --------- --------- Net loss: As reported $(23,122) $(38,380) $(79,697) ========= ========= ========= Pro forma $(24,336) $(45,055) $(97,554) ========= ========= ========= Net loss per share: As reported $ (1.75) $ (2.06) $ (3.74) ========= ========= ========= Pro forma $ (1.84) $ (2.41) $ (4.58) ========= ========= =========
The weighted-average fair value of options granted with exercise prices at fair value of our common stock during 1999, 2000 and 2001 was $4.18, $24.00 and $24.77, respectively. CV THERAPEUTICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 9. STOCKHOLDERS' EQUITY (CONTINUED) Stockholders Rights Plan In February 1999, we announced that the board of directors approved the adoption of a Stockholders Rights Plan under which all stockholders of record as of February 23, 1999 received and all stockholders receiving newly issued shares after that date have or will receive rights to purchase shares of a new series of preferred stock. The Rights Plan is designed to enable all CVT shareholders to realize the full value of their investment and to provide for fair and equal treatment for all stockholders in the event that an unsolicited attempt is made to acquire CVT. The adoption of the Rights Plan is intended as a means to guard against abusive takeover tactics and was not in response to any particular proposal. The rights were distributed as a non-taxable dividend and will expire in ten years from the Record Date. The rights will be exercisable only if a person or group acquires 20 percent or more of the CVT common stock or announces a tender offer of CVT's common stock. If a person acquires 20 percent or more of CVT's stock, all rightsholders except the buyer will be entitled to acquire CVT common stock at discount. The effect will be to discourage acquisitions of more than 20 percent of CVT's common stock without negotiations with the Board. In July 2000, the board of directors approved certain amendments to our stockholders rights plan, including lowering the trigger percentage from 20 percent to 15 percent, and raising the exercise price for each right from $35.00 to $500.00. 10. INCOME TAXES Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amount used for income tax purposes. Significant components of our deferred tax assets at December 31 are as follows:
2000 2001 --------- --------- (in thousands) Deferred tax assets: Net operating loss carryforwards $ 40,430 $ 77,020 Research credits 5,400 4,150 Capitalized research and development expenses 2,260 6,010 Other 3,670 7,030 --------- --------- Subtotal 51,760 94,210 Valuation allowance (51,760) (92,320) --------- --------- Total deferred tax assets - 1,890 Deferred tax liabilities: Unrealized gain on equity investments - 1,890 --------- --------- Net deferred tax assets: $ - $ - ========= =========
CV THERAPEUTICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 10. INCOME TAXES (CONTINUED) Realization of deferred tax assets is dependent upon future earnings, if any, the timing and amount of which are uncertain. Accordingly, the net deferred tax assets have been fully offset by a valuation allowance. The valuation allowance increased by $11.6 million and $40.6 million during 2000 and 2001, respectively. Approximately $10.0 million of the valuation allowance is related to the benefit of the stock option deductions, which, when recognized, will be allocated to paid in capital. As of December 31, 2001, we had federal and California net operating loss carryforwards of approximately $214.0 million and $40.0 million, respectively. We also had federal and California research and development tax credits of approximately $4.9 million and $3.4 million, respectively. The federal net operating loss and credit carryforwards will expire at various dates beginning in the year 2006 through 2021, if not utilized. The state of California net operating loss carryforwards will expire at various dates beginning in the year 2002 through 2006, if not utilized. The federal research tax credits will expire at various dates beginning in the year 2008 through 2021, if not utilized. The California research tax credits can be carried forward indefinitely. Utilization of the our net operating loss may be subject to substantial annual limitation due to ownership change limitations provided by the Internal Revenue Code and similar California provisions. Such an annual limitation could result in the expiration of the net operating loss before utilization. 11. 401K PLAN Our 401K plan covers all of our eligible employees. Under the plan, employees may contribute up to 15% of their eligible compensation, subject to certain Internal Revenue Service restrictions. We may match a portion of employee contributions with company stock, up to a maximum of 5% of each employee's eligible compensation. The match (if any) is effective December 31 of each year and is fully vested if and when made. We issued 0 shares for the 1999 match, a total of 6,965 shares for the 2000 match, and 10,837 shares for the 2001 match with a value of $0, $299,000 and $533,000, respectively. 12. EVENTS SUBSEQUENT TO DATE OF AUDITORS' REPORT (UNAUDITED) In February of 2002, we amended our 2000 Nonstatutory Incentive Plan, 2000 Equity Incentive Plan and Non-Employee Directors' Stock Option Plan. We amended our 2000 Nonstatutory Incentive Plan to: (i) increase the number of shares of common stock authorized and reserved for issuance under the Plan by two hundred thousand (200,000) shares, such that after giving effect to such increase, the aggregate number of shares of common stock authorized and reserved to be issued under the Amended and Restated Nonstatutory Incentive Plan is one million three hundred and thirty-five thousand three hundred and twenty-five (1,335,325), (ii) disallow the granting of stock bonuses and rights to acquire restricted stock under the Nonstatutory Incentive Plan, and (iii) provide that the board of directors cannot, without approval of our stockholders, amend any outstanding option granted under the Nonstatutory Incentive Plan to reduce its exercise price or cancel and replace any outstanding option with grants having a lower exercise price. CV THERAPEUTICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 12. EVENTS SUBSEQUENT TO DATE OF AUDITORS' REPORT (UNAUDITED-CONTINUED) We amended our 2000 Equity Incentive Plan to: (i) disallow the granting of stock bonuses and rights to acquire restricted stock under the Equity Incentive Plan, and (ii) provide that the board of directors cannot, without the approval of our stockholders, amend any outstanding option granted under the Equity Incentive Plan to reduce its exercise price or cancel and replace any outstanding option with grants having a lower exercise price. Finally, we amended our Non-Employee Directors' Stock Option Plan to: (i) permit the exercise of options granted thereunder through the "cashless exercise" program described in the Directors' Option Plan without regard to the number of shares being acquired in connection with such exercise, and (ii) provide that the board of directors may amend outstanding options under the Directors' Option Plan; provided that such amendments be consented to in writing to the extent they impair the existing rights of optionees, and provided further that the board cannot, without the approval of our stockholders, amend any outstanding option granted under the Directors' Option Plan to reduce its exercise price or cancel and replace any outstanding option with grants having a lower exercise price. In March of 2002, we sold 209,645 shares of common stock for net proceeds of $8.4 million under the financing commitment from Acqua Wellington North American Equities, Ltd. We have now issued shares representing a total of $67.4 million under this commitment. EX-10 3 exhibit103.txt EXHIBIT 10.3 CV Therapeutics, Inc. NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN Amended and Restated by the Board of Directors on September 23, 1996 Approved by the Stockholders on October 29, 1996 Amended by the Board of Directors on February 23, 2000 Approved by the Stockholders on May 16, 2000 Amended and Restated by the Board of Directors on August 21, 2000 Amended and Restated by the Board of Directors on February 25, 2002 1. Purpose. (a) The purpose of the Non-Employee Directors' Stock Option Plan (the "Plan") is to provide a means by which each director of CV Therapeutics, Inc. (the "Company") who is not otherwise an employee of the Company or of any Affiliate of the Company (each such person being hereafter referred to as a "Non-Employee Director") will be given an opportunity to purchase stock of the Company. (b) The word "Affiliate" as used in the Plan means any parent corporation or subsidiary corporation of the Company as those terms are defined in Sections 424(e) and (f), respectively, of the Internal Revenue Code of 1986, as amended from time to time (the "Code"). (c) The Company, by means of the Plan, seeks to retain the services of persons now serving as Non-Employee Directors of the Company, to secure and retain the services of persons capable of serving in such capacity, and to provide incentives for such persons to exert maximum efforts for the success of the Company. 2. Administration. (a) The Plan shall be administered by the Board of Directors of the Company (the "Board") unless and until the Board delegates administration to a committee, as provided in subparagraph 2(b). (b) The Board may delegate administration of the Plan to a committee composed of not fewer than two (2) members of the Board (the "Committee"). If administration is delegated to a Committee, the Committee shall have, in connection with the administration of the Plan, the powers theretofore possessed by the Board, subject, however, to such resolutions, not inconsistent with the provisions of the Plan, as may be adopted from time to time by the Board. The Board may abolish the Committee at any time and revest in the Board the administration of the Plan. 3. Shares Subject To The Plan. (a) Subject to the provisions of paragraph 10 relating to adjustments upon changes in stock, the stock that may be sold pursuant to options granted under the Plan shall not exceed in the aggregate four hundred thousand (400,000) shares of the Company's common stock. If any option granted under the Plan shall for any reason expire or otherwise terminate without having been exercised in full, the stock not purchased under such option shall again become available for the Plan. (b) The stock subject to the Plan may be unissued shares or reacquired shares, bought on the market or otherwise. 4. Eligibility. Options shall be granted only to Non-Employee Directors of the Company. 5. Non-Discretionary Grants. (a) Each person who is a Non-Employee Director on September 23, 1996 automatically shall be granted an option to purchase fifteen thousand (15,000) shares of the Company's common stock (after taking into account the 1:10 reverse split adopted by the Board in September 1996) on the terms and conditions set forth herein. (b) Each person who is, after August 21, 2000, elected for the first time to be a Non-Employee Director automatically shall, upon the date of such person's initial election to be a Non- Employee Director by the Board or stockholders of the Company, be granted an option to purchase twenty-five thousand (25,000) shares of the Company's common stock on the terms and conditions set forth herein. (c) At each annual meeting of the stockholders following the effectiveness of the initial public offering of the Company's common stock until and including the 1998 Annual Meeting, each person then serving as a Non-Employee Director automatically shall be granted an option to purchase five thousand (5,000) shares of the Company's common stock (after taking into account the 1:10 reverse split adopted by the Board in September 1996) on the terms and conditions set forth herein; at each annual meeting of the stockholders beginning with the 1999 Annual Meeting, each person then serving as a Non-Employee Director automatically shall be granted an option to purchase seven thousand five hundred (7,500) shares of the Company's common stock on the terms and conditions set forth herein. 6. Option Provisions. Each option shall be subject to the following terms and conditions: (a) The term of each option commences on the date it is granted and, unless sooner terminated as set forth herein, expires on the date ("Expiration Date") ten (10) years from the date of grant. If the optionee's service as a Director of the Company terminates for any reason or for no reason, the option shall terminate on the earlier of the Expiration Date or the date three (3) months following the date of termination of service; provided, however, that if such termination of service is due to the optionee's death, the option shall terminate on the earlier of the Expiration Date or eighteen (18) months following the date of the optionee's death. In any and all circumstances, an option may be exercised following termination of the optionee's service as a Non-Employee Director of the Company only as to that number of shares as to which it was exercisable on the date of termination of such service under the provisions of subparagraph 6(e). (b) Subject to applicable law, the exercise price of each option shall be the fair market value of the stock subject to such option on the date such option is granted. (c) The optionee may elect to make payment of the exercise price under one of the following alternatives: (i) Payment of the exercise price per share in cash at the time of exercise; or (ii) Provided that at the time of the exercise the Company's common stock is publicly traded and quoted regularly in the Wall Street Journal, payment by delivery of shares of common stock of the Company already owned by the optionee, held for the period required to avoid a charge to the Company's reported earnings, and owned free and clear of any liens, claims, encumbrances or security interest, which common stock shall be valued at its fair market value on the date preceding the date of exercise; or (iii) Payment by a combination of the methods of payment specified in subparagraph 6(c)(i) and 6(c)(ii) above. Notwithstanding the foregoing, this option may be exercised pursuant to a program developed under Regulation T as promulgated by the Federal Reserve Board which results in the receipt of cash (or check) by the Company prior to the issuance of shares of the Company's common stock. (d) An option shall not be transferable except by will or by the laws of descent and distribution, and shall be exercisable during the lifetime of the person to whom the option is granted only by such person or by such person's guardian or legal representative. The person to whom the Option is granted may, by delivering written notice to the Company, in a form satisfactory to the Company, designate a third party who, in the event of the death of the Optionee, shall thereafter be entitled to exercise the Option. (e) Each option shall become exercisable as follows: the initial grants described in Sections 5(a) and 5(b) shall become exercisable ("vest") at the rate of two and seventy-seven one hundredths percent (2.77%) per month over the thirty-six (36) months after the date of grant; and the annual grants described in Section 5(c) shall vest at the rate of eight and thirty-three one hundredths (8.33%) per month over the twelve-month (12-month) period following the date of grant; provided that the optionee has, during the entire period prior to such vesting date, continuously served as a Non-Employee Director or as an employee of or consultant to the Company or any Affiliate of the Company, whereupon such option shall become fully exercisable in accordance with its terms with respect to that portion of the shares represented by that installment. (f) The Company may require any optionee, or any person to whom an option is transferred under subparagraph 6(d), as a condition of exercising any such option: (i) to give written assurances satisfactory to the Company as to the optionee's knowledge and experience in financial and business matters; and (ii) to give written assurances satisfactory to the Company stating that such person is acquiring the stock subject to the option for such person's own account and not with any present intention of selling or otherwise distributing the stock. These requirements, and any assurances given pursuant to such requirements, shall be inoperative if (i) the issuance of the shares upon the exercise of the option has been registered under a then-currently-effective registration statement under the Securities Act of 1933, as amended (the "Securities Act"), or (ii), as to any particular requirement, a determination is made by counsel for the Company that such requirement need not be met in the circumstances under the then-applicable securities laws. (g) Notwithstanding anything to the contrary contained herein, an option may not be exercised unless the shares issuable upon exercise of such option are then registered under the Securities Act or, if such shares are not then so registered, the Company has determined that such exercise and issuance would be exempt from the registration requirements of the Securities Act. (h) The Company (or a representative of the underwriters) may, in connection with the first underwritten registration of the offering of any securities of the Company under the Securities Act, require that any optionee not sell or otherwise transfer or dispose of any shares of common stock or other securities of the Company during such period (not to exceed one hundred eighty (180) days) following the effective date of the registration statement of the Company filed under the Securities Act as may be requested by the Company or the representative of the underwriters. 7. Covenants Of The Company. (a) During the terms of the options granted under the Plan, the Company shall keep available at all times the number of shares of stock required to satisfy such options. (b) The Company shall seek to obtain from each regulatory commission or agency having jurisdiction over the Plan such authority as may be required to issue and sell shares of stock upon exercise of the options granted under the Plan; provided, however, that this undertaking shall not require the Company to register under the Securities Act either the Plan, any option granted under the Plan, or any stock issued or issuable pursuant to any such option. If, after reasonable efforts, the Company is unable to obtain from any such regulatory commission or agency the authority which counsel for the Company deems necessary for the lawful issuance and sale of stock under the Plan, the Company shall be relieved from any liability for failure to issue and sell stock upon exercise of such options. 8. Use Of Proceeds From Stock. Proceeds from the sale of stock pursuant to options granted under the Plan shall constitute general funds of the Company. 9. Miscellaneous. (a) Neither an optionee nor any person to whom an option is transferred under subparagraph 6(d) shall be deemed to be the holder of, or to have any of the rights of a holder with respect to, any shares subject to such option unless and until such person has satisfied all requirements for exercise of the option pursuant to its terms. (b) Nothing in the Plan or in any instrument executed pursuant thereto shall confer upon any Non-Employee Director any right to continue in the service of the Company or any Affiliate or shall affect any right of the Company, its Board or stockholders or any Affiliate to terminate the service of any Non- Employee Director with or without cause. (c) No Non-Employee Director, individually or as a member of a group, and no beneficiary or other person claiming under or through him, shall have any right, title or interest in or to any option reserved for the purposes of the Plan except as to such shares of common stock, if any, as shall have been reserved for him pursuant to an option granted to him. (d) In connection with each option made pursuant to the Plan, it shall be a condition precedent to the Company's obligation to issue or transfer shares to a Non-Employee Director, or to evidence the removal of any restrictions on transfer, that such Non-Employee Director make arrangements satisfactory to the Company to insure that the amount of any federal or other withholding tax required to be withheld with respect to such sale or transfer, or such removal or lapse, is made available to the Company for timely payment of such tax. (e) As used in this Plan, fair market value means, as of any date, the value of the common stock of the Company determined as follows: (i) If the common stock of the Company is listed on any established stock exchange, or traded on the Nasdaq National Market or the Nasdaq SmallCap Market, the Fair Market Value of a share of common stock of the Company shall be the closing sales price for such stock (or the closing bid, if no sales were reported) as quoted on such exchange or market (or the exchange or market with the greatest volume of trading in common stock of the Company) on the last market trading day prior to the day of determination, as reported in the Wall Street Journal or such other source as the Board deems reliable; (ii) In the absence of such markets for the common stock of the Company, the Fair Market Value shall be determined in good faith by the Board. 10. Adjustments Upon Changes In Stock. (a) f any change is made in the stock subject to the Plan, or subject to any option granted under the Plan (through merger, consolidation, reorganization, recapitalization, stock dividend, dividend in property other than cash, stock split, liquidating dividend, combination of shares, exchange of shares, change in corporate structure or otherwise), the Plan and outstanding options will be appropriately adjusted in the class(es) and maximum number of shares subject to the Plan and the class(es) and number of shares and price per share of stock subject to outstanding options. (b) In the event of: (1) a merger or consolidation in which the Company is not the surviving corporation; (2) a reverse merger in which the Company is the surviving corporation but the shares of the Company's common stock outstanding immediately preceding the merger are converted by virtue of the merger into other property, whether in the form of securities, cash or otherwise; or (3) any other capital reorganization in which more than fifty percent (50%) of the shares of the Company entitled to vote are exchanged, any surviving corporation, other than the Company, shall assume any options outstanding under the Plan or shall substitute similar options for those outstanding under the Plan or, if the Company is the surviving corporation, such options shall continue in full force and effect. 11. Amendment Of The Plan And Options. (a) The Board at any time, and from time to time, may amend the Plan. Except as provided in paragraph 10 relating to adjustments upon changes in stock, no amendment shall be effective unless approved by the stockholders of the Company within twelve (12) months before or after the adoption of the amendment, where the amendment will increase the number of shares which may be issued under the Plan. (b) The Board at any time, and from time to time, may amend the terms of any one or more options granted under the Plan; provided, however, that the rights and obligations under any option granted before any amendment of the Plan shall not be altered or impaired by such amendment unless (i) the Company requests the consent of the person to whom the option was granted and (ii) such person consents in writing. Notwithstanding the foregoing, the Board shall not, without the approval of the stockholders of the Company, authorize the amendment of any outstanding option to reduce its exercise price. Furthermore, no option shall be canceled and replaced with grants having a lower exercise price without the further approval of stockholders of the Company. 12. Termination Or Suspension Of The Plan. (a) The Board may suspend or terminate the Plan at any time. Unless sooner terminated, the Plan shall terminate ten years from the date the Board approves this amendment and restatement of the Plan. No options may be granted under the Plan while the Plan is suspended or after it is terminated. (b) Rights and obligations under any option granted while the Plan is in effect shall not be altered or impaired by suspension or termination of the Plan, except with the consent of the person to whom the option was granted. (c) The Plan shall terminate upon the occurrence of any of the events described in Section 10(b) above. 13. Effective Date Of Plan; Conditions Of Exercise. (a) This amendment and restatement of the Plan shall become effective upon adoption by the Board of Directors, subject to the condition subsequent that this amendment and restatement of the Plan is approved by the stockholders of the Company. Following the effective date of this amendment and restatement, options shall not be granted under the terms of the Plan in effect prior to such effective date. (b) No option granted under the Plan shall be exercised or exercisable unless and until the condition of subparagraph 13(a) above has been met. EX-10 4 exhibit1020.txt EXHIBIT 10.20 COMMON STOCK PURCHASE AGREEMENT Between CV THERAPEUTICS, INC. and BIOTECH MANUFACTURING LTD. Dated as of March 7, 1997 COMMON STOCK PURCHASE AGREEMENT THIS COMMON STOCK PURCHASE AGREEMENT (this "Agreement"), dated as of this 7th day of March, 1997 (the "Effective Date"), between CV Therapeutics, Inc. (the "Company") and Biotech Manufacturing Ltd., a wholly-owned subsidiary of Biogen, Inc.(the "Purchaser"). WHEREAS, the Purchaser desires to acquire and the Company is willing to issue and sell to the Purchaser shares of Common Stock, $.001 par value (the "Common Stock"), of the Company, subject to the terms and conditions specified herein. NOW, therefore, in consideration of the premises and the mutual covenants contained in this Agreement, the parties agree as follows: ARTICLE I DEFINITIONS SECTION 1.01 Definitions. As used in this Agreement, references to either gender shall include the other gender, and the following terms shall have the following meanings (such meanings to be equally applicable to both the singular and plural forms of the terms defined): "Agreement" means this Common Stock Purchase Agreement, as amended, modified or supplemented from time to time. "Biogen Agreement" means the Research Collaboration and License Agreement between the Company and Biogen, Inc. of even date herewith, as amended, modified or supplemented from time to time. "Business Day" means any day on which commercial banks are not authorized or required by law to close in New York, New York. "BML Collaboration Agreement" means the Research Collaboration and License Agreement between the Company and the Purchaser of even date herewith, as amended, modified or supplemented from time to time. "Commission" means the United States Securities and Exchange Commission, or any other agency successor thereto. "Common Stock" has the meaning specified in the recitals to this Agreement. "Company" means and shall include CV Therapeutics, Inc., a Delaware corporation, and its successors and permitted assigns. "Current Per Share Market Price" of the Common Stock on any date shall mean the average of the daily closing prices per share of Common Stock for the 20 consecutive Trading Days immediately prior to such date; provided that in the event that the current per share market price of Common Stock is determined during a period following the announcement by the Company of (A) a dividend or distribution on the Common Stock payable in shares of Common Stock or securities convertible into shares of Common Stock or (B) any subdivision, combination or reclassification of the Common Stock and prior to the expiration of 20 Trading Days after the ex-dividend date for such dividend or distribution, or the record date for such subdivision, combination or reclassification, then, and in each such case, the Current Per Share Market Price shall be appropriately adjusted to reflect ex-dividend trading or such subdivision, combination or reclassification. The closing price for each day shall be the last reported sales price of the Common Stock as reported by the Nasdaq National Market, or the primary national securities exchange on which the Common Stock is then quoted; provided, however, that if the Common Stock is neither traded on the Nasdaq National Market nor on a national securities exchange, the price referred to above shall be the price in the over-the-counter market as reported by the National Association of Securities Dealers' Automated Quotation System or, if not so reported, the price as reported by the National Quotation Bureau, Inc., or any organization performing a similar function. "First Anniversary Closing" has the meaning specified in Section 3.01(a). "First Anniversary Date" has the meaning specified in Section 3.01(a). "First Anniversary Shares" has the meaning specified in Section 3.01(a). "Initial Closing" has the meaning specified in Section 2.01(b). "Initial Shares" has the meaning specified in Section 2.01(a). "Investor Rights Agreement" means the Amended and Restated Investor Rights Agreement dated May 29, 1996, as amended, modified or supplemented from time to time, by and among the Company and certain investors of the Company (including the Purchaser). "Loan Agreement" means the Loan Agreement of even date herewith between the Company and the Purchaser, as amended, modified or supplemented from time to time. "Milestone Closing" has the meaning specified in Section 3.03(a). "Milestone Date" has the meaning specified in Section 3.03(a). "Milestone Shares" has the meaning specified in Section 3.03(a). "Person" means an individual, corporation, partnership, association, joint venture, trust, or unincorporated organization, or a government or any agency or political subdivision thereof. "Purchaser" means and shall include Biotech Manufacturing Ltd., a wholly-owned subsidiary of Biogen, Inc., and its successors and permitted assigns. "Recapitalization Event" means any stock dividend, stock split, combination, reorganization, recapitalization, reclassification, consolidation, merger or similar event involving a change in the Company's corporate structure. "Second Anniversary Closing" has the meaning specified in Section 3.02(a). "Second Anniversary Date" has the meaning specified in Section 3.02(a). "Second Anniversary Shares" has the meaning specified in Section 3.02(a). "Securities Act" means the Securities Act of 1933 or any similar Federal statute, and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time. "Shares" means (i) the Initial Shares, (ii) the First Anniversary Shares, if issued pursuant to Section 3.01, (iii) the Second Anniversary Shares, if issued pursuant to Section 3.02, (iv) the Milestone Shares, if issued pursuant to Section 3.03 and (v) any other shares of Common Stock issued to the Purchaser in respect of the foregoing Shares because of any Recapitalization Event. "Trading Day" means a day on which the principal national securities exchange on which the Common Stock is listed or admitted to trading is open for the transaction of business or, if the Common Stock is not listed or admitted to trading on any national securities exchange, a Business Day. "Transaction Documents" shall mean this Agreement and any other instruments or certificates to be executed and delivered in connection with this Agreement upon the Initial Closing. ARTICLE II PURCHASE AND SALE OF THE INITIAL SHARES SECTION 2.01 Purchase and Sale of the Initial Shares. (a) Issuance of the Initial Shares. Subject to the terms and conditions of this Agreement, at the Initial Closing (as defined below) the Company agrees to issue and sell to the Purchaser and the Purchaser agrees to purchase from the Company, at an aggregate purchase price of seven million dollars ($7,000,000), such number of shares (rounded to the nearest whole share) of Common Stock (the "Initial Shares") equal to 7,000,000 divided by the product of 1.35 times the Current Per Share Market Price as of the date which is two Business Days prior to the Initial Closing. Notwithstanding the foregoing, in no event shall the above calculation result in the Purchaser receiving less than 583,333 Initial Shares nor more than 736,842 Initial Shares in exchange for payment of the aggregate purchase price as specified above. (b) Initial Closing; Delivery of the Initial Shares. The purchase and sale of the Initial Shares shall take place at a closing (the "Initial Closing") to be held at the offices of Biogen, Inc., 14 Cambridge Center, Cambridge, MA 02142, at [__] A.M. (local time) on March 10, 1997, or at such other location, time and date as may be mutually agreed upon by the parties. At the Initial Closing, subject to the terms and conditions contained in this Agreement, the Company will provide evidence satisfactory to the Purchaser that the Company has taken all steps necessary to cause to be issued to the Purchaser a stock certificate evidencing the Initial Shares, registered in the name of the Purchaser and dated as of the date of the Initial Closing, which stock certificate shall be delivered to the Purchaser within two Business Days of the Initial Closing, against delivery of a certified or official bank check payable to the order of the Company in New York Clearing House or similar same day funds or against receipt of a wire transfer of immediately available funds to an account of the Company specified to the Purchaser, in an amount equal to seven million dollars ($7,000,000), in payment of the full purchase price for the Initial Shares. ARTICLE III PURCHASE OF ADDITIONAL SHARES SECTION 3.01 Purchase and Sale of First Anniversary Shares. (a) First Anniversary Shares. On the date which is the first anniversary of the Effective Date or, if such date is not a Business Day, on the next Business Day (the "First Anniversary Date"), unless either the Company or Biogen, Inc. has delivered a notice of termination of the Research Program (as defined in the Biogen Agreement) prior to the First Anniversary Date, in accordance with the provisions of Section 8.5 of the Biogen Agreement, the Company shall become obligated to issue and sell to the Purchaser and the Purchaser shall become obligated to purchase from the Company, in each case subject to and in reliance upon the representations, warranties, terms and conditions of this Agreement, at an aggregate purchase price of two million dollars ($2,000,000), such number of shares (rounded to the nearest whole share) of Common Stock (the "First Anniversary Shares") equal to 2,000,000 divided by the Current Per Share Market Price on the date which is two Business Days prior to the First Anniversary Date at a closing (the "First Anniversary Closing"). (b) First Anniversary Closing; Delivery of First Anniversary Shares. The purchase and sale of the First Anniversary Shares shall take place at the First Anniversary Closing, to be held at the principal offices of the Company, at 10:00 a.m. (local time) on the date determined pursuant to subsection (a) above, or at such other location, time, or date as may be mutually agreed upon. At the First Anniversary Closing, subject to the terms and conditions contained in this Agreement, the Company will issue a stock certificate evidencing the First Anniversary Shares, registered in the name of the Purchaser, against delivery of a certified or official bank check payable to the order of the Company in New York Clearing House or similar same day funds or against receipt of a wire transfer of immediately available funds to an account of the Company specified to the Purchaser, in the amount equal to two million dollars ($2,000,000), in payment of the full purchase price for the First Anniversary Shares. SECTION 3.02 Purchase and Sale of Second Anniversary Shares. (a) Second Anniversary Shares. On the date which is the second anniversary of the Effective Date or, if such date is not a Business Day, on the next Business Day (the "Second Anniversary Date"), unless either the Company or Biogen, Inc. has delivered a notice of termination of the Research Program (as defined in the Biogen Agreement) prior to the Second Anniversary Date, in accordance with the provisions of Section 8.5 of the Biogen Agreement, the Company shall become obligated to issue and sell to the Purchaser and the Purchaser shall become obligated to purchase from the Company, in each case subject to and in reliance upon the representations, warranties, terms and conditions of this Agreement, at an aggregate purchase price of two million dollars ($2,000,000), such number of shares (rounded to the nearest whole share) of Common Stock (the "Second Anniversary Shares") equal to 2,000,000 divided by the Current Per Share Market Price on the date which is two Business Days prior to the Second Anniversary Date at a closing (the "Second Anniversary Closing"). (b) Second Anniversary Closing; Delivery of Second Anniversary Shares. The purchase and sale of the Second Anniversary Shares shall take place at the Second Anniversary Closing, to be held at the principal offices of the Company, at 10:00 a.m. (local time) on the date determined pursuant to subsection (a) above, or at such other location, time, or date as may be mutually agreed upon. At the Second Anniversary Closing, subject to the terms and conditions contained in this Agreement, the Company will issue a stock certificate evidencing the Second Anniversary Shares, registered in the name of the Purchaser, against delivery of a certified or official bank check payable to the order of the Company in New York Clearing House or similar same day funds or against receipt of a wire transfer of immediately available funds to an account of the Company specified to the Purchaser, in the amount equal to two million dollars ($2,000,000), in payment of the full purchase price for the Second Anniversary Shares. SECTION 3.03 Purchase and Sale of Milestone Shares. (a) Milestone Shares. Fifteen days after the date on which the Purchaser gives notice to the Company of its decision to commence a Phase III clinical study of a PRODUCT for use in CHF, or otherwise becomes obligated to purchase equity in the Company in connection with such milestone, as defined and provided for in the BML Collaboration Agreement, or, if such date is not a Business Day, on the next Business Day (the "Milestone Date"), the Company shall become obligated to issue and sell to the Purchaser and the Purchaser shall become obligated to purchase from the Company, in each case subject to and in reliance upon the representations, warranties, terms and conditions of this Agreement, at an aggregate purchase price of two million five hundred thousand dollars ($2,500,000), such number of shares (rounded to the nearest whole share) of Common Stock (the "Milestone Shares") equal to 2,500,000 divided by the Current Per Share Market Price on the date which is two Business Days prior to the Milestone Date at a closing (the "Milestone Closing"). (b) Milestone Closing; Delivery of Milestone Shares. The purchase and sale of the Milestone Shares shall take place at the Milestone Closing, to be held at the principal offices of the Company, at 10:00 a.m. (local time) on the date determined pursuant to subsection (a) above, or at such other location, time, or date as may be mutually agreed upon. At the Milestone Closing, subject to the terms and conditions contained in this Agreement, the Company will issue a stock certificate evidencing the Milestone Shares, registered in the name of the Purchaser, against delivery of a certified or official bank check payable to the order of the Company in New York Clearing House or similar same day funds or against receipt of a wire transfer of immediately available funds to an account of the Company specified to the Purchaser, in the amount equal to two million five hundred thousand dollars ($2,500,000), in payment of the full purchase price for the Milestone Shares. SECTION 3.04 Limit on Share Ownership. Notwithstanding any provision of this Agreement to the contrary, Purchaser shall in no event be required to purchase shares of Common Stock if, after giving effect to such purchase, the sum of (i) the number of shares of Common Stock purchased hereunder and (ii) the number of shares of Common Stock of the Company tendered to the Purchaser in connection with the Loan Agreement would exceed 19.9% of the amount of the then outstanding shares of Common Stock. Notwithstanding the foregoing, in order to insure for the Company the benefits of the transactions contemplated in this Agreement and the Loan Agreement, and the covenants set forth in Section 7.01 hereof, to the extent that Purchaser has acquired Voting Securities in transactions other than those described in Article III hereof and the Loan Agreement ("Other Voting Securities") the Purchaser shall sell such Other Voting Securities to the extent necessary to permit the transactions contemplated herein or in the Loan Agreement to be consummated without violation of the provisions of this Section 3.04 and Section 7.01 hereof. SECTION 3.05 Certain Trading Restrictions. Purchaser will not, nor will it permit any of its Affiliates (as such term is used in Rule 12b-2 of the Securities Exchange Act of 1934 (the "Exchange Act"), such term to have such definition as used throughout this Agreement) to, during the 30 consecutive Trading Days prior to the date of any determination of Current Per Share Market Price hereunder, (a) acquire any Voting Securities (as defined in Section 7.01), (b) offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, or otherwise transfer or dispose of, directly or indirectly, any Voting Securities or (c) enter into any swap or similar agreement that transfers, in whole or in part, the economic risk of ownership of Voting Securities, whether any such transaction described in clause (a), (b) or (c) above is to be settled by delivery of Voting Securities or such other securities, in cash or otherwise. SECTION 3.06 Compliance with NASDAQ Stock Market Rule 4460(i)(1)(D). Notwithstanding any provision of this Agreement to the contrary, except as otherwise permitted by the rules of the NASDAQ Stock Market, the Company shall in no event be obligated to issue and sell, and the Purchaser shall in no event be obligated to purchase, shares of Common Stock pursuant to Article III hereof or the Loan Agreement, to the extent that such issuance and sale would result in the number of shares of Common Stock purchased hereunder and tendered in connection with the Loan Agreement constituting (i) the sale or issuance of 20% or more of the Common Stock or (ii) the sale or issuance of securities constituting 20% or more of voting power for less than the greater of book or market value. ARTICLE IV CONDITIONS TO CLOSINGS SECTION 4.01 Mutual Conditions to Closings. The obligation of the Purchaser to purchase and pay for, and the obligation of the Company to issue and sell to the Purchaser, the Initial Shares at the Initial Closing, the First Anniversary Shares at the First Anniversary Closing, the Second Anniversary Shares at the Second Anniversary Closing, and the Milestone Shares at the Milestone Closing, in each case is subject to the following conditions: (i) No Injunction. No injunction or order of any court or other governmental authority restraining the consummation of the transactions provided for herein or contemplated by the other Transaction Documents shall be in effect; and (ii) No Termination. This Agreement shall not have been terminated pursuant to Section 8.03, and neither the BML Collaboration Agreement nor the Biogen Agreement shall have been terminated. SECTION 4.02 Conditions to Purchaser's Obligations. The obligation of the Purchaser to purchase and pay for the Initial Shares at the Initial Closing, the First Anniversary Shares at the First Anniversary Closing, the Second Anniversary Shares at the Second Anniversary Closing and the Milestone Shares at the Milestone Closing, in each case is subject to the following additional conditions: (i) Representations and Warranties. Each of the representations and warranties of the Company set forth in Article V hereof shall be true and correct in all material respects on the date of such closing; (ii) Executed Counterparts. The Purchaser shall have received prior to or at the Initial Closing counterparts of each of the Transaction Documents, the Biogen Agreement, the BML Collaboration Agreement and the Loan Agreement, each in form and substance reasonably satisfactory to the Purchaser, duly executed by the Company; (iii) Delivery of Stock Certificates. The Company shall have delivered to the Purchaser (i) at the Initial Closing, evidence satisfactory to the Purchaser that the Company has taken all steps necessary to cause to be issued to the Purchaser a stock certificate evidencing the Initial Shares, as specified in Section 2.01(b), and (ii) at the other closings contemplated hereunder, a stock certificate evidencing the First Anniversary Shares, the Second Anniversary Shares or the Milestone Shares (as the case may be), registered in the name of the Purchaser; (iv) Opinion of Counsel. The Purchaser shall have received prior to or at the Initial Closing an opinion from counsel to the Company in substantially the form attached hereto as Exhibit A; (v) Documentation at Initial Closing. The Purchaser shall have received, prior to or at the Initial Closing, a certificate, executed by the Secretary of the Company and dated as of the date of the Initial Closing, together with and certifying as to (A) the resolutions of the Board of Directors of the Company authorizing the execution and delivery of this Agreement, the Biogen Agreement, the BML Collaboration Agreement, the Loan Agreement and the other Transaction Documents and the performance by the Company of all transactions contemplated hereby and thereby; (B) a copy of the Certificate of Incorporation of the Company, as amended and in effect as of the date of the Initial Closing; (C) a copy of the by-laws of the Company, as amended and in effect as of the date of the Initial Closing; and (D) the names of the officers of the Company authorized to sign the Transaction Documents together with the true signatures of such officers; (vi) Documents and Proceedings. All documents to be provided to the Purchaser hereunder, and all corporate and other proceedings taken or required to be taken in connection with the transactions contemplated hereby and to be consummated at or prior to the Initial Closing, the First Anniversary Closing and the Second Anniversary Closing and the Milestone Closing (as the case may be) and all documents incident thereto, shall be satisfactory in form and substance to the Purchaser or its counsel; and (vii) Waiver. Any condition specified in this Section 4.02 may be waived by the Purchaser. SECTION 4.03 Conditions to Company's Obligations. The obligation of the Company to issue and sell the Initial Shares at the Initial Closing, the First Anniversary Shares at the First Anniversary Closing, the Second Anniversary Shares at the Second Anniversary Closing and the Milestone Shares at the Milestone Closing, in each case is subject to the following additional conditions: (i) Representations and Warranties. Each of the representations and warranties of the Purchaser set forth in Article V hereof shall be true and correct in all material respects on the date of such closing; (ii) Executed Counterparts. The Company shall have received prior to or at the Initial Closing counterparts of each of the Transaction Documents, the Biogen Agreement, the BML Collaboration Agreement and the Loan Agreement, each in form and substance reasonably satisfactory to the Company, duly executed by the Purchaser (or Biogen, Inc., as the case may be); (iii) Payment. The Company shall have received payment in full for the Initial Shares, the First Anniversary Shares, the Second Anniversary Shares or the Milestone Shares (as the case may be), in accordance with Section 2.01, 3.01, 3.02 or 3.03, as applicable; (iv) Documentation at Initial Closing. The Company shall have received, prior to or at the Initial Closing, a certificate, executed by the Secretary or an Assistant Secretary of Biogen, Inc. and dated as of the date of the Initial Closing, together with and certifying as to (A) the resolutions of the Board of Directors of Biogen, Inc. authorizing the execution and delivery of this Agreement, the Biogen Agreement, the BML Collaboration Agreement, the Loan Agreement and the other Transaction Documents and the performance by Biogen, Inc. or the Purchaser of all transactions contemplated hereby and thereby; and (B) the names of the officers of each of Biogen, Inc. and the Purchaser authorized to sign the Transaction Documents together with the true signatures of such officers; (v) Documents and Proceedings. All documents to be provided to the Company hereunder , and all corporate and other proceedings taken or required to be taken in connection with the transactions contemplated hereby and to be consummated at or prior to the Initial Closing, the First Anniversary Closing, the Second Anniversary Closing and the Milestone Closing (as the case may be) and all documents incident thereto, shall be satisfactory in form and substance to the Company or its counsel; and (vi) Waiver. Any condition specified in this Section 4.03 may be waived by the Company. ARTICLE V REPRESENTATIONS AND WARRANTIES SECTION 5.01 Representations and Warranties of the Company. The Company represents and warrants to the Purchaser as follows: (a) Organization and Standing of the Company. The Company is a duly organized and validly existing corporation in good standing under the laws of the State of Delaware and has all requisite corporate power and authority to own and operate its assets and properties and to conduct its business as presently conducted, except where the failure to do so would not have a material adverse effect on the Company and its subsidiaries taken as a whole. (b) Corporate Action. The Company has all necessary corporate power and has taken all corporate action required to authorize its execution and delivery of, and its performance under, the Transaction Documents and the Company has all necessary corporate power and has taken all corporate action required to authorize the issuance and sale of the Initial Shares, the First Anniversary Shares, the Second Anniversary Shares and the Milestone Shares and to consummate the other transactions contemplated by the Transaction Documents. (c) Governmental Approvals. No authorization, consent, approval, license, exemption of or filing or registration with any court or governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, is necessary for, or in connection with, the issuance and sale of (w) the Initial Shares on the date of the Initial Closing, (x) the First Anniversary Shares on the date of the First Anniversary Closing, (y) the Second Anniversary Shares on the date of the Second Anniversary Closing, or (z) the Milestone Shares on the date of the Milestone Closing, or the execution and delivery by the Company of, or for the performance by it of its obligations under, the Transaction Documents. (d) Capitalization. As of the date hereof, the authorized capital stock of the Company is 30,000,000 shares of Common Stock, $.001 par value, of which 6,211,817 shares are issued and outstanding as of the date hereof and of which 23,039 shares are treasury shares as of the date hereof. The Initial Shares, when issued against payment of the aggregate purchase price set forth in Section 2.01, the First Anniversary Shares, if and when issued against payment of the aggregate purchase price set forth in Section 3.01, the Second Anniversary Shares, if and when issued against payment of the aggregate purchase price set forth in Section 3.02, and the Milestone Shares, if and when issued against payment of the aggregate purchase price set forth in Section 3.03, will be duly authorized, validly issued and fully paid and non-assessable and not subject to any lien, claims or encumbrances by reason of the Company's charter or bylaws or by reason of any other consensual action taken by the Company. As of the date hereof, except as described or contemplated in the IPO Registration Statement (as defined in Section 5.01(j)) and the SEC Reports (as defined in Section 5.01(k), there are no options, warrants, convertible securities or other rights to purchase shares of capital stock or other securities of the Company which are authorized, issued or outstanding, nor is the Company obligated in any other manner to issue shares of its capital stock or other securities, and the Company has no obligation to purchase, redeem or otherwise acquire any shares of its capital stock or any interest therein or to pay any dividend or make any other distribution in respect thereof, except as contemplated by the Transaction Documents. Except as described in the IPO Registration Statement and the SEC Reports, and except as otherwise contemplated by the Transaction Documents, (i) no person is entitled to any preemptive right, catch-up right, right of first refusal or similar right with respect to the issuance of any capital stock of the Company, (ii) there are no restrictions on the transfer of shares of capital stock of the Company other than those imposed by relevant federal and state securities laws and (iii) there exists no agreement between the Company's stockholders and to which the Company is party with respect to the voting or transfer of the Company's capital stock or with respect to any other aspect of the Company's affairs. (e) Registration Rights. As of the Initial Closing Date, no person has demand or other rights to cause the Company to file any registration statement under the Securities Act relating to any securities of the Company or any right to participate in any such registration statement except as set forth in the Investor Rights Agreement, as amended. (f) Enforceability. The Company has duly authorized, executed and delivered the Transaction Documents, and the Transaction Documents constitute the legal, valid and binding obligations of the Company, enforceable in accordance with their respective terms, except as enforcement may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting creditors' rights generally and to general principles of equity and limitations on availability of equitable relief, including specific performance, and except as rights to indemnification therein may be limited by applicable laws. (g) Absence of Conflicts. The Company's execution, delivery and performance of its obligations under this Agreement do not and will not (i) contravene its Amended and restated Certificate of Incorporation or Restated By-laws (ii) violate any law, rule, regulation, order, judgment or decree applicable to or binding upon the Company or its properties, which violation would have a material adverse effect on the Company and its subsidiaries taken as a whole, (iii) constitute a breach or default or require any consent under any agreement or instrument to which the Company is a party or by which the Company or its properties is bound or affected which breach or default, or the absence of such consent, would have a material adverse effect on the Company and its subsidiaries taken as a whole, or (iv) require any consent, permit, approval, action, filing or recording. (h) Financial Statements. The Company has previously furnished to the Purchaser a copy of the unaudited balance sheet of the Company at December 31, 1996 and any subsequent complete fiscal year and the related income statement for the year then ended (collectively, the "Financial Statements"). The Financial Statements are correct in all material respects, present fairly the financial condition and results of operations of the Company, as of the dates and for the periods indicated, and have been prepared in accordance with generally accepted accounting principles consistently applied, subject to the absence of notes and normal year end adjustments. (i) Absence of Material Adverse Change. Since the date of the Financial Statements, there has been no change in the assets, liabilities or financial condition of the Company which, when taken together with all other changes in the assets, liabilities or financial condition of the Company, has had a material adverse effect on the business, prospects, financial condition, operations, property or affairs of the Company. (j) Full Disclosure. The Company has furnished or made available to Purchaser the following documents, and the Company warrants that the information contained in such documents, as of their respective dates (or if amended, as of the date of such amendment), did not contain any untrue statement of a material fact, and did not omit to state any material fact necessary to make any statement, in light of the circumstances under which such statement was made, not misleading: (i) The Company's Registration Statement No. 333-12675 declared effective by the Securities Exchange Commission on November 19, 1996 and Prospectus dated November 19, 1996 (the "IPO Registration Statement"); and (ii) All other documents subsequently filed by the Company with the SEC pursuant to the reporting requirements of the 1934 Act. (k) SEC Reports. (i) The Company has filed with the Commission all reports ("SEC Reports") required to be filed by it under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). All of the SEC Reports filed by the Company comply in all material respects with the requirements of the Exchange Act. All financial statements contained in the SEC Reports have been prepared in accordance with generally accepted accounting principles consistently applied throughout the period indicated ("GAAP"). Each balance sheet presents fairly in accordance with GAAP the financial position of the Company as of the date of such balance sheet, and each statement of operations, of stockholders' equity and of cash flows presents fairly in accordance with GAAP the results of operations, the stockholders' equity and the cash flows of the Company for the periods then ended. (ii) The SEC Reports, as of their respective dates (or if amended, as of the date of such amendment), and this Agreement taken together as a whole will not, on the date of the Initial Closing or the date of any subsequent closing pursuant to Article III, as the case may be, contain any untrue statement of a material fact or omit to state any material fact required to be state therein, or necessary to make the statements contained therein, in light of the circumstances under which they were made, not misleading. (l) Securities Laws. Assuming the accuracy of the representations and warranties of the Purchaser contained in Section 5.02 hereof, the issuance of the Shares is exempt from the provisions of the Securities Act. All notices, filings, registrations, or qualifications under state securities or "bluesky" laws which are required in connection with the offer, issue and delivery of the Shares pursuant-to this Agreement, if any, have been or will be completed by the Company. (m) Closing Date. The representations and warranties of the Company contained in this Section 5.01 and elsewhere in this Agreement will be true and correct in all material respects on the date of the Initial Closing or the date of any subsequent closing pursuant to Article III, as the case may be, as though then made, except as affected by the transactions expressly contemplated by this Agreement. SECTION 5.02 Representations and Warranties of the Purchaser. The Purchaser represents and warrants to the Company as follows: (a) Organization and Standing. The Purchaser is a duly organized and validly existing corporation in good standing and has all requisite corporate power and authority to own and operate its assets and properties and to conduct its business as presently conducted, except where the failure to do so would not have a material adverse effect on the Purchaser and its subsidiaries taken as a whole. (b) Corporate Action. The Purchaser has all necessary corporate power and has taken all corporate action required to authorize its execution and delivery of, and its performance under, the Transaction Documents to which it is a party and has all necessary corporate power and has taken all corporate action required to authorize its purchase of the Initial Shares, the First Anniversary Shares, the Second Anniversary Shares and the Milestone Shares and to consummate the other transactions contemplated by the Transaction Documents. (c) Investment Intent. The Purchaser is acquiring (w) the Initial Shares on the date of the Initial Closing, (x) the First Anniversary Shares on the date of the First Anniversary Closing, (y) the Second Anniversary Shares on the date of the Second Anniversary Closing and (z) the Milestone Shares on the date of the Milestone Closing for its own account for the purpose of investment and not with a view to, or for sale in connection with, the distribution thereof, and that it has no present intention of distributing or selling such Shares. The Purchaser understands that such Shares have not been registered under the Securities Act, or the securities laws of any state or other jurisdiction, and hereby agrees not to make any sale, transfer or other disposition of such Shares unless either (i) such Shares have been registered under the Securities Act and all applicable state and other securities laws and any such registration remains in effect or (ii) the Company shall have received an opinion of counsel in form and substance satisfactory to the Company that registration is not required under the Securities Act or under applicable securities laws. (d) Opportunity to Investigate. The Purchaser (i) has had the opportunity to ask questions concerning the Company and all such questions posed have been answered to its satisfaction; (ii) has been given the opportunity to obtain any additional information it deems necessary to verify the accuracy of any information obtained concerning the Company; and (iii) has such knowledge and experience in financial and business matters that it is able to evaluate the merits and risks of purchasing the Shares and to make an informed investment decision relating thereto. (e) Accredited Investor. The Purchaser is an "accredited investor" as such term is defined in Regulation D under the Securities Act. (f) Enforceability. The Purchaser has duly authorized, executed and delivered the Transaction Documents to which it is a party, and such Transaction Documents constitute the legal, valid and binding obligations of the Purchaser, enforceable in accordance with their respective terms, except as enforcement may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting creditors' rights generally and to general principles of equity and limitations on availability of equitable relief, including specific performance, and except as rights to indemnification therein may be limited by applicable laws. (g) Closing Date. The representations and warranties of the Purchaser contained in this Section 5.02 and elsewhere in this Agreement, and all information contained in any writing delivered by, or on behalf of, the Purchaser to the Company, will be true and correct in all material respects on the date of the Initial Closing or the date of any subsequent closing pursuant to Article III, as the case may be, as though then made, except as affected by the transactions expressly contemplated by this Agreement. ARTICLE VI COVENANTS SECTION 6.01 Performance. Each party shall perform all of its obligations hereunder and shall, at or prior to the Initial Closing, execute and deliver the other Transaction Documents, the Biogen Agreement and the BML Collaboration Agreement to which it is contemplated to be a signatory. SECTION 6.02 Cooperation. Each party shall endeavor in good faith to perform and fulfill all conditions and obligations on their respective parts to be fulfilled or performed hereunder or under the other Transaction Documents, to the end that the transactions contemplated hereby and thereby will be fully and timely consummated. SECTION 6.03 Registration Rights. The Company shall, as promptly as practicable, and in any event not later than ten (10) business days after the Initial Closing Date, cause an amendment to the Investor Rights Agreement to be executed, pursuant to which, in each case effective as of the date of the Initial Closing (the "Amendment"): (a) the Purchaser shall be made a party to the Investor Rights Agreement and included in the definition of "Investors" for all purposes of the Investor Rights Agreement; (b) all shares of Common Stock issued or issuable to the Purchaser hereunder are included in the definition of "Registrable Securities" in Section 2.6 of the Investor Rights Agreement for all purposes of the Investor Rights Agreement; and (c) the address for the Purchaser to be used for notices and communications under the Investor Rights Agreement will be: BIOGEN, INC., 14 Cambridge Center, Cambridge, Massachusetts 02142, Attention: President, with a copy to BIOGEN, INC., 14 Cambridge Center, Cambridge, Massachusetts 02142, Attention: Vice President and General Counsel. In the event that the Amendment is not executed within such period, the Company will enter into a Registration Rights Agreement with the Purchaser, in form and substance satisfactory to the Purchaser, granting the Purchaser registration rights with respect to all shares of Common Stock issued or issuable to the Purchaser hereunder equivalent to the registration rights the Purchaser would have had as an Investor under the Investor Rights Agreement. SECTION 6.04 Broker's Fee. Each of the Company and the Purchaser hereby represents and covenants that except for amounts to be paid to Medical Portfolio Management by Purchaser, there are no brokers or finders entitled to compensation in connection with the sale of the Stock, and shall indemnify each other for any such fees for which they are responsible. ARTICLE VII LIMITATIONS AND RESTRICTIONS SECTION 7.01 Restrictions on Certain Actions by Purchaser. (a) The Purchaser agrees that, during the period commencing on the date hereof and ending on the date which is the third anniversary of the date on which the BML Collaboration Agreement ceases to be in full force and effect, the Purchaser will not, nor will it permit any of its Affiliates to, acquire or offer or propose to acquire any shares of Common Stock or any securities convertible into, exchangeable for or exercisable for Common Stock (all such securities, collectively, "Voting Securities") which, when taken together with any Voting Securities then owned by the Purchaser and its Affiliates, would, in the aggregate, exceed an amount equal to fifteen percent (15%) of the Company's then outstanding Voting Securities, unless in any such case specifically invited to do so by the Board of Directors of the Company; provided that this provision shall not prevent the Purchaser or its Affiliates (i) from acquiring Voting Securities as a result of the provisions of Article III of this Agreement or (ii) from acquiring any Voting Securities as a result of the repayment, in whole or in part, of the Loan Agreement with any Voting Securities. Notwithstanding any provision of this Agreement to the contrary, Purchaser shall in no event be required to purchase shares of Common Stock if, after giving effect to such purchase, the sum of (i) the number of shares of Common Stock purchased hereunder and (ii) the number of shares of Common Stock of the Company tendered to the Purchaser in connection with the Loan Agreement would exceed 19.9% of the amount of the then outstanding shares of Common Stock. Notwithstanding the foregoing, in order to insure for the Company the benefits of the transactions contemplated in this Agreement and the Loan Agreement, and the covenants set forth in this Section 7.01, to the extent that Purchaser has acquired Voting Securities in transactions other than those described in Article III hereof and the Loan Agreement ("Other Voting Securities") the Purchaser shall sell such Other Voting Securities to the extent necessary to permit the transactions contemplated herein or in the Loan Agreement to be consummated without violation of the provisions of Section 3.04 and this Section 7.01. (b) The Purchaser acknowledges and agrees that irreparable damage would occur in the event that any of the provisions of this Section 7.01 were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed that the parties shall be entitled to an injunction or injunctions to prevent breaches of the provisions of this Section 7.01 and to enforce specifically the terms and provisions hereof in any court of the United States or any state thereof having jurisdiction, in addition to any other remedy to which they may be entitled at law or equity. SECTION 7.02 Restrictions on Sales by Purchaser. Purchaser agrees that until the second anniversary of any Closing hereunder, it will not, nor will it permit any of its Affiliates to sell, solicit an offer to sell or propose to sell (collectively "Sell"), any Shares purchased at such Closing except as follows: (a) Purchaser may transfer Shares to any of its Affiliates; (b) Purchaser shall be permitted to sell or otherwise dispose of such minimum number of as is required to reduce Purchaser's ownership to (1) 19.99% of the Company's outstanding Common Stock or (2) in the event that Purchaser is required to consolidate or include the Company's profits and losses in its profit and loss statements (and the aggregate amount of losses to be consolidated may reasonably exceed $50,000), such lesser amount of the Company's outstanding Common Stock as may be required in the written opinion of Purchaser's independent public accountants in order to avoid such consolidation or inclusion; (c) Purchaser may sell its Shares pursuant to a tender offer or exchange offer for all outstanding shares of the Company's Common Stock approved by the Company's Board of Directors; and (d) Without duplication of any of the Shares permitted to be sold pursuant to any of the other provisions of this Section 7.02, Purchaser may sell all or any part of the Shares owned by Purchaser or its Affiliates pursuant to the registration rights provisions contained in the Loan Agreement (or any document relating thereto) or in the Investor Rights Agreement, as amended (or such other registration rights agreement as may be entered into between the parties pursuant to the provisions of Section 6.03 hereof); provided, however, that, with respect to any registration statement or statements relating to a non- underwritten offering filed pursuant to such agreements, Purchaser shall not (i) seek to register on such registration statement or statements, in any period of 12 consecutive months, shares of Common Stock in an amount in excess of 10% of the amount of then outstanding Common Stock at the commencement of such 12 month period or (ii) sell in any period of three consecutive months shares of Common Stock in an amount in excess of 2.5% of the amount of then outstanding Common Stock at the commencement of such three month period. ARTICLE VIII MISCELLANEOUS SECTION 8.01 Notices. All notices, requests, consents and other communications hereunder shall be in writing, shall be addressed to the receiving party's address set forth below or to such other address as a party may designate by notice hereunder, and shall be either (i) delivered by hand, (ii) made by telecopy or facsimile transmission (receipt confirmed), (iii) sent by international overnight or express courier, or (iv) sent by registered mail, return receipt requested, postage prepaid. If to the Company: CV Therapeutics, Inc. 3172 Porter Drive Palo Alto, CA 94304 Attn: Chief Executive Officer FAX: with a copy to: Cooley Godward LLP Five Palo Alto Square 3000 El Camino Real Palo Alto, CA 94306-2155 Attn: Deborah A. Marshall, Esq. FAX: 415-857-0663 If to the Purchaser: Biogen Manufacturing, Ltd. St. Paul's Gate New Street St. Helier, Jersey JE48Z Channel Islands Attn: Director FAX: 011-44-153-488-9871 with a copy to: Biogen, Inc. 14 Cambridge Center Cambridge, MA 02142 Attn: Vice President and General Counsel FAX: 617-679-2838 All notices, requests, consents and other communications hereunder shall be deemed to have been given either (i) if by hand, at the time of the delivery thereof to the receiving party at the address of such party set forth above, (ii) if made by telecopy or facsimile transmission, at the time that receipt thereof has been acknowledged by electronic confirmation or otherwise, (iii) if sent by overnight or express courier, on the Business Day following the day such notice is delivered to the courier service, or (iv) if sent by registered mail, on the 5th Business Day following the day such mailing is made. SECTION 8.02 Legends. The Purchaser acknowledges that, until registered under the Securities Act and any applicable state securities laws or transferred pursuant to the provisions of Rule 144 promulgated under the Securities Act ("Rule 144"), each certificate representing a Share, whether upon initial issuance or upon any transfer thereof, shall bear a legend (and the Company and its transfer agent shall make a notation on its books of transfer to such effect), prominently stamped or printed thereon, in substantially the following form: "THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR THE SECURITIES LAWS OF ANY APPLICABLE STATE OR OTHER JURISDICTION, HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO DISTRIBUTION OR RESALE AND MAY NOT BE SOLD, MORTGAGED, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT COVERING SUCH SECURITIES UNDER THE ACT AND ANY SECURITIES LAWS OF ANY APPLICABLE STATE OR OTHER JURISDICTION OR A WRITTEN OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER TO THE EFFECT THAT REGISTRATION IS NOT REQUIRED UNDER THE ACT OR UNDER OTHER APPLICABLE SECURITIES LAWS." SECTION 8.03 Termination. If the Initial Closing has not occurred on or prior to June 30, 1997, or if prior to the Initial Closing the Company or the Purchaser has been notified that the United States Department of Justice or the Federal Trade Commission, or any other Federal, state or other governmental agency or instrumentality the consent of approval of which is contemplated by the terms of this Agreement, any other Transaction Document, the Biogen Agreement, the BML Collaboration Agreement or the Loan Agreement, is prepared to (a) seek a preliminary injunction to enjoin the consummation of the transactions contemplated hereunder or thereunder or (b) grant such consent or approval upon the condition that any material action or forbearance of action not otherwise specifically required of the party choosing to terminate pursuant to this Section 8.03 be taken, then (i) the Company may terminate this Agreement by written notice to the Purchaser and (ii) the Purchaser may terminate this Agreement by written notice to the Company. SECTION 8.04 Entire Agreement. This Agreement embodies the entire agreement and understanding between the parties hereto with respect to the provisions hereof and supersedes all prior oral or written agreements and understandings relating to the provisions hereof. No statement, representation, warranty, covenant or agreement of any kind not expressly set forth in this Agreement shall affect, or be used to interpret, change or restrict, the express terms and provisions of this Agreement. SECTION 8.05 Modifications and Amendments. The terms and provisions of this Agreement may be modified or amended only by written agreement executed by all parties hereto. SECTION 8.06 Waivers and Consents. Except as other expressly provided herein, the terms and provisions of this Agreement may be waived, or consent for the departure therefrom granted, only by written document executed by the party entitled to the benefits of such terms or provisions. No such waiver or consent shall be deemed to be or shall constitute a waiver or consent with respect to any other terms or provisions of this Agreement, whether or not similar. Each such waiver or consent shall be effective only in the specific instance and for the purpose for which it was given, and shall not constitute a continuing waiver or consent. SECTION 8.07 Assignment. The rights and obligations under this Agreement may not be assigned by either party hereto without the prior written consent of the other party (which consent shall not be unreasonably withheld, except that the Purchaser without the consent of the Company may assign this Agreement or any of its rights or obligations to an Affiliate of the Purchaser or to an entity with which the Purchaser shall merge or consolidate or to which the Purchaser shall sell or assign all or substantially all of its assets, and except that the Company may without the consent of the Purchaser may assign this Agreement to an entity with which the Company shall merge or consolidate or to which the Company shall sell or assign all or substantially all of its assets. SECTION 8.08 Benefit. All statements, representations, warranties, covenants and agreements in this Agreement shall be binding on the parties hereto and shall inure to the benefit of the respective successors and permitted assigns of each party hereto. Nothing in this Agreement shall be construed to create any rights or obligations except among the parties hereto, and no person or entity shall be regarded as a third-party beneficiary of this Agreement. SECTION 8.09 Governing Law. This Agreement and the rights and obligations of the parties hereunder shall be construed in accordance with and governed by the law of the State of Delaware, without giving effect to the conflict of law principles thereof. SECTION 8.10 Severability. In the event that any court of competent jurisdiction shall determine that any provision, or any portion thereof, contained in this Agreement shall be unenforceable in any respect, then such provision shall be deemed limited to the extent that such court deems it enforceable, and as so limited shall remain in full force and effect. In the event that such court shall deem any such provision, or portion thereof, wholly unenforceable, the remaining provisions of this Agreement shall nevertheless remain in full force and effect. SECTION 8.11 Interpretation. The parties hereto acknowledge and agree that: (1) each party and its counsel reviewed and negotiated the terms and provisions of this Agreement and have contributed to its revision; (ii) the rule of construction to the effect that any ambiguities are resolved against the drafting party shall not be employed in the interpretation of this Agreement; and (iii) the terms and provisions of this Agreement shall be construed fairly as to all parties hereto and not in favor of or against any party, regardless of which party was generally responsible for the preparation of this Agreement. SECTION 8.12 Headings and Captions. The headings and captions of the various subdivisions of this Agreement are for convenience of reference only and shall in no way modify, or affect the meaning or construction of any of the terms or provisions hereof. SECTION 8.13 Enforcement. Each of the parties hereto acknowledges and agrees that the rights acquired by each party hereunder are unique and that irreparable damage would occur in the event that any of the provisions of this Agreement to be performed by the other party were not performed in accordance with their specific terms or were otherwise breached. Accordingly, in addition to any other remedy to which the parties hereto are entitled at law or in equity, each party hereto shall be entitled to an injunction or injunctions to prevent breaches of this Agreement by the other party. SECTION 8.14 No Waiver of Rights, Powers and Remedies. No failure or delay by a party hereto in exercising any right, power or remedy under this Agreement, and no course of dealing between the parties hereto, shall operate as a waiver of any such right, power or remedy of the party. No single or partial exercise of any right, power or remedy under this Agreement by a party hereto, nor any abandonment or discontinuance of steps to enforce any such right, power or remedy, shall preclude such party from any other or further exercise thereof or the exercise of any other right, power or remedy hereunder. The election of any remedy by a party hereto shall not constitute a waiver of the right of such party to pursue other available remedies. No notice to or demand on a party not expressly required under this Agreement shall entitle the party receiving such notice or demand to any other or further notice or demand in similar or other circumstances or constitute a waiver of the rights of the party giving such notice or demand to any other or further action in any circumstances without such notice or demand. SECTION 8.15 Expenses. Each of the parties hereto shall pay its own fees and expenses in connection with this Agreement and the transactions contemplated hereby whether or not the transactions contemplated hereby are consummated. SECTION 8.16 Confidentiality. Each of the Purchaser, on the one hand, and the Company, on the other hand, acknowledges and agrees that any information or data it has acquired from the other, not otherwise properly in the public domain, was received in confidence. Each party agrees not to divulge, communicate or disclose, or use to the detriment of the disclosing party or for the benefit of any other person or persons, or misuse in any way, any confidential information of the disclosing party concerning the subject matter hereof; provided that (i) the foregoing obligation with respect to the disclosure and use of such information shall not apply to any information which such party can demonstrate (A) was at the time of disclosure to such party or thereafter, but prior to its disclosure by such party to any third party, through no fault of such party, publicly available (other than as a result of disclosure by such party), (B) has been disclosed to such party on a nonconfidential basis from a source other than any other party which, to such party's knowledge, was not prohibited from disclosing such information to such party by a legal, contractual, fiduciary or other obligation, (C) has been independently developed by the such party without the violation of any of my obligations under this Agreement, the Biogen Agreement, the BML Collaboration Agreement or the Loan Agreement or (D) is required to be disclosed by applicable law (including, without limitation, the federal securities laws) and (ii) such party may, if required by subpoena or valid legal process, disclose any such information, but only to the extent so required and only after using its best efforts to give the other party or parties (as the case may be) prior notice of such required disclosure in order to afford such party or parties an opportunity to obtain an injunction, a protective order or other relief. SECTION 8.17 Publicity. No party shall issue any press release or otherwise make any public statement with respect to the execution of, or the transactions contemplated by, this Agreement without the prior written consent of the other party, except as may be required by applicable law, rule or regulation; provided that once such other party has consented to a party's issuance or making of a press release or public statement, any subsequent issuance or making of such press release or public statement by such party shall not require the separate written consent of the other party. However, the parties recognize that the Purchaser and the Company are each a publicly held company obligated under the federal securities laws to make disclosures of material events affecting it. Consequently, if advised by counsel that such party is required to make such announcement under Federal or state securities laws, the Purchaser or the Company (as the case may be) may make such announcement. Such party agrees promptly to inform the other party of such advice by counsel, provide a copy of such announcement prior to disclosure and, if practicable, to give the other party an opportunity to comment upon the form of any required announcement. SECTION 8.18 Counterparts. This Agreement may be executed in one or more counterparts, and by different parties hereto on separate counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. IN WITNESS WHEREOF, the Company and the Purchaser have caused this Agreement to be executed in their names by their duly authorized officers or representatives effective as of the date first above written. CV THERAPEUTICS, INC. By: /s/ Louis G. Lange Name: Louis G. Lange Title: CEO BIOTECH MANUFACTURING LTD. By: Name: Title: IN WITNESS WHEREOF, the Company and the Purchaser have caused this Agreement to be executed in their names by their duly authorized officers or representatives effective as of the date first above written. CV THERAPEUTICS, INC. By: Name: Title: BIOTECH MANUFACTURING LTD. By: /s/ James H.M. Kirkness Name: Title: EX-10 5 exhibit1021.txt EXHIBIT 10.21 LOAN AGREEMENT This Agreement is made and entered into this 7th day of March, 1997 by and between BIOTECH MANUFACTURING LTD. (hereinafter referred to as "BML"), a wholly-owned subsidiary of Biogen, Inc. ("BIOGEN"), located at St. Paul's Gate, New Street, St. Helier, Jersey JE48Z, Channel Islands, and CV THERAPEUTICS, INC., a Delaware corporation, located at 3172 Porter Drive, Palo Alto, CA 94304 (hereinafter referred to as "CVT"). WHEREAS, BML is a biopharmaceutical company which develops, manufactures, markets and sells pharmaceutical products for human healthcare; and WHEREAS, CVT is the owner and/or exclusive licensee of certain technology, patent rights and other proprietary know-how related to CVT-124 and related molecules as hereinafter defined; and WHEREAS, CVT is granting an exclusive right and license in and to such technology, patent rights and proprietary know-how in the TERRITORY pursuant to a Research Collaboration and License Agreement of even date herewith between CVT and BML (the "BML AGREEMENT"); and WHEREAS, CVT is granting an exclusive right and license in and to such technology, patent rights and proprietary know-how outside the TERRITORY pursuant to a Research Collaboration and License Agreement of even date herewith between CVT and BIOGEN (the "BIOGEN AGREEMENT"). NOW, THEREFORE, in consideration of the mutual promises and other good and valuable consideration, the parties agree as follows: SECTION 1 - Definitions. The terms used in this Agreement have the following meaning: 1.1 The term "AFFILIATE" as applied to either party shall mean any company or other legal entity other than the party in question, in whatever country organized, controlling, controlled by or under common control with that party. The term "control" means ownership or control, directly or indirectly, of at least fifty percent (50%) of the outstanding stock or voting rights or the right to elect or appoint a majority of the directors. 1.2 The term "first AGREEMENT YEAR" shall mean the twelve month period commencing on the EFFECTIVE DATE. With respect to any year after the first AGREEMENT YEAR, the term "AGREEMENT YEAR" shall mean the twelve month period commencing upon an anniversary of the Effective Date. 1.3 The term "CVT-124" shall mean the S-enantiomer of epoxy-norbornyl xanthine, as defined as CVT-124 in the IND filed on September 20, 1995 and as further described in U.S. Patent Application Serial No. 08/330,640 filed on October 28, 1994. 1.4 The term "EFFECTIVE DATE" shall mean March 10, 1997. 1.5 The term "FIRST COMMERCIAL SALE" shall mean the initial transfer by BML or any of its AFFILIATES or SUBLICENSEES of a PRODUCT to a THIRD PARTY in exchange for consideration, following marketing approval by the appropriate governmental agency for the country in which the transfer is made. 1.6 The term "TERRITORY" shall mean all countries and territories of the world except: the United States and all other countries and territories in North America and South America. 1.7 The use herein of the plural shall include the singular, and the use of the masculine shall include the feminine. SECTION 2 - Loan Commitment. BML hereby commits to the following: 2.1 (a) BML shall, subject to the terms set forth below, make funds available to CVT for general corporate purposes in the form of a loan or loans to CVT in an amount not to exceed TWELVE MILLION AND NO/100 DOLLARS ($12,000,000.00) (the "Loan"). Immediately upon the EFFECTIVE DATE, CVT may draw down on the Loan an amount not to exceed THREE MILLION AND N0/100 DOLLARS ($3,000,000.00) (the "Initial Installment"). Unless the BML AGREEMENT has been terminated for any reason, CVT may, in such amounts and at such times as CVT, in it sole discretion, may determine, draw down the remaining balance of the Loan (the "Loan Remainder) over a period of two (2) Calendar Years (as defined below) following the receipt of the Phase II Performance Assessment Study milestone payment (the "Milestone Payment") pursuant to the BIOGEN AGREEMENT, provided however, that the total draw down amount shall not exceed FOUR MILLION FIVE HUNDRED THOUSAND AND NO/100 DOLLARS ($4,500,000.00) in any Calendar Year. For the purposes of this section, a "Calendar Year" commences on the date of the Milestone Payment or an anniversary thereof and terminates twelve months later. BML shall not be obligated to advance any funds under the Loan Remainder at any time during which (i) an Event of Default has occurred and is continuing under the Note (defined below); (ii) the total cash reserves of CVT, as shown on its most recent balance sheet before the particular draw, are less than $5 million during the first AGREEMENT YEAR, $7.5 million during the second AGREEMENT YEAR, or $10 million thereafter; or (iii) any proceeding, voluntary or involuntary, in bankruptcy or insolvency, is pending against CVT, or a receiver is operating CVT with or without the consent of CVT. BML's obligation to advance any funds under the Loan Remainder shall terminate upon the earlier to occur of (i) the last day of the second Calendar Year or (ii) termination or expiration of this Agreement. (b) On the EFFECTIVE DATE CVT shall execute and deliver to BML an unsecured note, substantially in the form set forth in Appendix A attached hereto and made a part hereof (the "Note"), evidencing the Loan. CVT hereby covenants not to incur or maintain any additional pari passu or senior indebtedness of any kind, other than leasehold improvements or equipment lease financing in an aggregate amount not exceeding $10 million (including any such debt outstanding as of the Effective Date), while any amount due under the Note remains unpaid. Any junior indebtedness permitted to be incurred pursuant to the previous sentence shall be subordinated to the Note pursuant to a subordination agreement in form and substance reasonably satisfactory to BML. The Note shall be subordinated to all debt of CVT existing as of the date hereof and may be prepaid by CVT at any time without penalty, in cash or, in the case of the Loan Remainder, in CVT Common Stock, registered for resale, priced at its then Fair Market Value (as defined in Section 2.1(i) below), subject to the provisions of subsections (g) and (i) of this Section 2.1. (c) The Note shall bear interest on the outstanding principal amount thereof at a rate per annum equal to Prime (defined below) plus one (1%) percent. Such interest shall be payable in cash annually commencing on the one year anniversary of the date of execution of the Note and continuing on each anniversary date until the Note is paid in full, regardless of the repayment terms applicable to the principal amount of the Note as specified in this Section 2.1. The applicable rate of interest for the Note shall be adjusted semi-annually according to the Prime rate as announced on each six-month anniversary date of the execution of the Note. (d) Except as otherwise provided in subsection (f) hereof, CVT shall repay the principal amount owed under the Initial Installment in cash in sixty (60) equal monthly installments on the first day of each month commencing on the third anniversary of the Effective Date and continuing on the same day of each succeeding month such that the entire principal amount due under the Initial Installment shall be paid in full by the eighth anniversary of the Effective Date. (e) Except as otherwise provided in this subsection (e) or in subsection (f) hereof, CVT shall repay the principal amount owed under the Loan Remainder solely out of royalties owed from BIOGEN and BML to CVT according to the following schedule: Beginning with the date that is eighteen (18) months after the FIRST COMMERCIAL SALE of PRODUCT, BML's and BIOGEN's royalty payments to CVT (as provided in Section 10.2(a) of the BML AGREEMENT and Section 10.2(a) of the BIOGEN AGREEMENT, respectively) shall be reduced by thirty-three and one-third (33.3%) percent until the principal balance of the Loan Remainder is paid in full. In the alternative, CVT may, at its option, elect to repay the principal amount owed under the Loan Remainder in CVT Common Stock, registered for resale, priced at its then Fair Market Value, subject to the provisions of subsections (g) and (i) of this Section 2.1. (f) Notwithstanding the provisions of subsections (d) and (e) hereof, if this Agreement is terminated for any reason, CVT shall repay the principal and interest owed under the Initial Installment and the Loan Remainder in 36 monthly installments commencing on the fifth (5th) business day following the date the Agreement is terminated and continuing on the same day of each succeeding month. Repayment of the Initial Installment shall be made in cash; repayment of the Loan Remainder shall be made in cash or, at CVT's option, in CVT Common Stock, registered for re-sale, priced at its then Fair Market Value, subject to the provisions of subparagraphs (g) and (i) of this Section 2.1. (g) In the event CVT elects pursuant to subsection (b), (e) or (f) hereof to repay all or a portion of the Loan Remainder in CVT Common Stock, CVT shall give BML at least thirty (30) days advance written notice of the date and amount of any repayment to be made in CVT Common Stock, and include in such notice a calculation of the percentage of CVT's total shares of Common Stock outstanding that would be held by BML and its AFFILIATES after the issuance of such shares (assuming an issue price equal to the closing price of CVT Common Stock on the day prior to such notice). Such notice shall irrevocably bind CVT to make such payment in the amount and on the date indicated, subject only to the following provisos: (i) CVT shall have the right to extend the closing date by up to an additional thirty (30) days in order to complete registration of the shares, and (ii) if receipt of such Common Stock would cause BML's and its AFFILIATES' holdings in CVT to exceed 19.9% of CVTs total shares of Common Stock outstanding after the issuance of such shares to BML, BML may notify CVT that it will not accept repayment in CVT Common Stock to the extent of such excess. Within ten (10) days of receipt of such notification, CVT and BML shall meet to negotiate in good faith to arrive at a mutually acceptable alternative payment arrangement. If the parties are unable to agree on such an alternative payment arrangement within thirty (30) days of CVT's receipt of BML's notification, then the excess of the Loan Remainder shall be repayable in sixty (60) equal monthly installments, commencing on the expiration of such thirty (30) day negotiation period and continuing on the same day of each succeeding, month. Notwithstanding the foregoing, in order to insure for CVT the benefits of the transactions contemplated in this Agreement and the Common Stock Purchase Agreement between the parties of even date herewith (the "Stock Purchase Agreement"), to the extent that BML has acquired Voting Securities (as defined in the Stock Purchase Agreement) in transactions other than those described in Article III of the Stock Purchase Agreement and in this Agreement ("Other Voting Securities") BML will sell such Other Voting Securities in order to permit the repayment of the Loan Remainder in CVT Common Stock as contemplated herein without violation of the 19.9% limit on BML's and its AFFILIATES' ownership in CVT as set forth above. (h) For purposes of subsection (c) of this Section 2.1, "Prime" shall mean the floating rate of interest reported by the Wall Street Journal as the prevailing base rate on corporate loans posted by at least 75% of the 30 largest banks in the United States. In the event that the Wall Street Journal ceases to publish such a rate, or modifies its criteria for such rate, the term "Prime" shall mean the generally prevailing base corporate lending rate of large United States banks as determined in good faith by BML. (i) For purposes of subsection (b), (e) and (f) of this Section 2.1, "Fair Market Value" of CVT Common Stock shall mean: the average of the closing prices as reported by NASDAQ or, if not traded on NASDAQ, by such other principal securities exchange on which the shares are traded, as applicable, over the twenty (20) trading days preceding the date on which payment is due (or in the case of an extension pursuant to subsection (g)(i), the date on which the payment is made). BML and CVT shall execute and deliver at the time of issuance of any shares in repayment of the Loan Remainder a stock purchase agreement containing customary representations and warranties and indemnities in form and substance similar to those set forth in the Stock Purchase Agreement and the related Amended and Restated Investor Rights Agreement, as amended, and customary provisions regarding registration of the shares. Delivery of any shares of Common Stock shall take place no later than five (5) days after the repayment date. (j) BML will not, nor will it permit any of its Affiliates (as such term is used in Rule 12b-2 of the Securities Exchange Act of 1934 (the "Exchange Act"), such term to have such definition as used throughout this Agreement) to, during the 30 consecutive trading days prior to the date of any determination of the "Fair Market Value" of CVT Common Stock hereunder, (a) acquire any Voting Securities (as defined in Section 7.01 of the Stock Purchase Agreement), (b) offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, or otherwise transfer or dispose of, directly or indirectly, any Voting Securities or (c) enter into any swap or similar agreement that transfers, in whole or in part, the economic risk of ownership of Voting Securities, whether any such transaction described in clause (a), (b) or (c) above is to be settled by delivery of Voting Securities or such other securities, in cash or otherwise. (i) Compliance with NASDAQ Stock Market Rule 4460(i)(1)(D). Notwithstanding any provision of this Agreement to the contrary, except as otherwise permitted by the rules of the NASDAQ Stock Market, CVT shall in no event be obligated to issue, and BML shall in no event be obligated to accept, in repayment of the Loan Remainder, shares of CVT Common Stock to the extent that such issuance would result in the number of shares of Common Stock tendered hereunder and purchased pursuant to the Stock Purchase Agreement constituting (i) the sale or issuance of 20% or more of the Common Stock or (ii) the sale or issuance of securities constituting 20% or more of voting power for less than the greater of book or market value. SECTION 3 - Representations and Warranties. 3.1 Each party represents and warrants to the other party that: (i) it is free to enter into this Agreement; (ii) in so doing, it will not violate any other agreement to which it is a party; and (iii) it has taken all corporate action necessary to authorize the execution and delivery of this Agreement and the performance of its obligations under this Agreement. 3.2 Each party represents that it is not aware of any action, suit, inquiry or investigation or any claim, demand or notice of default which if adversely determined would affect the rights granted under this Agreement. SECTION 4 - Assignment; Successors. 4.1 This Agreement shall not be assignable by BML without the prior written consent of CVT (which consent shall not be unreasonably withheld), except that BML without the consent of CVT may assign this Agreement or any of its rights and obligations hereunder to an AFFILIATE or to an entity with which BML shall merge or consolidate or to which BML shall sell or assign all or substantially all of its assets. CVT may not assign this Agreement or any rights hereunder without the express written consent of BML. In the event CVT merges or consolidates with, or sells or assigns all or substantially all of its assets to, an entity, then, notwithstanding any contrary provision hereof, (a) BML shall not be obligated to advance any further sums pursuant hereto, and (b) all sums then outstanding under the Note shall be repayable in cash in 36-monthly equal installments commencing on the date of such event and continuing on the same day of each succeeding month. 4.2 Subject to the limitations on assignment herein, this Agreement shall be binding upon and inure to the benefit of said successors in interest and assigns of CVT and BML. SECTION 5 - Termination. 5.1 Except as otherwise provided herein, this Agreement shall terminate on the earlier to occur of (i) the termination of the BML AGREEMENT, or (ii) the last day of the second Calendar Year. 5.2 Either party to this Agreement may, upon giving notice of termination, immediately terminate this Agreement upon receipt of notice that the other party has become insolvent or has suspended business in all material respects hereof, or has consented to an involuntary petition purporting to be pursuant to any reorganization or insolvency law of any jurisdiction, or has made an assignment for the benefit of creditors or has applied for or consented to the appointment of a receiver or trustee for a substantial part of its property. 5.3 CVT's repayment obligation under the Note shall survive any termination of this Agreement. SECTION 6 - General Provisions. 6.1 This Agreement, the BML AGREEMENT, the BIOGEN AGREEMENT, and the Stock Purchase Agreement between the parties of even date herewith set forth the entire agreement and understanding between the parties as to the subject matter hereof and supersede all prior agreements in this respect. There shall be no amendments or modifications to these Agreements, except by a written document which is signed by both parties. 6.2 This Agreement shall be construed and enforced in accordance with the laws of the State of Delaware, U.S.A. without reference to its choice-of-law principles. 6.3 The headings in this Agreement have been inserted for the convenience of reference only and are not intended to limit or expand on the meaning of the language contained in the particular or section or paragraph. 6.4 Any delay in enforcing a party's rights under this Agreement or any waiver as to a particular default or other matter shall not constitute a waiver of a party's right to the future enforcement of its rights under this Agreement, excepting only as to an expressed written and signed waiver as to a particular matter for a particular period of time. 6.5 Notices. Any notices given pursuant to this Agreement shall be in writing and shall be deemed delivered upon the earlier of (i) when received at the address set forth below, or (ii) three (3) business days after mailed by certified or registered mail postage prepaid and properly addressed, with return receipt requested, or (iii) when sent, if sent, by facsimile, as confirmed by certified or registered mail. Notices shall be delivered to the respective parties as indicated: If to CVT: CV Therapeutics, Inc. 3172 Porter Drive Palo Alto, CA 94304 Attn: CEO with a copy to: Cooley Godward LLP 3000 El Camino Real Palo Alto, CA 94306 Attn: Robert L. Jones, Esq. Deborah A. Marshall, Esq. If to BML: Biotech Manufacturing Ltd. St. Paul's Gate New Street St. Helier, Jersey JE48Z Channel Islands with a copy to: Biogen, Inc. 14 Cambridge Center Cambridge, MA 02142 Attn: Vice President - General Counsel 6.6 This Agreement may be executed in any number of separate counterparts, each of which shall be deemed to be an original, but which together shall constitute one and the same instrument. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date set forth above. CV THERAPEUTICS INC. BIOTECH MANUFACTURING LTD. By: /s/ Louis G. Lange By: Name: Louis G. Lange Name: Title: CEO Title: IN WITNESS WHEREOF, the parties have executed this Agreement as of the date set forth above. CV THERAPEUTICS INC. BIOTECH MANUFACTURING LTD. By: By: /s/ James H.M. Kirkness Name: Name: James H.M. Kirkness Title: Title: Director APPENDIX A FORM OF NOTE TRADOCS: 669241.8 (#c#108!.doc) Final Version Loan, 3/7/97 PROMISSORY NOTE $12,000,000.00 March 10, 1997 FOR VALUE RECEIVED, the undersigned, CV THERAPEUTICS, INC. (the "Borrower"), having an address at 3172 Porter Drive, Palo Alto, California 94304, hereby promises to pay to the order of BIOTECH MANUFACTURING LIMITED, having an address at St. Paul's Gate, New Street, St. Helier, Jersey JE48Z, Channel Islands (the "Lender"), the principal sum of TWELVE MILLION DOLLARS ($12,000,000) or such lesser sum which may from time to time be advanced pursuant to the terms of the Loan Agreement dated March 7, 1997 between the Borrower and the Lender (the "Agreement"). Capitalized terms used herein and not defined herein have the meanings assigned to them in the Agreement. Principal (a) The Borrower shall pay the principal balance of this note which represents the Initial Installment in sixty (60) equal consecutive monthly payments commencing on March 10, 2000 and continuing on the like day of each subsequent month until February 10, 2005. The last principal payment shall include all other amounts due hereunder (including, without limitation, all accrued interest plus costs of collection); except any amounts of principal that are not yet due on account of the Loan Remainder. All payments pursuant to paragraph (a) hereunder shall be in cash. (b) Except as otherwise provided in paragraph (c) hereof, the Borrower shall pay the principal balance of this note which represents the Loan Remainder out of royalties owed from Lender and BIOGEN to Borrower according to the following schedule: (i) Beginning on the date that is eighteen (18) months after the FIRST COMMERCIAL SALE of PRODUCT, Lender's and BIOGEN's royalty payments to Borrower (as provided in Section 10.2(a) of the BML AGREEMENT and Section 10.2(a) of the BIOGEN AGREEMENT, respectively) shall be reduced by thirty-three and one-third (33.3%) percent and the amount of reduction shall be deducted from the principal balance of the Loan Remainder until the Loan Remainder is reduced to zero (0), at which time the principal balance of the Loan Remainder shall be deemed to have been paid in full. In the alternative, if no Event of Default has occurred and is continuing under the Note, the Borrower may, at its option, elect to repay the principal amount owed under the Loan Remainder in CVT Common Stock, registered for resale, priced at its then Fair Market Value, subject to the provisions of Sections 2.1(g) and 2.1(i) of the Agreement. (c) Notwithstanding paragraphs (a) and (b), if the Agreement is terminated for any reason, Borrower shall repay the principal owed under the Initial Installment and the Loan Remainder in 36-monthly equal installments commencing on the date the Agreement is terminated and continuing on the same day of each succeeding month, with the final payment to be accompanied by a payment of all other amounts due hereunder. Repayment of the Initial Installment shall be made in cash; repayment of the Loan Remainder shall be made in cash or, in the absence of a default, at the option of Borrower, in CVT Common Stock, registered for resale, priced at its then Fair Market Value, subject to the provisions of Sections 2.1(g) and 2.1(i) of the Agreement. (d) Notwithstanding anything contained in paragraph (b) and (c) above, Lender may require that Borrower repay amounts borrowed in cash rather than CVT Common Stock to the extent necessary to ensure that the repayment of Common Stock will not cause Lender's and its AFFILIATES' holdings in Borrower to exceed nineteen and nine-tenths (19.9%) percent of CVT's total shares of Common Stock outstanding after the completion of such sales to Lender, as set forth in Section 2.1(g) of the Agreement. Interest Interest shall accrue on the outstanding principal balance hereunder at a rate per annum equal to Prime plus 1%. Prime shall be determined and adjusted in accordance with Section 2.1(h) of the Agreement. Payments of interest shall be made annually commencing on the one year anniversary date of the execution of the Note and continuing on each anniversary date until all amounts due hereunder have been paid in full. The applicable rate of interest shall be adjusted semi-annually according to the Prime Rate as announced on each six month anniversary date. Interest shall be calculated on the basis of actual days elapsed and a 360-day year. The advances described in the Agreement and made by the Lender to the Borrower, and all repayments made on the account of principal thereof, shall be recorded by the Lender, on the Schedule attached hereto which is a part of this Note; provided, however, that the failure of the Lender so to record on this Note (or any error in recording on this Note) shall not affect the Borrower's obligations hereunder. Payments hereon are to be made in lawful money of the United States of America or in any other permitted manner set forth in the Agreement at the Lender's address set forth above or such other address as the Lender shall designate in writing to the Borrower. If any amount due under this Note is not paid in full within 10 days of the due date, whether as stated or by acceleration, interest on the unpaid principal balance shall continue to accrue and shall thereafter be increased effective as of such due date to a rate per annum equal to three (3%) percent above the Prime Rate. It is the intent of the Lender and of the Borrower that in no event shall interest be payable at a rate in excess of the maximum rate permitted by applicable law (the "Maximum Legal Rate"). Solely to the extent necessary to prevent interest under this Note from exceeding the Maximum Legal Rate, any amount that would be treated as excessive under a final judicial interpretation of applicable law shall be deemed to have been a mistake and automatically canceled and, if received by the Lender, shall be applied to the principal balance of this Note or, if no principal balance remains outstanding, then such amount shall be refunded to the Borrower. The Borrower may voluntarily prepay this Note in whole or in part at any time and from time to time without penalty, together with interest accrued on the amount prepaid through the date of prepayment. Prepayments of principal which represents the Initial Installment shall be made in cash; prepayments of principal which represents the Loan Remainder shall be made in cash or, in the absence of a default, at the option of the Borrower, in CVT Common Stock, registered for resale, priced at its then Fair Market Value, subject to the provisions of Sections 2.1(g) and 2.1(i) of the Agreement. Upon the occurrence of any one or more of the following events (each, an "Event of Default") subject to expiration of any applicable grace or cure periods, the Lender at its option may declare all amounts due hereunder, including, without limitation, the entire unpaid principal balance of this Note and any accrued, unpaid interest thereon, to be immediately due and payable in cash without notice or protest (both of which are hereby waived): (a) The failure to make any payment of principal or interest due pursuant to the terms of this Note within ten (10) days after the due date; (b) The failure to promptly, punctually, and faithfully perform or discharge any material liability or obligation of the Borrower to the Lender; (c) The material breach by Borrower of any material covenant set forth in the Agreement; (d) The determination by the Lender that any material representation or warranty now or hereafter made by the Borrower to the Lender in any document, instrument, agreement, or paper was not true or accurate when given; (e) The commencement by the Borrower of a voluntary case under 11 U.S.C. `101 et. seq. (the "Bankruptcy Code") or any foreign, federal or state bankruptcy, insolvency or other similar law now or hereafter in effect, or (ii) the consent by the Borrower to the entry of an order for relief in an involuntary bankruptcy or similar case, or to the conversion of an involuntary case to a voluntary case, under any such law, or (iii) the consent by the Borrower to the appointment of, or the taking of possession by, a receiver, trustee or other custodian for all or a substantial part of its properties, or (iv) the making by the Borrower of any assignment for the benefit of creditors, or (v) the admission by the Borrower in writing of its inability to pay its debts as such debts become due, or (vi) the death, discontinuance of business, dissolution, winding up, liquidation or cessation of existence by the Borrower; (f) The entry by a court of a decree or order for relief with respect to the Borrower in an involuntary case under the Bankruptcy Code or any applicable foreign, federal or state bankruptcy, insolvency or other similar law now or hereafter in effect, which decree or order is not stayed or dismissed within 60 days of the entry thereof, or (ii) the entry by a court of a decree or order for the appointment of a receiver, liquidator, sequestrator, trustee, custodian or other person having similar powers over the Borrower or over all or a substantial part of its properties; (g) A judgment, decree, writ, warrant of attachment or similar process in an amount equal to or exceeding ten percent (10%) of Borrower's "Free Cash" ["Free Cash" = unrestricted cash less debt owed to third parties other than Lender] is entered against the Borrower or any of its assets, if such judgment, decree, writ, warrant of attachment or similar process is not adequately covered by insurance or has not been vacated, discharged, appealed from (with execution or similar process continuously stayed) within fifteen (15) days of such judgment's entry; (h) The service of any process upon the Lender seeking to attach by mesne or trustee process, or otherwise, any funds of the Borrower on deposit with the Lender or owed by the Lender to the Borrower; (i) The occurrence of any event such that any indebtedness of the Borrower, in an amount equal to or exceeding ten percent (10%) of Borrower's Free Cash, which is owed to a person or entity other than the Lender could be accelerated, notwithstanding that such acceleration has not taken place; and (j) The beneficial ownership at any time of forty percent (40%) or more of the issued and outstanding capital stock of the Borrower having voting rights becomes owned by persons or entities who were not such owners on the date of execution of this Note. Upon the occurrence and continuance of any Event of Default hereunder, (i) the Lender may declare the principal balance of this Note to be immediately due and payable in cash, provided, however, in the case of an Event of Default described in paragraphs (e) or (f) above, all amounts payable by the Borrower hereunder, including, without limitation, the principal balance and all accrued interest on this Note, shall automatically become immediately due and payable in cash, without notice, action or election by the Lender, and (iii) the Lender may enforce any other rights granted pursuant to this Note, any other document, or by applicable law. All of the rights of the Lender hereunder shall be cumulative and not exclusive, and each of which may be exercised singly, repetitively, in any combination, and in any order. The Lender's rights and remedies hereunder, subject to the limitation expressed in Section 2.1(b) of the Agreement, may be exercised without resort or regard to any other source of satisfaction of any liabilities owing by the Borrower to the Lender. No inconsistency between the default provisions of this Note and any other agreement shall be deemed to create any additional notice, cure or grace period or derogate from the express terms of such provisions. The Borrower agrees to pay on demand all costs and expenses (including, without limitation, the reasonable fees and out-of-pocket expenses of legal counsel) incurred by the Lender in connection with enforcing or exercising any rights or remedies under this Note, whether or not legal action is instituted. Any fees, expenses or other charges which the Lender is entitled to receive from the Borrower hereunder shall constitute an obligation of the Borrower pursuant to this Note, and shall bear interest until paid at a rate per annum equal to the maximum rate in effect and permitted hereunder. Any deposits or other sums at any time credited by or due from the Lender to the Borrower, and any securities or other property of the Borrower which, at any time, shall be in the possession of the Lender, may be held and treated as collateral for the payment of this Note and any and all other liabilities (direct or indirect, absolute or contingent, sole, joint, or several, secured or unsecured, due or to become due, now existing or hereafter arising) of the Borrower to the Lender. Upon the occurrence of an Event of Default, subject to the expiration of any applicable grace or cure periods, and to the limitation expressed in Section 2.1(b) of the Agreement, and regardless of the adequacy of collateral, the Lender may apply or set off such deposits or other property against such liabilities. The Borrower hereby waives presentment, demand, protest or notice of any kind in connection with this Note. No failure on the part of the Lender in exercising any right or remedy hereunder, and no single, partial or delayed exercise by the Lender of any right or remedy shall preclude the full and timely exercise by the Lender at any time of any right or remedy of the Lender hereunder without notice. No course of dealing or other conduct, no oral agreement or representation made by the Lender or usage of trade shall operate as a waiver of any right or remedy of the Lender. This Note contains the entire agreement between the parties with respect to the subject matter hereof, and supersedes every course of dealing, other conduct, oral agreement or representation previously made by the Lender. In the event that any court of competent jurisdiction shall determine that any provision, or portion thereof, contained in this Note shall be unenforceable in any respect, then such provision shall be deemed limited to the extent that such court deems it enforceable, and the remaining provisions of this Note shall nevertheless remain in full force and effect. None of the terms or provisions of this Note may be excluded, modified, or amended except by a written instrument duly executed on behalf of both the Borrower and the Lender expressly referring hereto and setting forth the provision so excluded, modified or amended. No waiver or forbearance of any of the rights and remedies of the Lender hereunder shall be effective unless made specifically in a writing signed by the Lender, and any such waiver or forbearance shall be effective only in the specific instance and for the specific purpose for which given. This Note is the "Note" referred to in the Agreement and is entitled to all of the rights and benefits referred to therein. This Note shall be binding upon the Borrower and shall be enforceable against the Borrower and its heirs, successors and representatives, and shall inure to the benefit of the Lender and its successors, endorsees and assigns. The Borrower may not assign this Note or any rights hereunder without the express written consent of the Lender. In the event CVT merges or consolidates with, or sells or assigns all or substantially all of its assets to, an entity, then, notwithstanding any contrary provision hereof or of the Agreement, (a) Lender shall not be obligated to advance any further sums pursuant to the Agreement, and (b) all sums then outstanding hereunder shall be repayable in cash in 36-monthly equal installments commencing on the date of such event and continuing on the same day of each succeeding month. If more than one Borrower signs this Note, the term "Borrower" shall include each such signatory, individually and collectively, and each such signatory, together with any endorser or guarantor of this Note, shall be jointly and severally liable hereunder. No person obligated on account of this Note may seek contribution from any other person also obligated hereon unless and until all liabilities to the Lender of the person from whom contribution is sought have been satisfied in full. THIS NOTE IS DELIVERED TO THE LENDER AT ITS PRINCIPAL OFFICE IN ST. HELIER, JERSEY, CHANNEL ISLANDS, AND SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF DELAWARE, WITHOUT REGARD TO ITS PRINCIPLES OF CONFLICTS OF LAWS AND SHALL TAKE EFFECT AS A SEALED INSTRUMENT. THE BORROWER HEREBY EXPRESSLY, KNOWINGLY AND VOLUNTARILY WAIVES ALL RIGHTS TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING ARISING OUT OF, IN CONNECTION WITH, OR RELATED TO THIS NOTE, INCLUDING, WITHOUT LIMITATION, IN CONNECTION WITH ANY DEFENSE, AFFIRMATIVE DEFENSE, COUNTERCLAIM OR THE LIKE ASSERTED AGAINST THE LENDER. IN WITNESS WHEREOF, the Borrower has caused this Note to be executed as an instrument under seal by its duly authorized officer as of date first written. Witness: CV THERAPEUTICS INC. /s/ Michael Sterns, D.V.M. /s/ Louis Lange (Signature) by: /s/ Louis Lange (Print or type name) its: CEO (Title or Capacity) EX-10 6 exhibit1048.txt EXHIBIT 10.48 2000 EQUITY INCENTIVE PLAN CV THERAPEUTICS, INC. 2000 Equity Incentive Plan Adopted March 31, 2000 Approved By Stockholders May 16, 2000 Amended and Restated by the Board of Directors February 25, 2002 1. Purposes. (a) Eligible Stock Award Recipients. The persons eligible to receive Stock Awards are the Employees, Directors and Consultants of the Company and its Affiliates. (b) Available Stock Awards. The purpose of the Plan is to provide a means by which eligible recipients of Stock Awards may be given an opportunity to benefit from increases in value of the Common Stock through the granting of the following Stock Awards: (i) Incentive Stock Options and (ii) Nonstatutory Stock Options. (c) General Purpose. The Company, by means of the Plan, seeks to retain the services of the group of persons eligible to receive Stock Awards, to secure and retain the services of new members of this group and to provide incentives for such persons to exert maximum efforts for the success of the Company and its Affiliates. 2. Definitions. (a) "Affiliate" means any parent corporation or subsidiary corporation of the Company, whether now or hereafter existing, as those terms are defined in Sections 424(e) and (f), respectively, of the Code. (b) "Board" means the Board of Directors of the Company. (c) "Code" means the Internal Revenue Code of 1986, as amended. (d) "Committee" means a committee of one or more members of the Board appointed by the Board in accordance with subsection 3(c). (e) "Common Stock" means the common stock of the Company. (f) "Company" means CV Therapeutics, Inc., a Delaware corporation. (g) "Consultant" means any person, including an advisor, (i) engaged by the Company or an Affiliate to render consulting or advisory services and who is compensated for such services or (ii) who is a member of the Board of Directors of an Affiliate. However, the term "Consultant" shall not include either Directors who are not compensated by the Company for their services as Directors or Directors who are merely paid a director's fee by the Company for their services as Directors. (h) "Continuous Service" means that the Participant's service with the Company or an Affiliate, whether as an Employee, Director or Consultant, is not interrupted or terminated. The Participant's Continuous Service shall not be deemed to have terminated merely because of a change in the capacity in which the Participant renders service to the Company or an Affiliate as an Employee, Consultant or Director or a change in the entity for which the Participant renders such service, provided that there is no interruption or termination of the Participant's service to the Company or an Affiliate. For example, a change in status without interruption from an Employee of the Company to a Consultant of an Affiliate or a Director will not constitute an interruption of Continuous Service. The Board or the chief executive officer of the Company, in that party's sole discretion, may determine whether Continuous Service shall be considered interrupted in the case of any leave of absence approved by that party, including sick leave, military leave or any other personal leave. (i) "Covered Employee" means the chief executive officer and the four (4) other highest compensated officers of the Company for whom total compensation is required to be reported to stockholders under the Exchange Act, as determined for purposes of Section 162(m) of the Code. (j) "Director" means a member of the Board of Directors of the Company. (k) "Disability" means the permanent and total disability of a person within the meaning of Section 22(e)(3) of the Code. (l) "Employee" means any person employed by the Company or an Affiliate. Mere service as a Director or payment of a director's fee by the Company or an Affiliate shall not be sufficient to constitute "employment" by the Company or an Affiliate. (m) "Exchange Act" means the Securities Exchange Act of 1934, as amended. (n) "Fair Market Value" means, as of any date, the value of the Common Stock determined as follows: (i) If the Common Stock is listed on any established stock exchange or traded on the Nasdaq National Market or the Nasdaq SmallCap Market, the Fair Market Value of a share of Common Stock shall be the closing sales price for such stock (or the closing bid, if no sales were reported) as quoted on such exchange or market (or the exchange or market with the greatest volume of trading in the Common Stock) on the last market trading day prior to the day of determination, as reported in The Wall Street Journal or such other source as the Board deems reliable. (ii) In the absence of such markets for the Common Stock, the Fair Market Value shall be determined in good faith by the Board. (o) "Incentive Stock Option" means an Option intended to qualify as an incentive stock option within the meaning of Section 422 of the Code and the regulations promulgated thereunder. (p) "Non-Employee Director" means a Director who either (i) is not a current Employee or Officer of the Company or its parent or a subsidiary, does not receive compensation (directly or indirectly) from the Company or its parent or a subsidiary for services rendered as a consultant or in any capacity other than as a Director (except for an amount as to which disclosure would not be required under Item 404(a) of Regulation S-K promulgated pursuant to the Securities Act ("Regulation S-K")), does not possess an interest in any other transaction as to which disclosure would be required under Item 404(a) of Regulation S-K and is not engaged in a business relationship as to which disclosure would be required under Item 404(b) of Regulation S-K; or (ii) is otherwise considered a "non-employee director" for purposes of Rule 16b-3. (q) "Nonstatutory Stock Option" means an Option not intended to qualify as an Incentive Stock Option. (r) "Officer" means a person who is an officer of the Company within the meaning of Section 16 of the Exchange Act and the rules and regulations promulgated thereunder. (s) "Option" means an Incentive Stock Option or a Nonstatutory Stock Option granted pursuant to the Plan. (t) "Option Agreement" means a written agreement between the Company and an Optionholder evidencing the terms and conditions of an individual Option grant. Each Option Agreement shall be subject to the terms and conditions of the Plan. (u) "Optionholder" means a person to whom an Option is granted pursuant to the Plan or, if applicable, such other person who holds an outstanding Option. (v) "Outside Director" means a Director who either (i) is not a current employee of the Company or an "affiliated corporation" (within the meaning of Treasury Regulations promulgated under Section 162(m) of the Code), is not a former employee of the Company or an "affiliated corporation" receiving compensation for prior services (other than benefits under a tax qualified pension plan), was not an officer of the Company or an "affiliated corporation" at any time and is not currently receiving direct or indirect remuneration from the Company or an "affiliated corporation" for services in any capacity other than as a Director or (ii) is otherwise considered an "outside director" for purposes of Section 162(m) of the Code. (w) "Participant" means a person to whom a Stock Award is granted pursuant to the Plan or, if applicable, such other person who holds an outstanding Stock Award. (x) "Plan" means this CV Therapeutics, Inc. 2000 Equity Incentive Plan. (y) "Rule 16b-3" means Rule 16b-3 promulgated under the Exchange Act or any successor to Rule 16b-3, as in effect from time to time. (z) "Securities Act" means the Securities Act of 1933, as amended. (aa) "Stock Award" means any Option granted under the Plan. (bb) "Stock Award Agreement" means a written agreement between the Company and a holder of a Stock Award evidencing the terms and conditions of an individual Stock Award grant. Each Stock Award Agreement shall be subject to the terms and conditions of the Plan. (cc) "Ten Percent Stockholder" means a person who owns (or is deemed to own pursuant to Section 424(d) of the Code) stock possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or of any of its Affiliates. 3. Administration. (a) Administration by Board. The Board shall administer the Plan unless and until the Board delegates administration to a Committee, as provided in subsection 3(c). (b) Powers of Board. The Board shall have the power, subject to, and within the limitations of, the express provisions of the Plan: (i) To determine from time to time which of the persons eligible under the Plan shall be granted Stock Awards; when and how each Stock Award shall be granted; what type or combination of types of Stock Award shall be granted; the provisions of each Stock Award granted (which need not be identical), including the time or times when a person shall be permitted to receive Common Stock pursuant to a Stock Award; and the number of shares of Common Stock with respect to which a Stock Award shall be granted to each such person. (ii) To construe and interpret the Plan and Stock Awards granted under it, and to establish, amend and revoke rules and regulations for its administration. The Board, in the exercise of this power, may correct any defect, omission or inconsistency in the Plan or in any Stock Award Agreement, in a manner and to the extent it shall deem necessary or expedient to make the Plan fully effective. (iii) To amend the Plan or a Stock Award as provided in Section 11. (iv) To terminate or suspend the Plan as provided in Section 12. (v) Generally, to exercise such powers and to perform such acts as the Board deems necessary or expedient to promote the best interests of the Company which are not in conflict with the provisions of the Plan. (c) Delegation to Committee. (i) General. The Board may delegate administration of the Plan to a Committee or Committees of one (1) or more members of the Board, and the term "Committee" shall apply to any person or persons to whom such authority has been delegated. If administration is delegated to a Committee, the Committee shall have, in connection with the administration of the Plan, the powers theretofore possessed by the Board, including the power to delegate to a subcommittee any of the administrative powers the Committee is authorized to exercise (and references in this Plan to the Board shall thereafter be to the Committee or subcommittee), subject, however, to such resolutions, not inconsistent with the provisions of the Plan, as may be adopted from time to time by the Board. The Board may abolish the Committee at any time and revest in the Board the administration of the Plan. (ii) Committee Composition. In the discretion of the Board, a Committee may consist solely of two or more Outside Directors, in accordance with Section 162(m) of the Code, and/or solely of two or more Non-Employee Directors, in accordance with Rule 16b-3. Within the scope of such authority, the Board or the Committee may (1) delegate to a committee of one or more members of the Board who are not Outside Directors the authority to grant Stock Awards to eligible persons who are either (a) not then Covered Employees and are not expected to be Covered Employees at the time of recognition of income resulting from such Stock Award or (b) not persons with respect to whom the Company wishes to comply with Section 162(m) of the Code and/or) (2) delegate to a committee of one or more members of the Board who are not Non- Employee Directors the authority to grant Stock Awards to eligible persons who are not then subject to Section 16 of the Exchange Act. (d) Effect of Board's Decision. All determinations, interpretations and constructions made by the Board in good faith shall not be subject to review by any person and shall be final, binding and conclusive on all persons. 4. Shares Subject to the Plan. (a) Share Reserve. Subject to the provisions of Section 10 relating to adjustments upon changes in Common Stock, the Common Stock that may be issued pursuant to Stock Awards shall not exceed in the aggregate one million five hundred thousand (1,500,000) shares of Common Stock. (b) Reversion of Shares to the Share Reserve. If any Stock Award shall for any reason expire or otherwise terminate, in whole or in part, without having been exercised in full, the shares of Common Stock not acquired under such Stock Award shall revert to and again become available for issuance under the Plan. (c) Source of Shares. The shares of Common Stock subject to the Plan may be unissued shares or reacquired shares, bought on the market or otherwise. 5. Eligibility. (a) Eligibility for Specific Stock Awards. Incentive Stock Options may be granted only to Employees. Nonstatutory Stock Options may be granted to Employees, Directors and Consultants. (b) Ten Percent Stockholders. A Ten Percent Stockholder shall not be granted an Incentive Stock Option unless the exercise price of such Option is at least one hundred ten percent (110%) of the Fair Market Value of the Common Stock at the date of grant and the Option is not exercisable after the expiration of five (5) years from the date of grant. (c) Section 162(m) Limitation. Subject to the provisions of Section 10 relating to adjustments upon changes in the shares of Common Stock, no Employee shall be eligible to be granted Options covering more than three hundred thousand (300,000) shares of Common Stock during any calendar year. (d) Consultants. A Consultant shall not be eligible for the grant of a Stock Award if, at the time of grant, a Form S-8 Registration Statement under the Securities Act ("Form S-8") is not available to register either the offer or the sale of the Company's securities to such Consultant because of the nature of the services that the Consultant is providing to the Company, or because the Consultant is not a natural person, or as otherwise provided by the rules governing the use of Form S-8, unless the Company determines both (i) that such grant (A) shall be registered in another manner under the Securities Act (e.g., on a Form S-3 Registration Statement) or (B) does not require registration under the Securities Act in order to comply with the requirements of the Securities Act, if applicable, and (ii) that such grant complies with the securities laws of all other relevant jurisdictions. 6. Option Provisions. (a) Each Option shall be in such form and shall contain such terms and conditions as the Board shall deem appropriate. All Options shall be separately designated Incentive Stock Options or Nonstatutory Stock Options at the time of grant, and, if certificates are issued, a separate certificate or certificates will be issued for shares of Common Stock purchased on exercise of each type of Option. The provisions of separate Options need not be identical, but each Option shall include (through incorporation of provisions hereof by reference in the Option or otherwise) the substance of each of the following provisions: (b) Term. Subject to the provisions of subsection 5(b) regarding Ten Percent Stockholders, no Incentive Stock Option shall be exercisable after the expiration of ten (10) years from the date it was granted. (c) Exercise Price of an Incentive Stock Option. Subject to the provisions of subsection 5(b) regarding Ten Percent Stockholders, the exercise price of each Incentive Stock Option shall be not less than one hundred percent (100%) of the Fair Market Value of the Common Stock subject to the Option on the date the Option is granted. Notwithstanding the foregoing, an Incentive Stock Option may be granted with an exercise price lower than that set forth in the preceding sentence if such Option is granted pursuant to an assumption or substitution for another option in a manner satisfying the provisions of Section 424(a) of the Code. (d) Exercise Price of a Nonstatutory Stock Option. The exercise price of each Nonstatutory Stock Option shall be not less than one hundred percent (100%) of the Fair Market Value of the Common Stock subject to the Option on the date the Option is granted. Notwithstanding the foregoing, a Nonstatutory Stock Option may be granted with an exercise price lower than that set forth in the preceding sentence if such Option is granted pursuant to an assumption or substitution for another option in a manner satisfying the provisions of Section 424(a) of the Code. (e) Consideration. The purchase price of Common Stock acquired pursuant to an Option shall be paid, to the extent permitted by applicable statutes and regulations, either (i) in cash at the time the Option is exercised or (ii) at the discretion of the Board at the time of the grant of the Option (or subsequently in the case of a Nonstatutory Stock Option) (1) by delivery to the Company of other Common Stock, (2) according to a deferred payment or other similar arrangement with the Optionholder or (3) in any other form of legal consideration that may be acceptable to the Board. Unless otherwise specifically provided in the Option, the purchase price of Common Stock acquired pursuant to an Option that is paid by delivery to the Company of other Common Stock acquired, directly or indirectly from the Company, shall be paid only by shares of the Common Stock of the Company that have been held for more than six (6) months (or such longer or shorter period of time required to avoid a charge to earnings for financial accounting purposes). At any time that the Company is incorporated in Delaware, payment of the Common Stock's "par value," as defined in the Delaware General Corporation Law, shall not be made by deferred payment. (f) In the case of any deferred payment arrangement, interest shall be compounded at least annually and shall be charged at the minimum rate of interest necessary to avoid the treatment as interest, under any applicable provisions of the Code, of any amounts other than amounts stated to be interest under the deferred payment arrangement. (g) Transferability of an Incentive Stock Option. An Incentive Stock Option shall not be transferable except by will or by the laws of descent and distribution and shall be exercisable during the lifetime of the Optionholder only by the Optionholder. Notwithstanding the foregoing, the Optionholder may, by delivering written notice to the Company, in a form satisfactory to the Company, designate a third party who, in the event of the death of the Optionholder, shall thereafter be entitled to exercise the Option. (h) Transferability of a Nonstatutory Stock Option. A Nonstatutory Stock Option shall be transferable to the extent provided in the Option Agreement. If the Nonstatutory Stock Option does not provide for transferability, then the Nonstatutory Stock Option shall not be transferable except by will or by the laws of descent and distribution and shall be exercisable during the lifetime of the Optionholder only by the Optionholder. Notwithstanding the foregoing, the Optionholder may, by delivering written notice to the Company, in a form satisfactory to the Company, designate a third party who, in the event of the death of the Optionholder, shall thereafter be entitled to exercise the Option. (i) Vesting Generally. The total number of shares of Common Stock subject to an Option may, but need not, vest and therefore become exercisable in periodic installments that may, but need not, be equal. The Option may be subject to such other terms and conditions on the time or times when it may be exercised (which may be based on performance or other criteria) as the Board may deem appropriate. The vesting provisions of individual Options may vary. The provisions of this subsection 6(g) are subject to any Option provisions governing the minimum number of shares of Common Stock as to which an Option may be exercised. (j) Termination of Continuous Service. In the event an Optionholder's Continuous Service terminates (other than upon the Optionholder's death or Disability), the Optionholder may exercise his or her Option (to the extent that the Optionholder was entitled to exercise such Option as of the date of termination) but only within such period of time ending on the earlier of (i) the date three (3) months following the termination of the Optionholder's Continuous Service (or such longer or shorter period specified in the Option Agreement), or (ii) the expiration of the term of the Option as set forth in the Option Agreement. If, after termination, the Optionholder does not exercise his or her Option within the time specified in the Option Agreement, the Option shall terminate. (k) Extension of Termination Date. An Optionholder's Option Agreement may also provide that if the exercise of the Option following the termination of the Optionholder's Continuous Service (other than upon the Optionholder's death or Disability)would be prohibited at any time solely because the issuance of shares of Common Stock would violate the registration requirements under the Securities Act, then the Option shall terminate on the earlier of (i) the expiration of the term of the Option set forth in subsection 6(a) or (ii) the expiration of a period of three (3) months after the termination of the Optionholder's Continuous Service during which the exercise of the Option would not be in violation of such registration requirements. (l) Disability of Optionholder. In the event that an Optionholder's Continuous Service terminates as a result of the Optionholder's Disability, the Optionholder may exercise his or her Option (to the extent that the Optionholder was entitled to exercise such Option as of the date of termination), but only within such period of time ending on the earlier of (i) the date twelve (12) months following such termination (or such longer or shorter period specified in the Option Agreement) or (ii) the expiration of the term of the Option as set forth in the Option Agreement. If, after termination, the Optionholder does not exercise his or her Option within the time specified herein, the Option shall terminate. (m) Death of Optionholder. In the event (i) an Optionholder's Continuous Service terminates as a result of the Optionholder's death or (ii) the Optionholder dies within the period (if any) specified in the Option Agreement after the termination of the Optionholder's Continuous Service for a reason other than death, then the Option may be exercised (to the extent the Optionholder was entitled to exercise such Option as of the date of death) by the Optionholder's estate, by a person who acquired the right to exercise the Option by bequest or inheritance or by a person designated to exercise the Option upon the Optionholder's death pursuant to subsection 6(e) or 6(f), but only within the period ending on the earlier of (1) the date eighteen (18) months following the date of death (or such longer or shorter period specified in the Option Agreement) or (2) the expiration of the term of such Option as set forth in the Option Agreement. If, after death, the Option is not exercised within the time specified herein, the Option shall terminate. (n) Early Exercise. The Option may, but need not, include a provision whereby the Optionholder may elect at any time before the Optionholder's Continuous Service terminates to exercise the Option as to any part or all of the shares of Common Stock subject to the Option prior to the full vesting of the Option. Any unvested shares of Common Stock so purchased may be subject to a repurchase option in favor of the Company or to any other restriction the Board determines to be appropriate. The Company will not exercise its repurchase option until at least six (6) months (or such longer or shorter period of time required to avoid a charge to earnings for financial accounting purposes) have elapsed following exercise of the Option unless the Board otherwise specifically provides in the Option. 7. Covenants of the Company. (a) Availability of Shares. During the terms of the Stock Awards, the Company shall keep available at all times the number of shares of Common Stock required to satisfy such Stock Awards. (b) Securities Law Compliance. The Company shall seek to obtain from each regulatory commission or agency having jurisdiction over the Plan such authority as may be required to grant Stock Awards and to issue and sell shares of Common Stock upon exercise of the Stock Awards; provided, however, that this undertaking shall not require the Company to register under the Securities Act the Plan, any Stock Award or any Common Stock issued or issuable pursuant to any such Stock Award. If, after reasonable efforts, the Company is unable to obtain from any such regulatory commission or agency the authority which counsel for the Company deems necessary for the lawful issuance and sale of Common Stock under the Plan, the Company shall be relieved from any liability for failure to issue and sell Common Stock upon exercise of such Stock Awards unless and until such authority is obtained. 8. Use of Proceeds from Stock. Proceeds from the sale of Common Stock pursuant to Stock Awards shall constitute general funds of the Company. 9. Miscellaneous. (a) Acceleration of Exercisability and Vesting. The Board shall have the power to accelerate the time at which a Stock Award may first vest and/or be exercised in accordance with the Plan, notwithstanding the provisions in the Stock Award stating the time at which it may first be exercised or the time during which it will vest. (b) Stockholder Rights. No Participant shall be deemed to be the holder of, or to have any of the rights of a holder with respect to, any shares of Common Stock subject to such Stock Award unless and until such Participant has satisfied all requirements for exercise of the Stock Award pursuant to its terms. (c) No Employment or Other Service Rights. Nothing in the Plan or any instrument executed or Stock Award granted pursuant thereto shall confer upon any Participant any right to continue to serve the Company or an Affiliate in the capacity in effect at the time the Stock Award was granted or shall affect the right of the Company or an Affiliate to terminate (i) the employment of an Employee with or without notice and with or without cause, (ii) the service of a Consultant pursuant to the terms of such Consultant's agreement with the Company or an Affiliate or (iii) the service of a Director pursuant to the Bylaws of the Company or an Affiliate, and any applicable provisions of the corporate law of the state in which the Company or the Affiliate is incorporated, as the case may be. (d) Incentive Stock Option $100,000 Limitation. To the extent that the aggregate Fair Market Value (determined at the time of grant) of Common Stock with respect to which Incentive Stock Options are exercisable for the first time by any Optionholder during any calendar year (under all plans of the Company and its Affiliates) exceeds one hundred thousand dollars ($100,000), the Options or portions thereof which exceed such limit (according to the order in which they were granted) shall be treated as Nonstatutory Stock Options. (e) Investment Assurances. The Company may require a Participant, as a condition of exercising or acquiring Common Stock under any Stock Award, (i) to give written assurances satisfactory to the Company as to the Participant's knowledge and experience in financial and business matters and/or to employ a purchaser representative reasonably satisfactory to the Company who is knowledgeable and experienced in financial and business matters and that he or she is capable of evaluating, alone or together with the purchaser representative, the merits and risks of exercising the Stock Award; and (ii) to give written assurances satisfactory to the Company stating that the Participant is acquiring Common Stock subject to the Stock Award for the Participant's own account and not with any present intention of selling or otherwise distributing the Common Stock. The foregoing requirements, and any assurances given pursuant to such requirements, shall be inoperative if (1) the issuance of the shares of Common Stock upon the exercise or acquisition of Common Stock under the Stock Award has been registered under a then currently effective registration statement under the Securities Act or (2) as to any particular requirement, a determination is made by counsel for the Company that such requirement need not be met in the circumstances under the then applicable securities laws. The Company may, upon advice of counsel to the Company, place legends on stock certificates issued under the Plan as such counsel deems necessary or appropriate in order to comply with applicable securities laws, including, but not limited to, legends restricting the transfer of the Common Stock. (f) Withholding Obligations. To the extent provided by the terms of a Stock Award Agreement, the Participant may satisfy any federal, state or local tax withholding obligation relating to the exercise or acquisition of Common Stock under a Stock Award by any of the following means (in addition to the Company's right to withhold from any compensation paid to the Participant by the Company) or by a combination of such means: (i) tendering a cash payment; (ii) authorizing the Company to withhold shares of Common Stock from the shares of Common Stock otherwise issuable to the Participant as a result of the exercise or acquisition of Common Stock under the Stock Award, provided, however, that no shares of Common Stock are withheld with a value exceeding the minimum amount of tax required to be withheld by law; or (iii) delivering to the Company owned and unencumbered shares of Common Stock. 10. Adjustments upon Changes in Stock. (a) Capitalization Adjustments. If any change is made in the Common Stock subject to the Plan, or subject to any Stock Award, without the receipt of consideration by the Company (through merger, consolidation, reorganization, recapitalization, reincorporation, stock dividend, dividend in property other than cash, stock split, liquidating dividend, combination of shares, exchange of shares, change in corporate structure or other transaction not involving the receipt of consideration by the Company), the Plan will be appropriately adjusted in the class(es) and maximum number of securities subject to the Plan pursuant to subsection 4(a) and the maximum number of securities subject to award to any person pursuant to subsection 5(c), and the outstanding Stock Awards will be appropriately adjusted in the class(es) and number of securities and price per share of Common Stock subject to such outstanding Stock Awards. The Board shall make such adjustments, and its determination shall be final, binding and conclusive. The conversion of any convertible securities of the Company shall not be treated as a transaction "without receipt of consideration" by the Company. (b) Dissolution or Liquidation. In the event of a dissolution or liquidation of the Company, then all outstanding Stock Awards shall terminate immediately prior to such event. (c) Change of Control. (i) Subject to clause (ii) below, in the event of a Change of Control, to the extent permitted by law, any surviving corporation or acquiring corporation may assume any Stock Awards outstanding under the Plan or substitute similar stock awards (including awards to acquire the same consideration paid to the stockholders in the Change of Control) for those outstanding under the Plan. In the event any surviving corporation or acquiring corporation does not assume such Stock Awards or substitute similar stock awards for those outstanding under the Plan, then with respect to Stock Awards held by Participants whose Continuous Service has not terminated, the time during which such Stock Awards may be exercised shall be accelerated in full, and the Stock Awards shall terminate if not exercised at or prior to such event. With respect to any other Stock Awards outstanding under the Plan, such Stock Awards shall terminate if not exercised prior to such event. (d) (ii) In the event of a Change of Control not approved by the Board, each outstanding Stock Award under the Plan shall become fully vested, and the Company's right of repurchase shall lapse with respect to shares received upon exercise of a Stock Award prior to full vesting, notwithstanding the terms of the Stock Award or any early exercise stock purchase agreement, immediately prior to the consummation of such Change of Control. (e) For purposes of this Plan, "Change of Control" means: (i) a sale of substantially all of the assets of the Company; (ii) a merger or consolidation in which the Company is not the surviving corporation (other than a merger or consolidation in which shareholders immediately before the merger or consolidation have, immediately after the merger or consolidation, equal or greater stock voting power); (iii) a reverse merger in which the Company is the surviving corporation but the shares of Common Stock outstanding immediately preceding the merger are converted by virtue of the merger into other property, whether in the form of securities, cash or otherwise (other than a reverse merger in which stockholders immediately before the merger have, immediately after the merger, greater stock voting power); or (iv) any transaction or series of related transactions in which in excess of 50% of the Company's voting power is transferred. 11. Amendment of the Plan and Stock Awards. (a) Amendment of Plan. The Board at any time, and from time to time, may amend the Plan. However, except as provided in Section 10 relating to adjustments upon changes in Common Stock, no amendment shall be effective unless approved by the stockholders of the Company to the extent stockholder approval is necessary to satisfy the requirements of Section 422 of the Code, Rule 16b-3 or any Nasdaq or securities exchange listing requirements. (b) Stockholder Approval. The Board may, in its sole discretion, submit any other amendment to the Plan for stockholder approval, including, but not limited to, amendments to the Plan intended to satisfy the requirements of Section 162(m) of the Code and the regulations thereunder regarding the exclusion of performance-based compensation from the limit on corporate deductibility of compensation paid to certain executive officers. (c) Contemplated Amendments. It is expressly contemplated that the Board may amend the Plan in any respect the Board deems necessary or advisable to provide eligible Employees with the maximum benefits provided or to be provided under the provisions of the Code and the regulations promulgated thereunder relating to Incentive Stock Options and/or to bring the Plan and/or Incentive Stock Options granted under it into compliance therewith. (d) No Impairment of Rights. Rights under any Stock Award granted before amendment of the Plan shall not be impaired by any amendment of the Plan unless (i) the Company requests the consent of the Participant and (ii) the Participant consents in writing. (e) Amendment of Stock Awards. The Board at any time, and from time to time, may amend the terms of any one or more Stock Awards; provided, however, that the rights under any Stock Award shall not be impaired by any such amendment unless (i) the Company requests the consent of the Participant and (ii) the Participant consents in writing. Notwithstanding the foregoing, the Board shall not, without the approval of the stockholders of the Company, authorize the amendment of any outstanding Option to reduce its exercise price. Furthermore, no Option shall be canceled and replaced with grants having a lower exercise price without the further approval of stockholders of the Company. 12. Termination or Suspension of the Plan. (a) Plan Term. The Board may suspend or terminate the Plan at any time. Unless sooner terminated, the Plan shall terminate on the day before the tenth (10th) anniversary of the date the Plan is adopted by the Board or approved by the stockholders of the Company, whichever is earlier. No Stock Awards may be granted under the Plan while the Plan is suspended or after it is terminated. (b) No Impairment of Rights. Suspension or termination of the Plan shall not impair rights and obligations under any Stock Award granted while the Plan is in effect except with the written consent of the Participant. 13. Effective Date of Plan. (a) The Plan shall become effective upon its adoption by the Board, but no Stock Award shall be exercised unless and until the Plan has been approved by the stockholders of the Company, which approval shall be within twelve (12) months before or after the date the Plan is adopted by the Board. 14. Choice of Law. (a) The law of the State of Delaware shall govern all questions concerning the construction, validity and interpretation of this Plan, without regard to such state's conflict of laws rules. EX-10 7 exhibit1059.txt EXHIBIT 10.59 CV THERAPEUTICS, INC. 2000 Nonstatutory Incentive Plan Adopted by the Board of Directors July 19, 2000 Amended and Restated by the Board of Directors February 9, 2001 Amended and Restated by the Board of Directors July 20, 2001 Amended and Restated by the Board of Directors December 9, 2001 Amended and Restated by the Board of Directors February 25, 2002 1. Purposes. (a) Eligible Stock Award Recipients. Only Eligible Participants may receive Stock Awards under this Plan. (b) Available Stock Awards. The purpose of the Plan is to provide a means by which Eligible Participants may be given an opportunity to benefit from increases in value of the Common Stock through the granting of Nonstatutory Stock Options. (c) General Purpose. The Company, by means of the Plan, seeks to retain the services of the group of persons eligible to receive Stock Awards, to secure and retain the services of new members of this group and to provide incentives for such persons to exert maximum efforts for the success of the Company and its Affiliates. 2. Definitions. (a) "Affiliate" means any parent corporation or subsidiary corporation of the Company, whether now or hereafter existing, as those terms are defined in Sections 424(e) and (f), respectively, of the Code. (b) "Board" means the Board of Directors of the Company. (c) "Code" means the Internal Revenue Code of 1986, as amended. (d) "Committee" means a committee of one or more members of the Board appointed by the Board in accordance with subsection 3(c). (e) "Common Stock" means the common stock of the Company. (f) "Company" means CV Therapeutics, Inc., a Delaware corporation. (g) "Consultant" means any person, including an advisor, (i) engaged by the Company or an Affiliate to render consulting or advisory services and who is compensated for such services or (ii) who is a member of the Board of Directors of an Affiliate. However, the term "Consultant" shall not include Directors. (h) "Continuous Service" means that the Holder's service with the Company or an Affiliate, whether as an Employee or Consultant, is not interrupted or terminated. The Holder's Continuous Service shall not be deemed to have terminated merely because of a change in the capacity in which the Holder renders service to the Company or an Affiliate as an Employee or Consultant or a change in the entity for which the Holder renders such service, provided that there is no interruption or termination of the Holder's service to the Company or an Affiliate. For example, a change in status without interruption from an Employee of the Company to a Consultant of an Affiliate will not constitute an interruption of Continuous Service. The Board or the chief executive officer of the Company, in that party's sole discretion, may determine whether Continuous Service shall be considered interrupted in the case of any leave of absence approved by that party, including sick leave, military leave or any other personal leave. (i) "Director" means a member of the Board of Directors of the Company. (j) "Disability" means the permanent and total disability of a person within the meaning of Section 22(e)(3) of the Code. (k) "Eligible Participant" means any Employee or Consultant; provided, however, that except as provided in the following sentence, no Employee or Consultant who is a Director or an Officer may be granted Stock Awards under this Plan. Notwithstanding the preceding sentence, an Officer may be an Eligible Participant if he or she is granted a Stock Award in connection with his or her initial commencement of employment with the Company and such grant is an essential inducement to his or her entering into a contract of employment with the Company. (l) "Employee" means any person employed by the Company or an Affiliate. Mere service as a Director or payment of a director's fee by the Company or an Affiliate shall not be sufficient to constitute "employment" by the Company or an Affiliate. (m) "Exchange Act" means the Securities Exchange Act of 1934, as amended. (n) "Fair Market Value" means, as of any date, the value of the Common Stock determined as follows: (i) If the Common Stock is listed on any established stock exchange or traded on the Nasdaq National Market or the Nasdaq SmallCap Market, the Fair Market Value of a share of Common Stock shall be the closing sales price for such stock (or the closing bid, if no sales were reported) as quoted on such exchange or market (or the exchange or market with the greatest volume of trading in the Common Stock) on the last market trading day prior to the day of determination, as reported in The Wall Street Journal or such other source as the Board deems reliable. (ii) In the absence of such markets for the Common Stock, the Fair Market Value shall be determined in good faith by the Board. (o) "Holder" means a person to whom a Stock Award is granted pursuant to the Plan or, if applicable, such other person who holds an outstanding Stock Award. (p) "Incentive Stock Option" means an Option intended to qualify as an incentive stock option within the meaning of Section 422 of the Code and the regulations promulgated thereunder. Incentive Stock Options may not be granted under the Plan. (q) "Nonstatutory Stock Option" means an Option not intended to qualify as an Incentive Stock Option. (r) "Officer" means a person who is either (i) an officer of the Company within the meaning of Section 16 of the Exchange Act and the rules and regulations promulgated thereunder or (ii) an officer of the Company within the meaning of Section 4310(c)(25)(G)(i) of the NASD Manual and Notices to Members (the "NASD Manual"), or any successor provision thereto. (s) "Option" means a Nonstatutory Stock Option granted pursuant to the Plan. (t) "Option Agreement" means a written or electronic agreement between the Company and an Optionholder evidencing certain terms and conditions of an individual Option grant. Each Option Agreement shall be subject to the terms and conditions of the Plan. (u) "Optionholder" means a person to whom an Option is granted pursuant to the Plan or, if applicable, such other person who holds an outstanding Option. (v) "Plan" means this CV Therapeutics, Inc. 2000 Nonstatutory Incentive Plan. (w) "Rule 16b-3" means Rule 16b-3 promulgated under the Exchange Act or any successor to Rule 16b-3, as in effect from time to time. (x) "Securities Act" means the Securities Act of 1933, as amended. (y) "Stock Award" means any Option granted under the Plan. (z) "Stock Award Agreement" means a written agreement between the Company and a Holder of a Stock Award evidencing the terms and conditions of an individual Stock Award grant. Each Stock Award Agreement shall be subject to the terms and conditions of the Plan. 3. Administration. (a) Administration by Board. The Board shall administer the Plan unless and until the Board delegates administration to a Committee, as provided in subsection 3(c). (b) Powers of Board. The Board shall have the power, subject to, and within the limitations of, the express provisions of the Plan: (i) To determine from time to time which of the persons eligible under the Plan shall be granted Stock Awards; when and how each Stock Award shall be granted; what type or combination of types of Stock Award shall be granted; the provisions of each Stock Award granted (which need not be identical), including the time or times when a person shall be permitted to receive Common Stock pursuant to a Stock Award; and the number of shares of Common Stock with respect to which a Stock Award shall be granted to each such person. (ii) To construe and interpret the Plan and Stock Awards granted under it, and to establish, amend and revoke rules and regulations for its administration. The Board, in the exercise of this power, may correct any defect, omission or inconsistency in the Plan or in any Stock Award Agreement, in a manner and to the extent it shall deem necessary or expedient to make the Plan fully effective. (iii) To amend the Plan or a Stock Award as provided in Section 11. (iv) To terminate or suspend the Plan as provided in Section 12. (v) Generally, to exercise such powers and to perform such acts as the Board deems necessary or expedient to promote the best interests of the Company which are not in conflict with the provisions of the Plan. (c) Delegation to Committee. The Board may delegate administration of the Plan to a Committee or Committees of one (1) or more members of the Board. The term "Committee" shall apply to any person or persons to whom such authority has been delegated. If administration is delegated to a Committee, the Committee shall have, in connection with the administration of the Plan, the powers theretofore possessed by the Board, including the power to delegate to a subcommittee any of the administrative powers the Committee is authorized to exercise (and references in this Plan to the Board shall thereafter be to the Committee or subcommittee), subject, however, to such resolutions, not inconsistent with the provisions of the Plan, as may be adopted from time to time by the Board. The Board may abolish the Committee at any time and revest in the Board the administration of the Plan. (d) Effect of Board's Decision. All determinations, interpretations and constructions made by the Board in good faith shall not be subject to review by any person and shall be final, binding and conclusive on all persons. 4. Shares Subject to the Plan. (a) Share Reserve. Subject to the provisions of Section 10 relating to adjustments upon changes in Common Stock, the Common Stock that may be issued pursuant to Stock Awards shall not exceed in the aggregate One Million Three Hundred and Thirty Five Thousand Three Hundred and Twenty Five (1,335,325) shares of Common Stock. (b) Reversion of Shares to the Share Reserve. If any Stock Award shall for any reason expire or otherwise terminate, in whole or in part, without having been exercised in full, the shares of Common Stock not acquired under such Stock Award shall revert to and again become available for issuance under the Plan. (c) Source of Shares. The shares of Common Stock subject to the Plan may be unissued shares or reacquired shares, bought on the market or otherwise. 5. Eligibility. (a) Eligibility for Specific Stock Awards. Stock Awards may be granted only to Eligible Participants. (b) Consultants. A Consultant shall not be eligible for the grant of a Stock Award if, at the time of grant, a Form S-8 Registration Statement under the Securities Act ("Form S-8") is not available to register either the offer or the sale of the Company's securities to such Consultant because of the nature of the services that the Consultant is providing to the Company, or because the Consultant is not a natural person, or as otherwise provided by the rules governing the use of Form S-8, unless the Company determines both (i) that such grant (A) shall be registered in another manner under the Securities Act (e.g., on a Form S-3 Registration Statement) or (B) does not require registration under the Securities Act in order to comply with the requirements of the Securities Act, if applicable, and (ii) that such grant complies with the securities laws of all other relevant jurisdictions. 6. Option Provisions. (a) Each Option shall be in such form and shall contain such terms and conditions as the Board shall deem appropriate. The provisions of separate Options need not be identical, but each Option shall include (through incorporation of provisions hereof by reference in the Option or otherwise) the substance of each of the following provisions: (b) Option Exercise Price. The exercise price of each Nonstatutory Stock Option shall be not less than one hundred percent (100%) of the Fair Market Value of the Common Stock subject to the Option on the date the Option is granted. Notwithstanding the foregoing, a Nonstatutory Stock Option may be granted with an exercise price lower than that set forth in the preceding sentence if such Option is granted pursuant to an assumption or substitution for another option in a manner satisfying the provisions of Section 424(a) of the Code. (c) Consideration. The purchase price of Common Stock acquired pursuant to an Option shall be paid, to the extent permitted by applicable statutes and regulations, either (i) in cash at the time the Option is exercised or (ii) at the discretion of the Board at the time of the grant of the Option (or subsequently in the case of a Nonstatutory Stock Option) (1) by delivery to the Company of other Common Stock, (2) according to a deferred payment or other similar arrangement with the Optionholder or (3) in any other form of legal consideration that may be acceptable to the Board. Unless otherwise specifically provided in the Option, the purchase price of Common Stock acquired pursuant to an Option that is paid by delivery to the Company of other Common Stock acquired, directly or indirectly from the Company, shall be paid only by shares of the Common Stock of the Company that have been held for more than six (6) months (or such longer or shorter period of time required to avoid a charge to earnings for financial accounting purposes). At any time that the Company is incorporated in Delaware, payment of the Common Stock's "par value," as defined in the Delaware General Corporation Law, shall not be made by deferred payment. (d) In the case of any deferred payment arrangement, interest shall be compounded at least annually and shall be charged at the minimum rate of interest necessary to avoid the treatment as interest, under any applicable provisions of the Code, of any amounts other than amounts stated to be interest under the deferred payment arrangement. (e) Transferability of a Nonstatutory Stock Option. A Nonstatutory Stock Option shall be transferable to the extent provided in the Option Agreement. If the Nonstatutory Stock Option does not provide for transferability, then the Nonstatutory Stock Option shall not be transferable except by will or by the laws of descent and distribution and shall be exercisable during the lifetime of the Optionholder only by the Optionholder. Notwithstanding the foregoing, the Optionholder may, by delivering written notice to the Company, in a form satisfactory to the Company, designate a third party who, in the event of the death of the Optionholder, shall thereafter be entitled to exercise the Option. (f) Vesting Generally. The total number of shares of Common Stock subject to an Option may, but need not, vest and therefore become exercisable in periodic installments that may, but need not, be equal. The Option may be subject to such other terms and conditions on the time or times when it may be exercised (which may be based on performance or other criteria) as the Board may deem appropriate. The vesting provisions of individual Options may vary. The provisions of this subsection 6(d) are subject to any Option provisions governing the minimum number of shares of Common Stock as to which an Option may be exercised. (g) Termination of Continuous Service. In the event an Optionholder's Continuous Service terminates (other than upon the Optionholder's death or Disability), the Optionholder may exercise his or her Option (to the extent that the Optionholder was entitled to exercise such Option as of the date of termination) but only within such period of time ending on the earlier of (i) the date three (3) months following the termination of the Optionholder's Continuous Service (or such longer or shorter period specified in the Option Agreement), or (ii) the expiration of the term of the Option as set forth in the Option Agreement. If, after termination, the Optionholder does not exercise his or her Option within the time specified in the Option Agreement, the Option shall terminate. (h) Extension of Termination Date. An Optionholder's Option Agreement may also provide that if the exercise of the Option following the termination of the Optionholder's Continuous Service (other than upon the Optionholder's death or Disability) would be prohibited at any time solely because the issuance of shares of Common Stock would violate the registration requirements under the Securities Act, then the Option shall terminate on the earlier of (i) the expiration of the term of the Option set forth in subsection 6(a) or (ii) the expiration of a period of three (3) months after the termination of the Optionholder's Continuous Service during which the exercise of the Option would not be in violation of such registration requirements. (i) Disability of Optionholder. In the event that an Optionholder's Continuous Service terminates as a result of the Optionholder's Disability, the Optionholder may exercise his or her Option (to the extent that the Optionholder was entitled to exercise such Option as of the date of termination), but only within such period of time ending on the earlier of (i) the date twelve (12) months following such termination (or such longer or shorter period specified in the Option Agreement) or (ii) the expiration of the term of the Option as set forth in the Option Agreement. If, after termination, the Optionholder does not exercise his or her Option within the time specified herein, the Option shall terminate. (j) Death of Optionholder. In the event (i) an Optionholder's Continuous Service terminates as a result of the Optionholder's death or (ii) the Optionholder dies within the period (if any) specified in the Option Agreement after the termination of the Optionholder's Continuous Service for a reason other than death, then the Option may be exercised (to the extent the Optionholder was entitled to exercise such Option as of the date of death) by the Optionholder's estate, by a person who acquired the right to exercise the Option by bequest or inheritance or by a person designated to exercise the Option upon the Optionholder's death pursuant to subsection 6(e) or 6(f), but only within the period ending on the earlier of (1) the date eighteen (18) months following the date of death (or such longer or shorter period specified in the Option Agreement) or (2) the expiration of the term of such Option as set forth in the Option Agreement. If, after death, the Option is not exercised within the time specified herein, the Option shall terminate. (k) Early Exercise. The Option may, but need not, include a provision whereby the Optionholder may elect at any time before the Optionholder's Continuous Service terminates to exercise the Option as to any part or all of the shares of Common Stock subject to the Option prior to the full vesting of the Option. Any unvested shares of Common Stock so purchased may be subject to a repurchase option in favor of the Company or to any other restriction the Board determines to be appropriate. The Company will not exercise its repurchase option until at least six (6) months (or such longer or shorter period of time required to avoid a charge to earnings for financial accounting purposes) have elapsed following exercise of the Option unless the Board otherwise specifically provides in the Option. 7. Covenants of the Company. (a) Availability of Shares. During the terms of the Stock Awards, the Company shall keep available at all times the number of shares of Common Stock required to satisfy such Stock Awards. (b) Securities Law Compliance. The Company shall seek to obtain from each regulatory commission or agency having jurisdiction over the Plan such authority as may be required to grant Stock Awards and to issue and sell shares of Common Stock upon exercise of the Stock Awards; provided, however, that this undertaking shall not require the Company to register under the Securities Act the Plan, any Stock Award or any Common Stock issued or issuable pursuant to any such Stock Award. If, after reasonable efforts, the Company is unable to obtain from any such regulatory commission or agency the authority which counsel for the Company deems necessary for the lawful issuance and sale of Common Stock under the Plan, the Company shall be relieved from any liability for failure to issue and sell Common Stock upon exercise of such Stock Awards unless and until such authority is obtained. 8. Use of Proceeds from Stock. (a) Proceeds from the sale of Common Stock pursuant to Stock Awards shall constitute general funds of the Company. 9. Miscellaneous. (a) Acceleration of Exercisability and Vesting. The Board shall have the power to accelerate the time at which a Stock Award may first be exercised or the time during which a Stock Award or any part thereof will vest in accordance with the Plan, notwithstanding the provisions in the Stock Award stating the time at which it may first be exercised or the time during which it will vest. (b) Stockholder Rights. No Holder shall be deemed to be the holder of, or to have any of the rights of a holder with respect to, any shares of Common Stock subject to such Stock Award unless and until such Holder has satisfied all requirements for exercise of the Stock Award pursuant to its terms. (c) No Employment or Other Service Rights. Nothing in the Plan or any instrument executed or Stock Award granted pursuant thereto shall confer upon any Holder any right to continue to serve the Company or an Affiliate in the capacity in effect at the time the Stock Award was granted or shall affect the right of the Company or an Affiliate to terminate (i) the employment of an Employee with or without notice and with or without cause or (ii) the service of a Consultant pursuant to the terms of such Consultant's agreement with the Company or an Affiliate. (d) Investment Assurances. The Company may require a Holder, as a condition of exercising or acquiring Common Stock under any Stock Award, (i) to give written assurances satisfactory to the Company as to the Holder's knowledge and experience in financial and business matters and/or to employ a purchaser representative reasonably satisfactory to the Company who is knowledgeable and experienced in financial and business matters and that he or she is capable of evaluating, alone or together with the purchaser representative, the merits and risks of exercising the Stock Award; and (ii) to give written assurances satisfactory to the Company stating that the Holder is acquiring Common Stock subject to the Stock Award for the Holder's own account and not with any present intention of selling or otherwise distributing the Common Stock. The foregoing requirements, and any assurances given pursuant to such requirements, shall be inoperative if (1) the issuance of the shares of Common Stock upon the exercise or acquisition of Common Stock under the Stock Award has been registered under a then currently effective registration statement under the Securities Act or (2) as to any particular requirement, a determination is made by counsel for the Company that such requirement need not be met in the circumstances under the then applicable securities laws. The Company may, upon advice of counsel to the Company, place legends on stock certificates issued under the Plan as such counsel deems necessary or appropriate in order to comply with applicable securities laws, including, but not limited to, legends restricting the transfer of the Common Stock. (e) Withholding Obligations. To the extent provided by the terms of a Stock Award Agreement, the Holder may satisfy any federal, state or local tax withholding obligation relating to the exercise or acquisition of Common Stock under a Stock Award by any of the following means (in addition to the Company's right to withhold from any compensation paid to the Holder by the Company) or by a combination of such means: (i) tendering a cash payment; (ii) authorizing the Company to withhold shares of Common Stock from the shares of Common Stock otherwise issuable to the Holder as a result of the exercise or acquisition of Common Stock under the Stock Award, provided, however, that no shares of Common Stock are withheld with a value exceeding the minimum amount of tax required to be withheld by law; or (iii) delivering to the Company owned and unencumbered shares of Common Stock. 10. Adjustments upon Changes in Stock. (a) Capitalization Adjustments. If any change is made in the Common Stock subject to the Plan, or subject to any Stock Award, without the receipt of consideration by the Company (through merger, consolidation, reorganization, recapitalization, reincorporation, stock dividend, dividend in property other than cash, stock split, liquidating dividend, combination of shares, exchange of shares, change in corporate structure or other transaction not involving the receipt of consideration by the Company), the Plan will be appropriately adjusted in the class(es) and maximum number of securities subject to the Plan pursuant to subsection 4(a) and the maximum number of securities subject to award to any person pursuant to subsection 5(c), and the outstanding Stock Awards will be appropriately adjusted in the class(es) and number of securities and price per share of Common Stock subject to such outstanding Stock Awards. The Board shall make such adjustments, and its determination shall be final, binding and conclusive. The conversion of any convertible securities of the Company shall not be treated as a transaction "without receipt of consideration" by the Company. (b) Dissolution or Liquidation. In the event of a dissolution or liquidation of the Company, then all outstanding Stock Awards shall terminate immediately prior to such event. (c) Change of Control. (i) Subject to clause (ii) below, in the event of a Change of Control, to the extent permitted by law, any surviving corporation or acquiring corporation may assume any Stock Awards outstanding under the Plan or substitute similar stock awards (including awards to acquire the same consideration paid to the stockholders in the Change of Control) for those outstanding under the Plan. In the event any surviving corporation or acquiring corporation does not assume such Stock Awards or substitute similar stock awards for those outstanding under the Plan, then with respect to Stock Awards held by Holders whose Continuous Service has not terminated, the time during which such Stock Awards may be exercised shall be accelerated in full, and the Stock Awards shall terminate if not exercised at or prior to such event. With respect to any other Stock Awards outstanding under the Plan, such Stock Awards shall terminate if not exercised prior to such event. (d) (ii) In the event of a Change of Control not approved by the Board, each outstanding Stock Award under the Plan shall become fully vested, and the Company's right of repurchase shall lapse with respect to shares received upon exercise of a Stock Award prior to full vesting, notwithstanding the terms of the Stock Award or any early exercise stock purchase agreement, immediately prior to the consummation of such Change of Control. (e) For purposes of this Plan, "Change of Control" means: (i) a sale of substantially all of the assets of the Company; (ii) a merger or consolidation in which the Company is not the surviving corporation (other than a merger or consolidation in which shareholders immediately before the merger or consolidation have, immediately after the merger or consolidation, equal or greater stock voting power); (iii) a reverse merger in which the Company is the surviving corporation but the shares of Common Stock outstanding immediately preceding the merger are converted by virtue of the merger into other property, whether in the form of securities, cash or otherwise (other than a reverse merger in which stockholders immediately before the merger have, immediately after the merger, greater stock voting power); or (iv) any transaction or series of related transactions in which in excess of 50% of the Company's voting power is transferred. 11. Amendment of the Plan and Stock Awards. (a) Amendment of Plan. The Board at any time, and from time to time, may amend the Plan. However, except as provided in Section 10 relating to adjustments upon changes in Common Stock, no amendment shall be effective unless approved by the stockholders of the Company to the extent stockholder approval is necessary to satisfy the requirements of Section 422 of the Code, Rule 16b-3 or any Nasdaq or securities exchange listing requirements. (b) Contemplated Amendments. It is expressly contemplated that the Board may amend the Plan in any respect the Board deems necessary or advisable to provide eligible Employees with the maximum benefits provided or to be provided under the provisions of the Code. (c) No Impairment of Rights. Rights under any Stock Award granted before amendment of the Plan shall not be impaired by any amendment of the Plan unless (i) the Company requests the consent of the Holder and (ii) the Holder consents in writing. (d) Amendment of Stock Awards. The Board at any time, and from time to time, may amend the terms of any one or more Stock Awards; provided, however, that the rights under any Stock Award shall not be impaired by any such amendment unless (i) the Company requests the consent of the Holder and (ii) the Holder consents in writing. Notwithstanding the foregoing, the Board shall not, without the approval of the stockholders of the Company, authorize the amendment of any outstanding Option to reduce its exercise price. Furthermore, no Option shall be canceled and replaced with grants having a lower exercise price without the further approval of stockholders of the Company. 12. Termination or Suspension of the Plan. (a) Plan Term. The Board may suspend or terminate the Plan at any time. Unless sooner terminated, the Plan shall terminate on the day before the tenth (10th) anniversary of the date the Plan is adopted by the Board. No Stock Awards may be granted under the Plan while the Plan is suspended or after it is terminated. (b) No Impairment of Rights. Suspension or termination of the Plan shall not impair rights and obligations under any Stock Award granted while the Plan is in effect except with the written consent of the Holder. 13. Effective Date of Plan. (a) The Plan shall become effective upon its adoption by the Board. 14. Choice of Law/Interpretation. (a) The law of the State of Delaware shall govern all questions concerning the construction, validity and interpretation of this Plan, without regard to such state's conflict of laws rules. Notwithstanding the foregoing, it is expressly intended that approval of the Company's stockholders not be required as a condition of the effectiveness of the Plan, and the Plan's provisions shall be interpreted in a manner consistent with such intent for all purposes (including without limitation, for purposes of determining whether stockholder approval of the Plan is necessary pursuant to the NASD Manual or any successor provisions thereto). EX-10 8 exhibit231.txt EXHIBIT 23.1 EXHIBIT 23.1 CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS We consent to the incorporation by reference in the Registration Statements on Form S-3 (Nos. 333-38528, 333-41718, 333-53206, 333-53202 and 333-59318) and in the related Prospectuses pertaining to the registration of $196,250,000 of 4 3/4% convertible subordinated notes due March 2007 and 3,074,091 shares of common stock issuable upon conversion of the notes, the registration of an aggregate amount of $220,000,000 of common stock and the registration of an aggregate amount of $305,000,000 of debt and equity securities, and in the Registration Statements on Form S-8 (Nos. 333-19389, 333-44717, 333-43560, 333-49026, 333-54526, 333-60358, 333-64230 and 333-68984) pertaining to the 1992 Stock Option Plan, the 1994 Equity Incentive Plan, the Non-Employee Directors' Stock Option Plan, the Nonstatutory Stock Options, the 2000 Nonstatutory Incentive Plan, the 2000 Equity Incentive Plan and the Employee Stock Purchase Plan of CV Therapeutics, Inc., of our report dated February 13, 2002, with respect to the consolidated financial statements of CV Therapeutics, Inc. included in this Annual Report (Form 10-K) for the year ended December 31, 2001. /s/ Ernst & Young LLP Palo Alto, California March 28, 2002 -----END PRIVACY-ENHANCED MESSAGE-----