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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 Form 10-K
 (Mark One)
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended December 31, 2008
 OR
 o
    
    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 0-31261
 AtheroGenics, Inc.
  Georgia
    
    58-2108232(State or other jurisdiction of
    
    (I.R.S. Employer Identification Number)incorporation or organization)8995 Westside Parkway,
    
    (678) 336-2500Alpharetta, Georgia 30009
    
    (Registrants telephone number, including area code)(Address of principal executive offices, including zip code)
  None
  Common Stock, No Par Value
Common Stock Purchase Rights
 
 o þ
 o þ
 o þ
 o o
 o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller reporting company þ(Do not check if a smaller reporting company)
 o þ
  o þ
  Documents Incorporated by Reference:




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##### 



ATHEROGENICS, INC
FORM 10-K
 INDEX
 PagePART IItem 1.
    
    Business
    
    
    2Item 1A.
    
    Risk Factors
    
    
    3Item 1B.
    
    Unresolved SEC Staff Comments
    
    
    4Item 2.
    
    Properties
    
    
    4Item 3.
    
    Legal Proceedings
    
    
    4Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    4PART IIItem 5.
    
    Market for Registrants Common Equity, Related Shareholder Matters and
Issuer Purchases of Equity Securities
    
    
    5Item 6.
    
    Selected Financial Data
    
    
    5Item 7.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    5Item 7A.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    10Item 8.
    
    Financial Statements and Supplementary Data
    
    
    10Item 9.
    
    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    
    
    25Item 9A(T).
    
    Controls and Procedures
    
    
    25Item 9B.
    
    Other Information
    
    
    27PART IIIItem 10.
    
    Directors, Executive Officers and Corporate Governance
    
    
    27Item 11.
    
    Executive Compensation
    
    
    28Item 12.
    
    Security Ownership of Certain Beneficial Owners and Management and
Related Shareholder Matters
    
    
    31Item 13.
    
    Certain Relationships and Related Transactions, and Director Independence
    
    
    33Item 14.
    
    Principal Accountant Fees and Services
    
    
    34PART IVItem 15.
    
    Exhibits and Financial Statement Schedules
    
    
    35Signatures
    
    
    
    
    37EX-31.1EX-32
  i




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EXPLANATORY NOTE
    1




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##### Table of Contents



PART I
 
 Item 1. Business
 Bankruptcy Proceeding
    History of the Business
      2




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Employees
  Available Information
  
 Item 1A Risk Factors
 Forward-Looking Statements
 The Private Securities Litigation Reform Act of 1995 provides a safe harbor for
forward-looking statements made by or on behalf of AtheroGenics. AtheroGenics and its
representatives may from time to time make written or oral forward-looking statements, including
statements contained in this report and our other filings with the SEC and in our reports to our
shareholders. Generally, the words, believe, expect, intend, estimate, anticipate,
will and similar expressions identify forward-looking statements. All statements which address
events that we expect to occur in the future are forward-looking statements within the meaning of
the Reform Act. The forward-looking statements are and will be based on our then current views and
assumptions regarding future events, and speak only as of their dates. We undertake no obligation
to publicly update or revise any forward-looking statements, whether as a result of new
information, future events or otherwise.
 Because the proceeds from the sale of substantially all of our non-cash assets did not exceed
the amounts we owe to our creditors, our shareholders will receive no value for their common stock
and our creditors will receive substantially less than payment in full for their claims.
  3




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Since our cash and cash equivalents, including the proceeds from the sale of our non-cash assets,
are significantly less than our prepetition liabilities, holders of our unsecured debt will receive
substantially less than payment in full for their claims and our shareholders will receive no value
for their shares of our common stock as part of the Chapter 11 Proceeding.
 Our common stock continues to be quoted on the Pink Sheets even though our shareholders will
not receive any value for their shares of our common stock as part of the Chapter 11 Proceeding and
our corporate existence will be terminated once we have completed the distribution of our cash and
cash equivalents to our creditors.
 Accordingly, even though our
common stock continues to be quoted on the Pink Sheets, our common stock has no value and our
shareholders should not view the trading activity of our common stock on the Pink Sheets or any
other market or trading platform as being indicative of the value our shareholders will receive as
part of the Chapter 11 Proceeding.
 
 Item 1B. Unresolved SEC Staff Comments
  
 Item 2. Properties
  
 Item 3. Legal Proceedings
  
 Item 4. Submission of Matters to a Vote of Security Holders
  4




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PART II
 
 Item 5. Market for Registrants Common Equity, Related Shareholder Matters and Issuer Purchases of
Equity Securities
 Common Stock Information
  Common StockHigh
    
    LowYear ended December 31, 2008First quarter
    
    $
    1.10
    
    
    $
    0.37Second quarter
    
    
    0.87
    
    
    
    0.56Third quarter
    
    
    0.95
    
    
    
    0.19Fourth quarter
    
    
    0.32
    
    
    
    0.02Year ended December 31, 2007First quarter
    
    $
    12.46
    
    
    $
    2.80Second quarter
    
    
    3.86
    
    
    
    2.10Third quarter
    
    
    3.00
    
    
    
    1.12Fourth quarter
    
    
    1.86
    
    
    
    0.36
  Dividend Policy
  
 Item 6. Selected Financial Data
  
 Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
 The following discussion should be read in conjunction with our financial statements and
related notes included in this annual report. In this report, AtheroGenics, we, us and our
refer to AtheroGenics, Inc.
 This annual report contains forward-looking statements made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995. These statements are subject
to certain factors, risks and uncertainties that may cause future events to differ materially from
those referred to in such statements. You should carefully consider these risks, which are
discussed in this annual report, including, without limitation, in the sections entitled Risk
Factors and Managements Discussion and Analysis of Financial Condition and Results of
Operations, and in AtheroGenics SEC filings.
 Bankruptcy Proceeding
  5




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History of the Business
        6




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Critical Accounting Policies and Use of Estimates
  Research and Development Accrual
  Revenue Recognition
 Revenue Recognition in Financial Statements, Revenue
Recognition,
  Reporting Gross Revenue as a Principal vs. Net as an
Agent.
 Stock-Based Compensation
 Share-Based Payment Accounting for Stock-Based Compensation Accounting for Stock Issued to Employees
 7




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Results of Operations
 Comparison of Years Ended December 31, 2008 and 2007
 Revenues
  Expenses
 Research and Development.
 General and Administrative.
 Restructuring and Impairment Costs.
 Interest and Other Income
  Interest Expense
  8




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Reorganization
Items, Net
  Liquidity and Capital Resources
        9




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Item 7A. Quantitative and Qualitative Disclosures about Market Risk
  
 Item 8. Financial Statements and Supplementary Data
 ATHEROGENICS, INC.
INDEX TO FINANCIAL STATEMENTS
 Contents
 Report of Independent Registered Public Accounting Firm
    
    
    11Balance Sheets
    
    
    12Statements of Operations
    
    
    13Statements of Shareholders Deficit
    
    
    14Statements of Cash Flows
    
    
    15Notes to Financial Statements
    
    
    16
 10




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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
      /s/Ernst & Young LLP 
 11




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ATHEROGENICS, INC.
(Debtor-in-Possession)
 
 BALANCE SHEETS
 December 31,2008
    
    
    2007AssetsCurrent assets:Cash and cash equivalents
    
    $
    49,966,104
    
    
    $
    74,795,388Short-term investments
    
    
    
    
    
    
    18,080,032Accounts receivable
    
    
    
    
    
    
    2,634,422Prepaid expenses and other current assets
    
    
    536,715
    
    
    
    1,290,260Total current assets
    
    
    50,502,819
    
    
    
    96,800,102Equipment and leasehold improvements, net of accumulated depreciation
and amortization
    
    
    1,093,326
    
    
    
    2,361,053Debt issuance costs and other assets
    
    
    
    
    
    
    3,977,873Total assets
    
    $
    51,596,145
    
    
    $
    103,139,028Liabilities and Shareholders DeficitCurrent liabilities:Accounts payable
    
    $
    339,013
    
    
    $
    781,119Accrued research and development
    
    
    8,150
    
    
    
    3,765,745Accrued interest
    
    
    
    
    
    
    2,876,150Accrued compensation
    
    
    157,257
    
    
    
    2,258,051Accrued and other liabilities
    
    
    195,626
    
    
    
    920,736Current portion of convertible notes payable
    
    
    
    
    
    
    35,968,750Total current liabilities not subject to compromise
    
    
    700,046
    
    
    
    46,570,551Liabilities subject to compromise
    
    
    306,888,386
    
    
    
    Convertible notes payable, net of current portion
    
    
    
    
    
    
    252,163,102Shareholders deficit:Preferred stock, no par value: Authorized - 5,000,000 shares
    
    
    
    
    
    
    Common stock, no par value:Authorized - 100,000,000 shares; issued and outstanding -
39,518,492 shares at December 31, 2008 and 2007
    
    
    219,030,853
    
    
    
    215,243,310Warrants
    
    
    598,173
    
    
    
    613,021Accumulated deficit
    
    
    (475,621,313
    )
    
    
    (411,465,815
    )Accumulated other comprehensive income
    
    
    
    
    
    
    14,859Total shareholders deficit
    
    
    (255,992,287
    )
    
    
    (195,594,625
    )Total liabilities and shareholders deficit
    
    $
    51,596,145
    
    
    $
    103,139,028
 The accompanying notes are an integral part of these financial statements.
 12




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ATHEROGENICS, INC.
(Debtor-in-Possession)
 
 STATEMENTS OF OPERATIONS
 Year Ended December 31,2008
    
    
    2007Revenues:License fees
    
    $
    
    
    
    $
    27,083,333Research and development
    
    
    
    
    
    
    25,193,494Total revenues
    
    
    
    
    
    
    52,276,827Operating expenses:Research and development
    
    
    25,915,956
    
    
    
    72,696,066Marketing, general and administrative
    
    
    10,446,868
    
    
    
    13,936,132Restructuring and impairment costs
    
    
    (821,000
    )
    
    
    9,996,332Total operating expenses
    
    
    35,541,824
    
    
    
    96,628,530Operating loss
    
    
    (35,541,824
    )
    
    
    (44,351,703
    )Interest and other income
    
    
    1,632,279
    
    
    
    6,007,678Interest expense
    
    
    (9,452,040
    )
    
    
    (11,124,544
    )Net loss before reorganization items
    
    
    (43,361,585
    )
    
    
    (49,468,569
    )Reorganization items, net
    
    
    (20,793,913
    )
    
    
    Net loss
    
    $
    (64,155,498
    )
    
    $
    (49,468,569
    )Net loss per share-basic and diluted
    
    $
    (1.62
    )
    
    $
    (1.25
    )Weighted average shares outstanding-basic and diluted
    
    
    39,518,492
    
    
    
    39,500,154
 The accompanying notes are an integral part of these financial statements.
 13




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ATHEROGENICS, INC.
(Debtor-in-Possession)
 
 STATEMENTS OF SHAREHOLDERS DEFICIT
 AccumulatedOther
    
    
    TotalCommon Stock
    
    
    
    
    
    
    Accumulated
    
    
    Comprehensive
    
    
    ShareholdersShares
    
    
    Amount
    
    
    Warrants
    
    
    Deficit
    
    
    (Loss) Income
    
    
    DeficitBalance at January 1, 2007
    
    
    39,452,927
    
    
    $
    207,388,894
    
    
    $
    613,021
    
    
    $
    (361,997,246
    )
    
    $
    7,682
    
    
    $
    (153,987,649
    )Issuance of common stock for exercise of stock options
at $.30 to $.38 per share
    
    
    65,565
    
    
    
    23,075
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    23,075Stock-based compensation
    
    
    
    
    
    
    7,831,341
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,831,341Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (49,468,569
    )
    
    
    
    
    
    
    (49,468,569
    )Unrealized gain on available-for-sale securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,177
    
    
    
    7,177Comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (49,461,392
    )Balance at December 31, 2007
    
    
    39,518,492
    
    
    
    215,243,310
    
    
    
    613,021
    
    
    
    (411,465,815
    )
    
    
    14,859
    
    
    
    (195,594,625
    )Expired warrants
    
    
    
    
    
    
    14,848
    
    
    
    (14,848
    )
    
    
    
    
    
    
    
    
    
    
    Stock-based compensation
    
    
    
    
    
    
    3,772,695
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,772,695Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (64,155,498
    )
    
    
    
    
    
    
    (64,155,498
    )Change in unrealized gain on available-for-sale securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (14,859
    )
    
    
    (14,859
    )Comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (64,170,357
    )Balance at December 31, 2008
    
    
    39,518,492
    
    
    $
    219,030,853
    
    
    $
    598,173
    
    
    $
    (475,621,313
    )
    
    $
    
    
    
    $
    (255,992,287
    )
 The accompanying notes are an integral part of these financial statements.
 14




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ATHEROGENICS, INC.
(Debtor-in-Possession)
 
 STATEMENTS OF CASH FLOWS
 Year Ended December 31,2008
    
    
    2007Operating activitiesNet loss
    
    $
    (64,155,498
    )
    
    $
    (49,468,569
    )Adjustments to reconcile net loss to net cash used
in operating activities:Amortization on 2011 Notes
    
    
    3,235,786
    
    
    
    2,131,852Write-off of discount and premium on 2011 Notes, net (included in reorganization costs)
    
    
    16,499,112
    
    
    
    Amortization of debt issuance costs
    
    
    843,394
    
    
    
    1,646,479Write-off of debt issuance costs on 2012 Notes (included in reorganization costs)
    
    
    3,134,479
    
    
    
    Stock-based compensation
    
    
    3,772,695
    
    
    
    7,831,341Depreciation and amortization
    
    
    1,301,327
    
    
    
    911,124Amortization of deferred revenue
    
    
    
    
    
    
    (27,083,333
    )Asset impairment costs
    
    
    
    
    
    
    9,005,153Changes in operating assets and liabilities:Accounts receivable
    
    
    2,634,422
    
    
    
    3,903,470Prepaid expenses
    
    
    427,276
    
    
    
    3,130,040Interest receivable
    
    
    326,269
    
    
    
    261,216Accounts payable
    
    
    (365,321
    )
    
    
    (2,402,392
    )Accrued research and development
    
    
    (2,761,003
    )
    
    
    (7,497,419
    )Accrued interest
    
    
    (5,199
    )
    
    
    336,150Accrued compensation
    
    
    (2,100,794
    )
    
    
    792,407Accrued and other liabilities
    
    
    (179,052
    )
    
    
    129,075Net cash used in operating activities
    
    
    (37,392,107
    )
    
    
    (56,373,406
    )Investing activitiesSales and maturities of short-term investments
    
    
    18,065,173
    
    
    
    110,008,090Purchases of short-term investments
    
    
    
    
    
    
    (64,116,085
    )Purchases of equipment and leasehold improvements
    
    
    (33,600
    )
    
    
    (2,592,365
    )Net cash provided by investing activities
    
    
    18,031,573
    
    
    
    43,299,640Financing activitiesPayment of convertible notes
    
    
    (5,468,750
    )
    
    
    Proceeds from the exercise of common stock options
    
    
    
    
    
    
    23,075Net cash (used in) provided by financing activities
    
    
    (5,468,750
    )
    
    
    23,075Decrease in cash and cash equivalents
    
    
    (24,829,284
    )
    
    
    (13,050,691
    )Cash and cash equivalents at beginning of year
    
    
    74,795,388
    
    
    
    87,846,079Cash and cash equivalents at end of year
    
    $
    49,966,104
    
    
    $
    74,795,388Supplemental disclosures of cash flow informationInterest paid
    
    $
    5,399,396
    
    
    $
    7,010,062Reorganization items paid
    
    
    1,160,322
    
    
    
    
 The accompanying notes are an integral part of these financial statements.
 15




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NOTES TO FINANCIAL STATEMENTS
 1. Description of Business and Significant Accounting Policies
 Description of Business
     Use of Estimates
  Cash and Cash Equivalents
  Short-Term Investments
  Accounting for Certain Investments in Debt and Equity Securities
 16




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Fair Value of Financial Instruments and Concentration of Credit Risk
  Accounts Receivable
  Equipment and Leasehold Improvements
  Research and Development Accrual
  Liabilities Subject to Compromise and Reorganization Items
 Financial Reporting by Entities under the Bankruptcy Code
  Accounts payable
    
    $
    76,785Accrued interest
    
    
    2,870,951Accrued research and development
    
    
    996,592Accrued other
    
    
    546,0584.5% convertible notes due 2008
    
    
    30,500,0004.5% convertible notes due 2011
    
    
    71,898,0001.5% convertible notes due 2012
    
    
    200,000,000Total liabilities subject to compromise
    
    $
    306,888,386
 17




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Discount on the 4.5% convertible notes due 2011
    
    $
    (16,934,684
    )Premium on the 4.5% convertible notes due 2011
    
    
    435,572Debt issuance costs on the 1.5% convertible notes due 2012
    
    
    (3,134,479
    )Professional fees
    
    
    (1,415,727
    )Interest income
    
    
    255,405Total reorganization items, net
    
    $
    (20,793,913
    )
 Revenue Recognition
 Revenue Recognition in Financial Statements, Revenue Recognition,
  Reporting Gross Revenue as a
Principal vs. Net as an Agent .
 Research and Development and Patent Costs
  Restructuring and Impairment Costs
 Accounting for Costs Associated with Exit or
Disposal Activities,
 Accounting for the Impairment or Disposal of Long-Lived Assets,
 18




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Stock-Based Compensation
 Share-Based Payment,
   2008
    
    2007Expected life
    
    5 years
    
    
    4 yearsRisk-free interest rate
    
    
    3.2
    %
    
    
    4.3
    %Volatility
    
    
    89.14
    %
    
    
    83.7
    %Fair value of grants
    
    $
    0.41
    
    
    $
    0.94
 Income Taxes
  Comprehensive Income (Loss)
 Reporting
Comprehensive Income
 Recently Issued Accounting Standards
 Fair
Value Measurements,
 2. Collaborations
  19




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3. Short-Term Investments
  December 31,2008
    
    
    2007Commercial paper
    
    $
    
    
    
    $
    12,301,963Corporate notes
    
    
    
    
    
    
    3,776,569Government agency notes
    
    
    
    
    
    
    2,001,500Total
    
    $
    
    
    
    $
    18,080,032
 4. Equipment and Leasehold Improvements
  December 31,2008
    
    
    2007Laboratory equipment
    
    $
    3,316,350
    
    
    $
    3,316,350Leasehold improvements
    
    
    3,140,953
    
    
    
    3,107,353Computer and office equipment
    
    
    2,676,254
    
    
    
    2,702,6399,133,557
    
    
    
    9,126,342Accumulated depreciation and amortization
    
    
    (8,040,231
    )
    
    
    (6,765,289
    )Net equipment and leasehold improvements
    
    $
    1,093,326
    
    
    $
    2,361,053
  20




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5. Convertible Notes Payable
  Induced Conversion of Convertible Debt
 Debtors Accounting for a Modification or Exchange of Debt Instruments.
 .
    Classifications of Obligations That Are Callable by the
Creditor
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6. Net Loss Per Share
 Earnings per Share,
  Year Ended December 31,2008
    
    
    2007Shares underlying convertible notes
    
    
    14,391,278
    
    
    
    14,783,194Options
    
    
    5,061,181
    
    
    
    6,600,816Warrants
    
    
    56,000
    
    
    
    82,436Total
    
    
    19,508,459
    
    
    
    21,466,446Weighted average conversion price of shares underlying convertible notes
    
    $
    21.01
    
    
    $
    20.86Weighted average exercise price of options
    
    $
    7.87
    
    
    $
    8.56Weighted average exercise price of warrants
    
    $
    6.00
    
    
    $
    5.64
  7. Common Stock
  8. Stock Options and Warrants
   22




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##### Table of Contents



WeightedAverageWeighted
    
    Remaining
    
    AggregateNumber of
    
    Average
    
    Contractual
    
    IntrinsicShares
    
    Exercise Price
    
    Life
    
    ValueOutstanding at January 1, 2007
    
    
    6,521,524
    
    
    $
    11.73Granted
    
    
    1,829,196
    
    
    
    1.56Exercised
    
    
    (65,565
    )
    
    
    0.35Canceled
    
    
    (1,684,339
    )
    
    
    13.53Outstanding at December 31, 2007
    
    
    6,600,816
    
    
    
    8.56Granted
    
    
    219,800
    
    
    
    0.57Exercised
    
    
    
    
    
    
    0.00Canceled
    
    
    (1,759,435
    )
    
    
    9.57Outstanding at December 31, 2008
    
    
    5,061,181
    
    
    $
    7.87
    
    
    
    1.31
    
    
    $
    0.00Vested and expected to vest at December 31, 2008
    
    
    4,691,738
    
    
    $
    8.13
    
    
    
    1.34
    
    
    $
    0.00Exercisable at December 31, 2008
    
    
    3,864,392
    
    
    $
    8.66
    
    
    
    1.37
    
    
    $
    0.00
   Options Outstanding
    
    Options ExercisableNumber
    
    Weighted Average
    
    Weighted Average
    
    Number
    
    Weighted AverageExercise Price
    
    Outstanding
    
    Remaining Years
    
    Exercise Price
    
    Exercisable
    
    Exercise Price$  0.30    $  2.41
    
    
    2,186,182
    
    
    
    1.49
    
    
    $
    0.97
    
    
    
    1,451,662
    
    
    $
    0.904.61      14.86
    
    
    1,894,267
    
    
    
    1.28
    
    
    
    9.83
    
    
    
    1,565,176
    
    
    
    9.6915.78      29.99
    
    
    980,732
    
    
    
    0.95
    
    
    
    19.47
    
    
    
    847,554
    
    
    
    20.040.30     29.99
    
    
    5,061,181
    
    
    
    1.31
    
    
    
    7.87
    
    
    
    3,864,392
    
    
    
    8.66
   9. Employee Benefit Plan
  23




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##### Table of Contents



10. Income Taxes
  December 31,2008
    
    
    2007Incomes tax benefit at statutory rate
    
    $
    (21,812,869
    )
    
    $
    (16,819,314
    )Incentive stock options
    
    
    847,418
    
    
    
    1,713,073State income tax benefit net of federal tax benefit
    
    
    (2,455,074
    )
    
    
    (1,758,635
    )General business credit
    
    
    (782,141
    )
    
    
    (1,583,721
    )Loss on debt conversion
    
    
    
    
    
    
    1,121,880Other
    
    
    3,338
    
    
    
    137,635Valuation allowance
    
    
    24,199,328
    
    
    
    17,189,082Income tax expense
    
    $
    
    
    
    $
    
  December 31,2008
    
    
    2007Net operating loss carryforwards
    
    $
    165,419,402
    
    
    $
    146,807,285Research credits
    
    
    14,389,406
    
    
    
    13,607,265Depreciation and amortization
    
    
    7,890,141
    
    
    
    217,506Impairment reserve
    
    
    422,392
    
    
    
    3,414,258Deferred stock compensation
    
    
    2,841,796
    
    
    
    2,355,798Other
    
    
    53,864
    
    
    
    415,561Total deferred tax assets
    
    
    191,017,001
    
    
    
    166,817,673Valuation allowance
    
    
    (191,017,001
    )
    
    
    (166,817,673
    )Net deferred tax assets
    
    $
    
    
    
    $
    
  December 31,2008
    
    
    2007Deferred tax valuation allowance at beginning of year
    
    $
    166,817,673
    
    
    $
    149,628,591Change in cumulative tax differences
    
    
    24,199,328
    
    
    
    17,189,082Deferred tax valuation allowance at end of year
    
    $
    191,017,001
    
    
    $
    166,817,673
   24




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##### Table of Contents



Accounting for Uncertainty in Income
Taxes-an Interpretation of FASB Statement No. 109
 11. Commitments and Contingencies
       
 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
  
 Item 9A(T). Controls and Procedures
 Evaluation of Disclosure Controls and Procedures
   25




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##### Table of Contents



Managements Report on Internal Control Over Financial Reporting
  
    
    pertain to the maintenance of records that, in reasonable detail, accurately and
fairly reflect the transactions and dispositions of our assets;
    
    provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with U.S. generally accepted accounting
principles, and that our receipts and expenditures are being made only in accordance with
authorizations of our management and directors; and
    
    provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use or disposition of our assets that could have a material effect on the
financial statements.
    
    
    The Chapter 11 Proceeding has required substantial effort from our limited management
personnel which resulted in our inability to file this Form 10-K on a
timely basis; based on reduction of our finance and executive
management resources, which has also impacted our supervision and
review, management oversight, as well segregation of duties processes. and
    
    The Chapter 11 Proceeding, the cessation of our operations and our substantial
workforce reductions resulted in our inability to maintain an Audit Committee in
compliance with Nasdaq listing standards and SEC regulations.
    Changes in Internal Control over Financial Reporting
  26




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##### Table of Contents



Item 9B. Other Information
  
 PART III
 
 Item 10. Directors, Executive Officers and Corporate Governance
     27




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##### Table of Contents



Section 16(a) Beneficial Ownership Reporting Compliance
  Code of Ethics
  
 Audit Committee
  
 Item 11. Executive Compensation
 Executive Compensation
  Non-EquityIncentiveFiscal
    
    
    
    
    
    Plan
    
    Option
    
    All OtherName and Principal Position
    
    Year
    
    Salary
    
    Compensation
    
    Awards (1)
    
    Compensation (2)
    
    TotalRussell M. Medford, M.D., Ph.D.
    
    
    2008
    
    
    $
    502,792
    
    
    $
    
    
    
    $
    1,104,109
    
    
    $
    16,062
    
    
    $
    1,622,963President and Chief Executive Officer
    
    
    2007
    
    
    
    483,454
    
    
    
    137,784
    
    
    
    1,359,714
    
    
    
    16,027
    
    
    
    1,996,979Mark P. Colonnese
    
    
    2008
    
    
    
    341,786
    
    
    
    
    
    
    
    552,670
    
    
    
    111,479
    
    
    
    1,005,935Executive Vice President, Commercial
    
    
    2007
    
    
    
    328,640
    
    
    
    133,668
    
    
    
    666,665
    
    
    
    45,580
    
    
    
    1,174,553Operations and Chief Financial OfficerW. Charles Montgomery, Ph.D.
    
    
    2008
    
    
    
    308,256
    
    
    
    
    
    
    
    488,842
    
    
    
    102,696
    
    
    
    899,794Senior Vice President, Business
    
    
    2007
    
    
    
    296,400
    
    
    
    112,518
    
    
    
    597,821
    
    
    
    43,317
    
    
    
    1,050,056Development and Alliance Management
 
 (1)
    
    Represents the compensation costs recognized for financial reporting purposes for the year
ended December 31, 2008, excluding estimated forfeitures, in accordance with FAS 123(R). See Note
1 Description of Business and Significant Accounting Policies  Stock-Based Compensationfor a
discussion of all assumptions made by AtheroGenics in determining the FAS 123(R) value of its
option awards. Since AtheroGenics cash and cash equivalents will be distributed to its creditors
if the plan of liquidation is 28




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##### Table of Contents



approved by the Bankruptcy Court and AtheroGenics cash and cash equivalents are significantly
less than its prepetition liabilities, AtheroGenics stock options have no value.(2)
    
    Represents the compensation committee approved retention payments related to the ANDES
clinical trial, a 401(k) plan matching contribution and premiums for long-term disability
insurance and term life insurance paid by us for 2008. 2008 Outstanding Equity Awards at Fiscal Year End
  Number of
    
    Number ofSecurities
    
    SecuritiesUnderlying
    
    UnderlyingUnexercised
    
    Unexercised
    
    Option
    
    Option
    
    OptionOption #
    
    Option #
    
    Exercise
    
    Grant
    
    ExpirationName
    
    Exercisable
    
    Unexercisable (1)
    
    Price
    
    Date
    
    DateRussell M. Medford
    
    
    137,500
    
    
    
    
    
    
    $
    0.30
    
    
    
    4/28/1999
    
    
    
    4/28/2009100,000
    
    
    
    
    
    
    
    0.31
    
    
    
    12/8/1999
    
    
    
    12/8/2009500,000
    
    
    
    
    
    
    
    0.38
    
    
    
    1/28/2000
    
    
    
    1/28/201090,000
    
    
    
    
    
    
    
    5.00
    
    
    
    12/29/2000
    
    
    
    12/29/2010120,000
    
    
    
    
    
    
    
    6.05
    
    
    
    12/31/2001
    
    
    
    12/31/2011144,000
    
    
    
    
    
    
    
    7.41
    
    
    
    12/31/2002
    
    
    
    12/31/2012120,000
    
    
    
    
    
    
    
    14.86
    
    
    
    12/31/2003
    
    
    
    12/31/2013140,000
    
    
    
    
    
    
    
    23.56
    
    
    
    12/31/2004
    
    
    
    12/31/2014120,000
    
    
    
    36,000
    (2)
    
    
    15.78
    
    
    
    2/21/2006
    
    
    
    2/21/2016140,000
    
    
    
    70,000
    
    
    
    9.91
    
    
    
    12/29/2006
    
    
    
    12/29/201696,691
    
    
    
    48,345
    (3)
    
    
    2.41
    
    
    
    6/19/2007
    
    
    
    6/19/2017120,000
    
    
    
    90,000
    
    
    
    0.38
    
    
    
    12/31/2007
    
    
    
    12/31/2017Mark P. Colonnese
    
    
    70,600
    
    
    
    
    
    
    
    0.38
    
    
    
    1/28/2000
    
    
    
    1/28/201035,000
    
    
    
    
    
    
    
    5.00
    
    
    
    12/29/2000
    
    
    
    12/29/201060,000
    
    
    
    
    
    
    
    6.05
    
    
    
    12/31/2001
    
    
    
    12/31/201172,000
    
    
    
    
    
    
    
    7.41
    
    
    
    12/31/2002
    
    
    
    12/31/201257,000
    
    
    
    
    
    
    
    14.86
    
    
    
    12/31/2003
    
    
    
    12/31/201360,000
    
    
    
    
    
    
    
    23.56
    
    
    
    12/31/2004
    
    
    
    12/31/201460,000
    
    
    
    18,000
    (2)
    
    
    15.78
    
    
    
    2/21/2006
    
    
    
    2/21/201612,000
    
    
    
    4,320
    
    
    
    13.29
    
    
    
    5/31/2006
    
    
    
    5/31/201672,000
    
    
    
    36,000
    
    
    
    9.91
    
    
    
    12/29/2006
    
    
    
    12/29/201665,278
    
    
    
    32,864
    (3)
    
    
    2.41
    
    
    
    6/19/2007
    
    
    
    6/19/201772,000
    
    
    
    54,000
    
    
    
    0.38
    
    
    
    12/31/2007
    
    
    
    12/31/2017W. Charles Montgomery
    
    
    50,000
    
    
    
    
    
    
    
    19.20
    
    
    
    2/27/2004
    
    
    
    2/27/201450,000
    
    
    
    
    
    
    
    23.56
    
    
    
    12/31/2004
    
    
    
    12/31/201450,000
    
    
    
    15,000
    (2)
    
    
    15.78
    
    
    
    2/21/2006
    
    
    
    2/21/201610,000
    
    
    
    3,600
    
    
    
    13.29
    
    
    
    5/31/2006
    
    
    
    5/31/201660,000
    
    
    
    30,000
    
    
    
    9.91
    
    
    
    12/29/2006
    
    
    
    12/29/201659,280
    
    
    
    29,640
    (3)
    
    
    2.41
    
    
    
    6/19/2007
    
    
    
    6/19/201760,000
    
    
    
    45,000
    
    
    
    0.38
    
    
    
    12/31/2007
    
    
    
    12/31/2017
 
 (1)
    
    Except for the options granted on June 19, 2007, twenty five percent of these options vested
on the first anniversary date of the grant. Following that date, the remaining options vested
over three-consecutive twelve month periods at a rate of two percent per month during the
initial eleven months of each period and three percent in the final month of each such period.(2)
    
    Options related to performance in 2005 were granted in February 2006. 29




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##### Table of Contents



(3)
    
    Options granted on June 19, 2007 have a two year vesting period, twenty five percent vested
on the anniversary of the vesting commencement date, twenty five percent vested 18 months from
the vesting commencement date and fifty percent vested on the second anniversary of the
vesting commencement date. Retirement Benefits
  Change of Control and Severance Arrangements
   Director Compensation
     Fees EarnedName
    
    or Paid in Cash ($)
    
    Option Awards ($) (1)
    
    Total ($)Michael A. Henos
    
    $
    50,000
    
    
    $
    40,342
    
    
    $
    90,342R. Wayne Alexander
    
    
    27,500
    
    
    
    21,031
    
    
    
    48,531Samuel L. Barker
    
    
    30,000
    
    
    
    76,535
    
    
    
    106,535David Bearman
    
    
    15,000
    
    
    
    21,031
    
    
    
    36,031Vaughn D. Bryson
    
    
    13,750
    
    
    
    20,687
    
    
    
    34,437T. Forcht Dagi
    
    
    12,500
    
    
    
    20,343
    
    
    
    32,843Margaret E. Grayson
    
    
    27,500
    
    
    
    75,847
    
    
    
    103,347Arthur M. Pappas
    
    
    12,500
    
    
    
    21,031
    
    
    
    33,531William A. Scott
    
    
    12,500
    
    
    
    20,343
    
    
    
    32,843
 
 30




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##### Table of Contents



(1)
    
    Represents the compensation costs recognized for financial reporting purposes for the year
ended December 31, 2008, excluding estimated forfeitures, in accordance with Statement of
Financial Accounting Standards No. 123(R), Share-Based Payment, or FAS 123(R). See Note 1
Description of Business and Significant Accounting Policies  Stock-Based Compensationfor a
discussion of all assumptions made by AtheroGenics in determining the FAS 123(R) value of its
option awards. Since AtheroGenics cash and cash equivalents will be distributed to its
creditors if the plan of liquidation is approved by the Bankruptcy Court and AtheroGenics
cash and cash equivalents are significantly less than its prepetition liabilities,
AtheroGenics stock options have no value.At December 31, 2008, the aggregate number of option awards outstanding was: Mr. Henos 
212,800 shares; Dr. Alexander  150,900 shares; Dr. Barker  70,000 shares and Ms. Grayson
 69,000. Mr. Bearman; Mr. Bryson, Dr. Dagi, Mr. Pappas and Dr. Scott did not have any
option awards outstanding. 
 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder
Matters
 Equity Compensation Plan Information
  Equity Compensation Plan InformationNumber of securitiesremaining available forNumber of securities to be
    
    
    Weighted-average exercise
    
    
    future issuance underbe issued upon exercise of
    
    
    price of outstanding
    
    
    equity compensation plansoutstanding options,
    
    
    options, warrants
    
    
    (excluding securitiesPlan Category
    
    warrants and rights
    
    
    and rights
    
    
    reflected in column (a))(a)
    
    
    (b)
    
    
    (c)Equity compensation plans approved
by shareholders
    
    
    5,061,181
    
    
    $
    7.87
    
    
    
    2,142,710Equity compensation plans not
approved
by shareholders (1)
    
    
    56,000
    
    
    
    6.00
    
    
    
    Total
    
    
    5,117,181
    
    
    $
    7.85
    
    
    
    2,142,710
 
 (1)
    
    Warrants issued in connection with a licensing agreement dated June 29, 2001. Security Ownership of Certain Beneficial Owners and Management
  
    
    each person who is known by us to beneficially own more than 5% of our common stock;
    
    each of the executive officers named in the Summary Compensation Table in this proxy statement;
    
    each of our directors as of March 31, 2009; and
    
    all of our directors and executive officers as a group.
  31




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##### Table of Contents



Common StockBeneficially OwnedNumber
    
    
    
    
    
    Percentof
    
    
    
    
    
    ofBeneficial Owner
    
    Shares
    
    
    
    
    
    ClassVisium Asset Management, LP
    
    
    3,892,836
    (1)
    
    
    
    

    
    
    9.8
    %950 Third AvenueNew York, New York 10022BNP Paribas Arbitrage SA
    
    
    2,983,500
    (2)
    
    
    
    

    
    
    7.6
    %555 Croton Road , 4th FloorKing of Prussia, PennsylvaniaAristeia Capital, LLC
    
    
    2,367,278
    (3)
    
    
    
    

    
    
    5.7
    %136 Madison Avenue, 3rd FloorNew York, New York 10016Russell M. Medford, M.D., Ph.D.
    
    
    2,117,787
    (4)
    
    
    
    

    
    
    5.4
    %R. Wayne Alexander, M.D., Ph.D.
    
    
    586,800
    (5)
    
    
    
    

    
    
    1.5
    %Mark P. Colonnese
    
    
    511,664
    (6)
    
    
    
    

    
    
    1.3
    %W. Charles Montgomery, Ph.D.
    
    
    233,140
    (7)
    
    
    
    

    
    
    *Michael A. Henos
    
    
    212,800
    (8)
    
    
    
    

    
    
    *Samuel L. Barker, Ph.D.
    
    
    70,000
    (9)
    
    
    
    

    
    
    *Margaret E. Grayson
    
    
    69,000
    (10)
    
    
    
    

    
    
    *All directors and executive officers as a group (7 persons)
    
    
    3,801,191
    (11)
    
    
    
    

    
    
    9.6
    %
 
 *
    
    Less than one percent (1%) of outstanding shares.(1)
    
    The amount shown and the following information is based on a Schedule 13G/A, dated February
13, 2009, filed by Visium Asset Management, LP, indicating beneficial ownership as of December
31, 2008. The Schedule 13G/A indicates that Visium Asset Management, LP, JG Asset, LLC and
Jacob Gottlieb each have sole voting and dispositive power with respect to 3,892,836 shares.(2)
    
    The amount shown and the following information was provided by BNP Paribas Arbitrage SA on
March 31, 2008, indicating that BNP Paribas Arbitrage SA has sole voting and dispositive power
with respect to 2,983,500 shares.(3)
    
    The amount shown and the following information is based on a Schedule 13G, dated February 13,
2009, filed by Aristea Capital, LLC, indicating beneficial ownership as of December 31, 2008.
The Schedule 13G indicates that Aristea Capital, LLC has sole voting and dispositive power
with respect to 2,367,278 shares.(4)
    
    Includes 1,620,646 shares subject to options exercisable within 60 days and 100,000 shares
owned by Medford Future Fund, LLLP, a family limited liability limited partnership of which
Dr. Medford is the general partner. As the general partner, Dr. Medford exercises voting and
investment power over these shares.(5)
    
    Includes 150,900 shares subject to options exercisable within 60 days and 100,000 shares
owned by Jane Alexander, Dr. Alexanders spouse.(6)
    
    Includes 511,664 shares subject to options exercisable within 60 days. 32




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##### Table of Contents



(7)
    
    Includes 233,140 shares subject to options exercisable within 60 days.(8)
    
    Includes 212,800 shares subject to options exercisable within 60 days.(9)
    
    Includes 70,000 shares subject to options exercisable within 60 days.(10)
    
    Includes 69,000 shares subject to options exercisable within 60 days.(11)
    
    Includes 2,868,150 shares subject to options exercisable within 60 days. 
 Item 13. Certain Relationships and Related Transactions, and Director Independence
 Related Person Transactions
 The Sale of Substantially All of Our Non-Cash Assets
   Emory University License Agreement
  33




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##### Table of Contents



Item 14. Principal Accountant Fees and Services
 Audit and Non-Audit Fees
  December 31, 2008
    
    
    December 31, 2007Audit Fees
    
    $
    343,581
    
    
    $
    330,000Audit-Related Fees
    
    
    __
    
    
    
    10,000Tax Fees
    
    
    
    
    
    
    All Other Fees
    
    
    
    
    
    
    Total
    
    $
    343,581
    
    
    $
    340,000
 Audit Fees
  Audit-Related Fees
  Pre-approval Policies and Procedures
    34




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##### Table of Contents



PART IV
 
 Item 15. Exhibits and Financial Statement Schedules
 (1)
    
    Financial Statements, filed as part of this reportReport of Independent Registered Public Accounting FirmBalance Sheets as of December 31, 2008 and 2007Statements of Operations for the years ended December 31, 2008 and 2007Statements Shareholders Deficit for the years ended December 31, 2008 and 2007Statements of Cash Flows for the years ended December 31, 2008 and 2007Notes to Financial Statements(2)
    
    Financial Statement SchedulesNo financial statement schedules are provided, because the information called for
is not required or is shown either in the financial statements or the notes
thereto.(3)
    
    Listing of Exhibits
 Exhibit No.
    
    
    
    Description3.01
    
    
    
    Fourth Amended and Restated Articles of Incorporation of AtheroGenics, Inc. (filed as
Exhibit 3.01 to Amendment No. 1 to AtheroGenics Annual Report on Form 10-K for the year
ended December 31, 2004 on April 6, 2005 and incorporated herein by reference).3.02
    
    
    
    Third Amended and Restated Bylaws of AtheroGenics, Inc., as amended (filed as Exhibit
3.02 to AtheroGenics Annual Report on Form 10-K for the year ended December 31, 2001
and incorporated herein by reference).3.03
    
    
    
    Amendment No. 1 to Third Amended and Restated Bylaws of AtheroGenics, Inc. (filed as
Exhibit 3.02 to AtheroGenics Current Report on Form 8-K on December 8, 2006 and
incorporated herein by reference).4.01
    
    
    
    Form of Common Stock Certificate (filed as Exhibit 4.01 to Amendment No. 4 to
AtheroGenics Registration Statement on Form S-1, Registration No. 333-31140, on August
4, 2000 and incorporated herein by reference).4.02
    
    
    
    Rights Agreement dated as of November 9, 2001 between AtheroGenics, Inc. and American
Stock Transfer & Trust Company, as Rights Agent (filed as Exhibit 4.4 of AtheroGenics
Form 8-K on November 19, 2001 and incorporated herein by reference).4.03
    
    
    
    Indenture dated August 19, 2003 between AtheroGenics, Inc. and The Bank of New York Trust
Company of Florida N.A., as Trustee (filed as Exhibit 4.1 to AtheroGenics Registration
Statement on Form S-3, Registration No. 333-110160, on October 31, 2003 and incorporated
herein by reference).4.04
    
    
    
    Global 41/2% Convertible Note Due 2008 (filed as Exhibit 4.04 to Amendment No. 1 to
AtheroGenics Annual Report on Form 10-K for the year ended December 31, 2004 on April 6,
2005 and incorporated herein by reference).4.05
    
    
    
    Indenture dated January 12, 2005 between AtheroGenics, Inc. and The Bank of New York
Trust Company of Florida N.A., as Trustee, including the form of Global 1.50% Convertible
Note Due 2012 filed as Exhibit A thereto (filed as Exhibit 4.5 to AtheroGenics
Registration Statement on Form S-3, Registration No. 333-123895, on April 6, 2005 and
incorporated herein by reference).
 35




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##### Table of Contents



Exhibit No.
    
    
    
    Description4.06
    
    
    
    Indenture dated July 11, 2007 between AtheroGenics, Inc. and The Bank of New York Trust
Company of Florida N.A., as Trustee (filed as Exhibit 4.1 to AtheroGenics Current Report
on Form 8-K, on July 12, 2007 and incorporated herein by reference).10.01
    
    
    
    Asset Purchase Agreement, dated March 17, 2009, by and between Crabtree Acquisition Co.,
LLC, AtheroGenics, Inc. and King & Spalding LLP (filed as Exhibit 10.1 to AtheroGenics
Current Report on Form 8-K on March 18, 2009, and incorporated herein by reference).10.02#
    
    
    
    AtheroGenics, Inc. 2004 Equity Ownership Plan (filed as Appendix B to the proxy statement
on Schedule 14A for AtheroGenics 2004 Annual Shareholders Meeting as filed on March 26,
2004 and incorporated herein by reference).10.03#
    
    
    
    AtheroGenics, Inc. 2004 Equity Ownership Plan form of incentive equity ownership
agreement and form of directors nonqualified equity ownership agreement (filed as
Exhibit 10.33 to AtheroGenics Annual Report on Form 10-K for the year ended December 31,
2004 on March 16, 2005 and incorporated herein by reference).10.04#
    
    
    
    AtheroGenics, Inc. 2004 Equity Ownership Plan form of nonqualified equity ownership
agreement (filed as Exhibit 10.02 to AtheroGenics Current Report on Form 8-K on March
10, 2006 and incorporated herein by reference).10.05
    
    
    
    Form of Indemnification Agreement dated July 5, 2006 (filed as Exhibit 10.1 to
AtheroGenics Current Report on Form 8-K on July 6, 2006 and incorporated herein by
reference).10.06#
    
    
    
    Employment Agreement dated December 14. 2007 between AtheroGenics, Inc. and Russell M.
Medford.10.07#
    
    
    
    Employment Agreement dated December 14, 2007 between AtheroGenics, Inc. and Mark P.
Colonnese.10.08#
    
    
    
    Employment Agreement dated February 13, 2008 between AtheroGenics, Inc. and W. Charles
Montgomery.10.09#
    
    
    
    Employment Agreement dated February 13, 2008 between AtheroGenics, Inc. and Joseph M.
Gaynor, Jr.31.1*
    
    
    
    Certification of Chief Executive Officer and Chief Financial Officer under Rule 13a-14(a).32*
    
    
    
    Certifications of Chief Executive Officer and Chief Financial Officer under Section 1350.
 
 *
    
    Filed herewith.+
    
    Certain confidential information contained in this document has been
omitted and filed separately with the Commission pursuant to a request
for confidential treatment under Rule 406 of the Securities Act of
1933, as amended.++
    
    We agree to furnish supplementally to the Commission a copy of any
omitted schedule or exhibit to this agreement upon request by the
Commission.#
    
    Management contract or compensatory plan or arrangement. 36




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##### Table of Contents



SIGNATURES
  ATHEROGENICS, INC.By:
    /s/ CHARLES A. DEIGNANCharles A. DeignanPresident, Chief Financial Officer and Secretary  Name
    
    Title
    
    DatePrincipal Executive Officer and
Principal Financial Officer:/s/ CHARLES A. DEIGNAN
    
    President, Chief Financial Officer and
    
    June 2, 2009Charles A. Deignan
    
    Secretary/s/ MICHAEL A. HENOS
    
    Director
    
    June 2, 2009Michael A. Henos/s/ RUSSELL M. MEDFORD
    
    Director
    
    June 2, 2009Russell M. Medford
 37