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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-K/A
AMENDMENT NO. 1
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NO. 0-19731
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GILEAD SCIENCES, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 94-3047598
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification
No.)
333 LAKESIDE DRIVE, FOSTER CITY, 94404
CALIFORNIA (Zip Code)
(Address of principal executive
offices)
</TABLE>
Registrant's telephone number, including area code: 650-574-3000
------------------------
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
(Title of Class)
------------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities 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 (Section 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of 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. /X/
The aggregate market value of the voting stock held by non-affiliates of the
Registrant based upon the closing price of the Common Stock on the Nasdaq Stock
Market on February 26, 1999 was $762,213,210*.
The number of shares outstanding of the Registrant's Common Stock was
30,884,298 as of February 26, 1999.
DOCUMENTS INCORPORATED BY REFERENCE
Certain Exhibits filed with the Registrant's Registration Statements on Form
S-1 (Registration Nos. 33-44534 and 33-55680), as amended, the Registrant's
Registration Statement on Form S-3 (No. 333-868), as amended, the Registrant's
Registration Statement on Form S-8 (Registration No. 33-46058), the Registrant's
Annual Reports on Form 10-K for the fiscal periods ended March 31, 1994,
December 31, 1995 and December 31, 1997, the Registrant's Quarterly Reports on
Form 10-Q for the fiscal quarters ended September 30, 1993, September 30, 1994,
December 31, 1994, June 30, 1996, September 30, 1996 and September 30, 1997 and
the Registrant's Current Report on Form 8-K filed March 9, 1999 are incorporated
herein by reference into Part IV of this Report.
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* Based on a closing price of $41.25 per share. Excludes 12,406,402 shares of
the Registrant's Common Stock held by executive officers, directors and
stockholders whose ownership exceeds 5% of the Common Stock outstanding at
February 26, 1999. Exclusion of such shares should not be construed to
indicate that any such person possesses the power, direct or indirect, to
direct or cause the direction of the management or policies of the Registrant
or that such person is controlled by or under common control with the
Registrant.
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<PAGE>
PART I
ITEM 1. BUSINESS
FORWARD-LOOKING STATEMENTS AND RISK FACTORS
THIS REPORT ON FORM 10-K CONTAINS FORWARD-LOOKING STATEMENTS RELATING TO
CLINICAL AND REGULATORY DEVELOPMENTS (INCLUDING ANTICIPATED CLINICAL TRIAL
COMMENCEMENT AND FDA FILING AND APPROVAL DATES), MARKETING AND SALES MATTERS,
FUTURE EXPENSE LEVELS, FINANCIAL RESULTS AND YEAR 2000 MATTERS. THESE STATEMENTS
INVOLVE INHERENT RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL FINANCIAL AND
OPERATING RESULTS MAY DIFFER SIGNIFICANTLY 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," PARTICULARLY THOSE
RELATING TO THE ONGOING DEVELOPMENT AND COMMERCIALIZATION OF THE COMPANY'S
POTENTIAL PHARMACEUTICAL PRODUCTS AND, IN THE CASE OF YEAR 2000 MATTERS, THE
ABILITY TO IDENTIFY AND CORRECT ALL RELEVANT COMPUTER CODE AND THE SUCCESS OF
REMEDIAL EFFORTS IMPLEMENTED BY THIRD-PARTY SUPPLIERS AND BUSINESS PARTNERS.
GENERAL
Gilead Sciences, Inc. ("Gilead" or the "Company") is an independent
biopharmaceutical company that seeks to provide accelerated solutions for
patients and the people who care for them. The Company discovers, develops and
commercializes proprietary therapeutics for important viral diseases, including
the currently marketed product VISTIDE-Registered Trademark- (cidofovir
injection) for the treatment of cytomegalovirus ("CMV") retinitis, a
sight-threatening viral infection in patients with acquired immune deficiency
syndrome ("AIDS"). In addition, the Company is developing products to treat
diseases caused by human immunodeficiency virus ("HIV"), hepatitis B virus
("HBV") and influenza virus.
The successful development and commercialization of the Company's products
will require substantial and ongoing efforts at the forefront of the life
sciences industry. The Company is pursuing preclinical or clinical development
of a number of product candidates. Even if these product candidates appear
promising during various stages of development, they may not reach the market
for a number of reasons. Such reasons include the possibilities that the
potential products will be found ineffective or cause harmful side effects
during preclinical or clinical trials, fail to receive necessary regulatory
approvals, be difficult or uneconomical to manufacture on a commercial scale, be
uneconomical to market or be precluded from commercialization by either
proprietary rights or competing products of others.
The Company faces significant challenges and risks in an industry undergoing
rapid change, including the risks inherent in its research and development
programs, uncertainties in obtaining and enforcing patents, the lengthy,
expensive and uncertain regulatory approval process, reliance on third party
manufacturers, intense competition from pharmaceutical and biotechnology
companies, dependence on collaborative relationships, increasing pressure on
pharmaceutical pricing from payors, patients and government agencies, and
uncertainties associated with the market acceptance of and size of the market
for any of the Company's products or products in development.
The Company expects that its financial results will continue to fluctuate
from quarter to quarter and that such fluctuations may be substantial. There can
be no assurance that the Company will successfully develop, commercialize,
manufacture and market additional products, nor can there be assurance that the
Company will either achieve or sustain profitability.
On March 1, 1999, Gilead and NeXstar Pharmaceuticals, Inc. ("NeXstar")
announced a definitive merger agreement (the "Merger") providing for the
acquisition by Gilead of all the outstanding common stock of NeXstar. The Merger
is structured as a tax-free, stock-for-stock transaction. The Company intends to
account for the Merger under the pooling-of-interests method. NeXstar,
headquartered in Boulder, Colorado, is engaged in the discovery, development,
manufacture and commercialization of products to treat serious and
life-threatening illnesses. In addition to its Boulder headquarters, NeXstar
maintains research, development and manufacturing facilities in San Dimas,
California, and marketing subsidiaries
1
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outside of the United States. Under the terms of the Merger agreement, NeXstar
stockholders will receive between 0.3786 and 0.5000 of a share of Gilead common
stock for each share of NeXstar common stock. The exact exchange ratio will be
determined based on the trading range of Gilead common stock prior to completion
of the Merger. The Merger is subject to certain conditions, including approval
by the stockholders of Gilead and NeXstar. The Merger is expected to be
completed in mid-1999. See "Management's Discussion and Analysis of Financial
Condition and Results of Operation--Proposed Merger Agreement."
The Company was incorporated in Delaware in 1987. The Company's principal
executive offices are located at 333 Lakeside Drive, Foster City, California
94404 and its telephone number is (650) 574-3000, or (800) GILEAD5
(800-445-3235).
FOR A MORE DETAILED DISCUSSION OF THE RISK FACTORS RELATING TO THE COMPANY
SUMMARIZED ABOVE, SEE "RISK FACTORS" AT THE END OF THIS ITEM 1 (PAGES 20 THROUGH
25 OF THIS REPORT). STOCKHOLDERS AND PROSPECTIVE INVESTORS IN THE COMPANY SHOULD
CAREFULLY CONSIDER THESE RISK FACTORS.
OVERVIEW OF NUCLEOTIDES
Nucleotides exist in every human cell and are the building blocks of the
nucleic acids DNA and RNA. A single nucleotide is called a mononucleotide, and
several nucleotides linked together are called an oligonucleotide. Nucleotides
are involved in the metabolism and regulation of certain activities of cells and
microorganisms. Oligonucleotides are the material containing genetic
information.
Natural oligonucleotides are coupled to one another in a specific manner to
form DNA or RNA strands. The specific sequences of nucleotides that compose each
strand of DNA contain the genetic codes for the different proteins produced by
the cell. Proteins perform most of the normal physiologic functions of humans,
viruses and other organisms. However, when the production or activity of
proteins becomes aberrant, numerous diseases, such as vascular disease,
inflammatory disease or cancer, can result. Diseases may also result from a
foreign organism, such as a virus, which directs a cell to produce proteins
necessary for viral replication.
Natural nucleotides are a versatile class of compounds that can be
chemically modified to inhibit the production or activity of disease-causing
proteins. Natural nucleotides have three molecular components: a sugar, a
phosphate group and a base. Every nucleotide in DNA has the same sugar and
phosphate group but a different base. Nucleotide analogues designed to be
therapeutic compounds can work by a number of different mechanisms.
Mononucleotides can be designed to interfere with the metabolism of cells or
with the replication of viruses. Oligonucleotides can be designed to interfere
with transcription or translation by binding to DNA or RNA.
The Company believes that the precise interaction of nucleotides in binding
to DNA, RNA and proteins provides the chemical basis for the development of
therapeutic products with high specificity and potency and long duration of
action. Many of the Company's products or products in development are nucleotide
analogues, including VISTIDE, PREVEON-Registered Trademark- (adefovir
dipivoxil), adefovir dipivoxil for hepatitis B and PMPA.
2
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PRODUCT PIPELINE
The following table summarizes Gilead's products and product candidates.
This table is qualified in its entirety by reference to the more detailed
descriptions elsewhere in this Report.
<TABLE>
<CAPTION>
PRODUCT/CANDIDATE TARGET INDICATIONS DEVELOPMENT STATUS(1) WORLDWIDE RIGHTS
<S> <C> <C> <C>
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VISTIDE-Registered Trademark- CMV Retinitis Launched in U.S. Gilead (U.S.)
Pharmacia & Upjohn
(Ex-U.S.)
Launched in E.U.
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PREVEON-Registered Trademark- HIV-AIDS Phase III Gilead
Influenza Virus (Treatment) NDA filed in U.S.; MAA Roche
GS 4104 Oral filed in E.U.
Influenza Virus Phase III
(Prophylaxis) Roche
Adefovir Dipivoxil Hepatitis B Virus Phase III Gilead
PMPA Oral Prodrug HIV-AIDS Phase II Gilead
Cidofovir Topical Ophthalmic Viral Keratoconjunctivitis Phase II Bausch & Lomb
- -------------------------------------------------------------------------------------------------------------------
Adenosine Receptor Regulators Stroke Preclinical/Research Gilead/NIH CRADA
HIV Protease Inhibitors HIV-AIDS Research Gilead
Hepatitis C Virus Inhibitors HCV Research Gilead
</TABLE>
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(1) See "Government Regulation" for a description of the phases of clinical
testing and the regulatory approval process.
VISTIDE
In June 1996, Gilead received United States Food and Drug Administration
("FDA") clearance to market its first product, VISTIDE for the treatment of CMV
retinitis in patients with AIDS. The active ingredient in VISTIDE is cidofovir,
a mononucleotide analogue that has demonstrated activity in preclinical studies
and clinical trials against several viruses in the herpesvirus family. In
addition to VISTIDE, cidofovir is under evaluation for other indications. See
"Clinical Development Programs--Cidofovir."
Cytomegalovirus is an opportunistic infection in patients with AIDS. CMV is
a systemic viral infection that may infect several sites in the body, including
the retina, gastrointestinal tract, lungs, liver and central nervous system.
Retinitis is the most frequent manifestation of CMV infection in patients with
AIDS. The incidence of CMV retinitis in AIDS patients declined by more than 75%
since 1996 as a result of more effective therapeutics for AIDS, as well as the
use of oral ganciclovir for CMV prophylaxis. The Company anticipates that this
decline may continue as these therapies effectively control HIV infection.
VISTIDE was cleared for marketing based on clinical trials demonstrating
that the drug has a statistically significant effect in delaying the progression
of CMV retinitis lesions in newly diagnosed patients, and in previously treated
patients who had failed other therapies. In addition, VISTIDE has a more
convenient dosing regimen than the other intravenous CMV treatments. VISTIDE is
administered by intravenous infusion once per week for the first two weeks as
induction therapy, and then once every other week as maintenance therapy until
progression of the disease or intolerance to the therapy. Other intravenous
treatments must be administered once or multiple times per day and often require
the surgical implantation of a chronic catheter in the patient's chest for the
daily infusions.
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Renal toxicity is the primary dose-limiting side effect of VISTIDE
administration. Prior to each administration, patients must be monitored for
urinary protein and serum creatinine (laboratory markers of renal toxicity). In
addition, patients receive intravenous saline hydration and oral probenecid on
each treatment day to mitigate the potential for toxicity. VISTIDE is
contraindicated in patients receiving other agents with nephrotoxic potential,
and patients are required to undergo a "wash out" period of seven days after
completing therapy with such agents and before receiving VISTIDE. In certain
animal studies, cidofovir, the active ingredient in VISTIDE, was carcinogenic.
VISTIDE is marketed and sold in the United States by Gilead's sales force of
antiviral specialists. This group currently consists of 26 sales representatives
and three regional directors who detail physicians, hospitals, clinics,
pharmacies and other healthcare providers involved in the treatment of patients
with CMV retinitis. Gilead sells VISTIDE to wholesalers and specialty
distributors who, in turn, sell the product to hospitals, home healthcare
companies, pharmacies and other healthcare providers. See "Marketing and Sales."
In August 1996, Gilead licensed commercial rights to Pharmacia & Upjohn S.A.
("Pharmacia & Upjohn") to market and sell VISTIDE in all territories outside of
the United States. In April 1997, the European Commission granted marketing
approval for VISTIDE for all the member countries in the European Union under
the centralized procedure of the European Medicines Evaluation Agency ("EMEA").
Subsequently, VISTIDE was approved for marketing in Switzerland, Australia and
Hong Kong, and applications for approval are pending in several other countries.
By the end of 1998, Pharmacia & Upjohn had launched the product in twelve
European countries and two other countries. VISTIDE product launches by
Pharmacia & Upjohn in additional countries are expected as approvals are
obtained. Pharmacia & Upjohn pays Gilead a royalty on its net sales of VISTIDE
on a trailing, quarterly basis. See "Collaborative Relationships--Pharmacia &
Upjohn."
There are several approved therapies that compete with VISTIDE in the CMV
retinitis market. Ganciclovir, marketed by Roche Laboratories, is the most
widely used treatment for CMV retinitis. Ganciclovir is available in intravenous
and oral formulations, and the oral formulation is approved for both prophylaxis
and maintenance treatment of CMV retinitis. A ganciclovir ocular implant,
marketed by Bausch & Lomb Incorporated ("Bausch & Lomb"), provides local therapy
to an affected eye and is implanted through a surgical procedure. In addition,
Astra U.S.A. markets foscarnet, another approved intravenous therapy for CMV
retinitis, and CibaVision markets formivirsen, an antisense drug injected
directly into the eye. There are also potentially competing products in clinical
development for the treatment of CMV retinitis. Although the Company believes
that VISTIDE has competitive advantages over these products, particularly with
regard to dosing convenience and efficacy, there can be no assurance that the
Company will be successful in maintaining or increasing VISTIDE's share of the
declining CMV retinitis treatment market. See "Competition."
CLINICAL DEVELOPMENT PROGRAMS
Gilead is developing small molecule nucleotide analogues that are intended
to treat viral infections by selectively interfering with proteins essential for
viral replication. Numerous disease processes, particularly viral infections,
require precise interactions between cellular or viral proteins and nucleotides
or oligonucleotides. For example, many viruses depend upon certain proteins
known as enzymes to synthesize their own DNA. This dependence of the virus upon
specific interactions between proteins and nucleic acids provides opportunities
for the development of therapeutic products that disrupt these crucial
interactions. Preclinical and clinical studies have demonstrated that small
molecule nucleotide analogues can selectively interrupt these interactions.
The Company believes that small molecule nucleotide analogues offer several
potential advantages as therapeutics. First, these molecules may have a long
duration of action, permitting less frequent and therefore more convenient
dosing. Second, because certain nucleotides can be active in both infected and
4
<PAGE>
uninfected cells, these molecules may provide prophylactic protection of
uninfected cells. Third, when compared to existing antiviral drugs, viruses may
be less likely to develop resistance to these analogues. In addition, these
analogues may be active against viral strains that have developed resistance to
existing antiviral drugs. Finally, the low molecular weight of these analogues,
or prodrug derivatives of them, may permit their development into drugs suitable
for oral administration.
A major portion of the Company's operating expenses to date has been related
to the research and development of products. During the years ended December 31,
1998, 1997 and 1996, the Company's research and development expenses were $75.3
million, $59.2 million, $41.9 million, respectively.
PREVEON
PREVEON is a mononucleotide analogue developed as an oral prodrug of
adefovir, the Company's first HIV clinical candidate. A prodrug is a modified
version of a parent compound designed to enhance delivery characteristics.
PREVEON has demonstrated preclinical and clinical activity against HIV,
hepatitis B virus and herpesviruses. See "Adefovir Dipivoxil for HBV." PREVEON
has been generally well tolerated in clinical trials. The most common adverse
events have been dose-related gastrointestinal effects, including nausea and
loss of appetite. Nephrotoxicity, including changes in serum creatinine and
phosphate, is the most significant toxicity observed. Nephrotoxicity has been
observed in approximately one-third of patients dosed for six months to one year
at the 120 mg daily dose level. In clinical trials, observed nephrotoxicity has
generally been gradual in onset, asymptomatic, detectable by routine monitoring
and resolvable upon dose reduction or withdrawal. Some patients have also
experienced elevations in liver transaminases. In clinical trials, PREVEON is
administered as a single oral tablet once per day, along with a single oral
capsule of L-carnitine, a nutritional supplement. L-carnitine is administered to
counteract the decrease of natural serum carnitine that can be caused by PREVEON
administration.
A number of products with different mechanisms of action have been approved
for the treatment of HIV. The first generation of approved HIV drugs are reverse
transcriptase inhibitors, including nucleoside and non-nucleoside compounds.
Several protease inhibitors were approved for marketing beginning in 1996, and
others are in clinical development. Combination therapy with reverse
transcriptase inhibitors and protease inhibitors is proving to be effective for
many people with AIDS, in some cases lowering the patient's viral load (level of
virus in the blood) to undetectable levels for prolonged periods of time. The
Company believes, however, that there is still substantial room for improvement
in AIDS drug therapy. Many patients are developing resistance or becoming
intolerant to combination therapy, and require new combinations for therapy to
be effective. Patients would benefit from AIDS drugs that are better-tolerated,
more convenient to dose, less prone to develop significant resistance and active
against resistant strains of HIV.
PREVEON is a reverse transcriptase inhibitor that is being evaluated in a
series of clinical studies sponsored by Gilead, as well as by government
organizations, in the United States and abroad. These studies were designed to
test the safety and efficacy of PREVEON in a variety of drug combinations and
patient populations, including studies of patients not previously treated with
anti-HIV therapies, patients not previously treated with a protease inhibitor
and patients who had failed treatment with triple combination or protease
containing regimens. PREVEON is also available in the United States under an
expanded access program for patients with limited treatment options, and more
than 7,000 patients have enrolled in the program as of March 1999. In both the
clinical studies and the expanded access program, PREVEON has been administered
at one of two dose levels (120 mg or 60 mg, once per day).
Based on the data obtained from the clinical studies and expanded access
program, as well as ongoing feedback from the FDA, Gilead plans to submit a new
drug application ("NDA") for the 60 mg dose of PREVEON during mid-1999. In
November 1998, the FDA granted "fast track" designation to PREVEON for the
treatment of HIV-infected patients with clinical, immunologic and/or virologic
progression despite prior reverse transcriptase inhibitor therapy. In January
1999, Gilead initiated a rolling submission by filing
5
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the Chemistry, Manufacturing and Controls section of the NDA. In addition to
ongoing Phase III clinical trials for PREVEON, additional Phase IV studies will
be initiated during 1999 to confirm the safety and efficacy of PREVEON at the 60
mg dose level. There can be no assurance as to when or whether Gilead will file
an NDA for approval of PREVEON. Moreover, even if the NDA is filed, there can be
no assurance as to the nature, timing or ultimate approval of the NDA by the
FDA.
HIV is the causative agent of AIDS. HIV infects an estimated 33 million
people worldwide. There were an estimated 260,000 people with AIDS in the United
States in 1998. A number of therapeutics are currently marketed or are in
advanced stages of clinical development for the treatment of HIV infection and
AIDS, including 13 products currently marketed in the United States. See
"Competition."
The Company has an exclusive, worldwide license to patent rights and related
technology for adefovir, which is the parent compound of adefovir dipivoxil,
from the Institute of Organic Chemistry and Biochemistry of the Academy of
Sciences of the Czech Republic and the REGA Stichting Research Institute in
Belgium (collectively, "IOCB/REGA"), and would be obligated to pay a royalty to
IOCB/ REGA on any net sales of adefovir dipivoxil. See "Collaborative
Relationships--IOCB/REGA."
GS 4104
In September 1996, Gilead announced the discovery of GS 4104 (oseltamivir),
an oral prodrug of the active neuraminidase inhibitor GS 4071, which inhibits
the replication of influenza virus in a variety of animal models. GS 4104 is a
potent and specific inhibitor of influenza A and B virus neuraminidase activity
and has shown potent antiviral activity when tested against laboratory strains
of influenza A and B viruses IN VITRO.
Based on these data, Gilead and F. Hoffmann-La Roche Ltd. and Hoffmann-La
Roche, Inc. (collectively, "Roche") entered into an exclusive, worldwide
development and commercialization collaboration covering all of Gilead's
neuraminidase inhibitors. Gilead and Roche are jointly conducting research and
development of neuraminidase inhibitors for the prevention and treatment of
influenza, with Roche funding 100% of this program. GS 4104 is a systemic
treatment for influenza, administered as an oral capsule and designed to reach
all sites of infection. GS 4104 targets one of the two major surface structures
of the influenza virus, the neuraminidase protein. The neuraminidase site is
highly conserved in all common strains of influenza. If neuraminidase is
inhibited, the virus is not able to infect new cells.
During 1998, Roche and Gilead completed and announced the results of several
Phase III clinical studies of GS 4104. In two treatment studies, one conducted
in the United States and another in Europe, Canada and Hong Kong and each
involving over 600 patients, GS 4104 significantly decreased the duration and
severity of acute influenza in adults. In addition, GS 4104 reduced secondary
flu complications, such as bronchitis and sinusitis, in previously healthy
adults. In both of these treatment studies, the drug was generally well
tolerated. Transient nausea was reported more often in the active drug arm of
each study than in the placebo group. In a third study, which involved testing
GS 4104 as a preventative therapy, the drug reduced the incidence of influenza
infection relative to placebo and was well tolerated by the over 1,000
participants who were on a six-week regimen of the active drug.
Roche has exclusive commercial rights to GS 4104 and to any other products
developed under the collaboration. Roche is obligated to pay Gilead cash
payments upon achievement of development milestones and royalties on net sales
of any products developed under the collaboration. See "Collaborative
Relationships--Hoffmann-La Roche." In the second quarter of 1999, Roche
submitted an NDA to the FDA, and a Marketing Authorisation Application ("MAA")
to the European Commission under the centralized procedure of the EMEA, in each
case seeking marketing approval for the treatment indication for GS 4104. There
can be no assurance as to the timing or ultimate approval of these marketing
applications for GS 4104.
6
<PAGE>
Glaxo Wellcome, in collaboration with Biota Holdings Limited, is also
pursuing development of zanamavir, a neuraminidase inhibitor to treat influenza.
This compound, delivered with a dry powder inhaler, has been approved in some
countries and is under review for approval in the United States by the FDA.
Zanamavir represents significant potential competition for GS 4104. See
"Competition."
ADEFOVIR DIPIVOXIL FOR HBV
Gilead is also developing adefovir dipivoxil for the potential treatment of
HBV. More than 350 million people worldwide are chronically infected with HBV,
primarily in Asian countries. Complications of chronic HBV include cirrhosis,
cancer of the liver and liver failure. A vaccine is available that can prevent
the transmission of HBV; however, it has no activity in those already infected
with the virus. Alpha interferon is approved for the treatment of HBV, is
administered by injection and is not always successful in controlling the
disease.
In 1998, Gilead completed two Phase II randomized, double-blind,
placebo-controlled clinical studies of adefovir dipivoxil for the treatment of
hepatitis B infection. Data from both studies indicate that twelve weeks of
dosing with adefovir dipivoxil at 5 mg, 30 mg or 60 mg once per day was well
tolerated and resulted in a statistically significant decline in HBV DNA levels
in treated patients compared to placebo. The decline in HBV DNA was greater than
4 logs (99.99%) at the higher doses tested. Treatment with adefovir dipivoxil
was also associated with seroconversion in a portion of the patients in one of
the studies. In March 1999, the Company initiated the first of a series of
multinational Phase III trials in HBV infected patients.
Glaxo Wellcome, in collaboration with Biochem Pharma, is pursuing
development of lamivudine, a nucleoside analogue to treat HBV infection. This
compound was recently approved for marketing in the United States, China and
several other countries and represents significant potential competition for
adefovir dipivoxil for HBV. See "Competition."
The Company has an exclusive, worldwide license to patent rights and related
technology for adefovir, which is the parent compound of adefovir dipivoxil,
from IOCB/REGA, and would be obligated to pay a royalty to IOCB/REGA on any net
sales of adefovir dipivoxil. See "Collaborative Relationships--IOCB/ REGA."
PMPA
The Company is evaluating PMPA (tenofovir), a nucleotide analogue with
structural similarities to adefovir dipivoxil, as a potential therapeutic for
HIV and AIDS. PMPA has shown significant activity against simian
immunodeficiency virus ("SIV") in a variety of preclinical treatment and
prevention models. SIV causes an AIDS-like syndrome in primates. In these
experiments, primates treated with injections of PMPA either before or after
exposure to SIV were completely protected from infection. In another primate
study, a topical gel form of PMPA also provided protection against SIV
transmission when applied intravaginally.
Gilead has conducted placebo-controlled Phase I/II studies of PMPA in both
intravenous and oral formulations ("PMPA Prodrug"). In February 1998, the
Company presented data from a Phase I/II study of PMPA Prodrug, indicating that
the highest dose of the drug tested reduced viral load by a median of 1.22 logs
after one month of dosing. In this study, PMPA Prodrug was administered as a
single oral tablet at one of three doses (75 mg, 150 mg or 300 mg) once per day.
Based on these results, the Company initiated a long-term Phase II safety study
of PMPA Prodrug, in combination with other anti-retroviral therapies, which
completed enrollment at 190 patients in March 1999. Depending on the results
from this study, Gilead intends to initiate a program of Phase III studies of
PMPA Prodrug before the end of 1999.
The National Institutes of Health ("NIH") is evaluating possible
applications of intravenous PMPA in the prevention of maternal-fetal HIV
transmission, as well as a topical version of PMPA for the prevention of sexual
transmission of HIV.
The Company has an exclusive, worldwide license to patent rights and related
technology for PMPA from IOCB/REGA, and would be obligated to pay a royalty to
IOCB/REGA on any net sales of PMPA or PMPA Prodrug. See "Collaborative
Relationships--IOCB/REGA."
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CIDOFOVIR
Cidofovir is a mononucleotide analogue that has demonstrated activity in
preclinical studies and clinical trials against several viruses in the
herpesvirus family. Cidofovir is the active ingredient in the Company's
commercial product VISTIDE (cidofovir injection). See "VISTIDE." Gilead is
currently evaluating cidofovir in different formulations for the potential
treatment of certain infectious diseases caused by herpesviruses and other
viruses.
Preclinical studies have demonstrated that cidofovir is active against a
variety of viruses that cause disease in people with AIDS, including molluscum
contagiosum, which causes disfiguring skin lesions, Kaposi's sarcoma, an
AIDS-related malignancy, and progressive multifocal leukoencephalopathy ("PML"),
a rapidly progressive, often fatal brain disease.
In 1994, Gilead entered into a license and supply agreement with Bausch &
Lomb (formerly Storz Instrument Company, a subsidiary of American Home Products
Corporation) to develop an eye drop formulation of cidofovir for the potential
treatment of certain viruses that cause external eye infections, including
adenovirus, which is the leading cause of viral conjunctivitis, or "pink eye."
The license to Bausch & Lomb is limited to topical ophthalmic use for external
viral eye disease, and excludes any treatment requiring injection and any
treatment for other eye diseases such as CMV retinitis. Bausch & Lomb is
conducting clinical development of topical ophthalmic cidofovir and is currently
analyzing the data from Phase II clinical studies. See "Collaborative
Relationships--Bausch & Lomb."
The side effect profiles of the drugs under development based on cidofovir
have not yet been fully characterized. Renal toxicity is the primary
dose-limiting side effect of VISTIDE administration. In addition, in certain
animal studies, cidofovir was carcinogenic. There can be no assurance that the
Company will be successful in developing or commercializing any therapeutic
products, other than VISTIDE, based on cidofovir.
The Company has an exclusive, worldwide license to patent rights and related
technology for cidofovir from IOCB/REGA, and is obligated to pay a royalty to
IOCB/REGA on the net sales of VISTIDE, as well as on any other future products
containing cidofovir. See "VISTIDE," "Collaborative Relationships-- IOCB/REGA."
RESEARCH
Gilead's research efforts are conducted by a scientific team with the
multi-disciplinary skills that the Company believes are critical for the
discovery and preclinical development of therapeutics based on nucleotides or
other small molecules. The primary therapeutic targets of the Company's research
program are infectious diseases, primarily viral diseases, as well as cancer.
NUCLEOTIDE ANALOGUES
The Company has an extensive library of proprietary nucleotide compounds
that it is evaluating for antiviral and antiproliferative activity. Among the
primary targets of this screening activity are HIV, herpesviruses, hepatitis B
virus and poxviruses. In addition, Gilead is evaluating novel nucleotide
prodrugs with the potential for enhanced pharmaceutical properties, including
better bioavailability, longer half-life and enhanced therapeutic index. Several
nucleotide analogues are also being evaluated for activity against cancer in
animal models.
HIV PROTEASE INHIBITORS
Through its structure-based drug design program, the Company has synthesized
a number of small molecule compounds with IN VITRO activity against HIV. Gilead
has evaluated several HIV protease inhibitors in animal models. The current
focus of this program is to enhance the pharmacological
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properties and cross-resistance profile of these compounds before conducting
further preclinical development.
HEPATITIS C VIRUS
Building on its expertise in the discovery and development of antiviral
therapeutics, the Company is evaluating different approaches that could lead to
inhibitors of hepatitis C virus ("HCV"). This research includes identification
of HCV targets, establishment of assays and screening of compounds as potential
inhibitors. See "Legal Proceedings."
ANTIBACTERIAL PROGRAM
Gilead has synthesized a series of small molecule compounds with IN VITRO
activity against bacteria, including methicillin-resistant staphylococcus aureus
("MRSA"). The current focus of this program is the optimization of potency and
selectivity and evaluation of these compounds in preclinical animal models.
ADENOSINE RECEPTOR REGULATORS
Gilead is working with the National Institute of Diabetes, Digestive and
Kidney Diseases at the NIH to study adenosine receptor agonists and antagonists
in the treatment and prevention of neurodegenerative disorders, particularly
stroke. Independent research has also implicated adenosine receptors in
inflammation and allergic disorders. NIH researchers have synthesized a series
of novel small molecule adenosine agonist and antagonist compounds and have
identified several compounds with A3 receptor agonist and antagonist activity
which exhibit protective effects in an animal model of stroke. These compounds
also have potential utility in the treatment of inflammatory and allergic
conditions. In collaboration with the NIH, Gilead is currently evaluating
several compounds with A3 receptor antagonist or agonist activity in animal
models of stroke, and also intends to evaluate the anti-inflammatory and anti-
allergic properties of these compounds.
COLLABORATIVE RELATIONSHIPS
As part of its business strategy, Gilead establishes collaborations with
pharmaceutical companies to assist in the clinical development and/or
commercialization of certain of its products and product candidates, and to
provide support for research programs. The Company also evaluates opportunities
for in-licensing products and technologies complementary to its business. The
Company's existing collaborative relationships are as follows:
PHARMACIA & UPJOHN
In August 1996, Gilead and Pharmacia & Upjohn entered into a license and
supply agreement providing Pharmacia & Upjohn with exclusive rights to market
and sell VISTIDE in all countries outside of the United States. Under the terms
of the agreement, Pharmacia & Upjohn paid Gilead an initial license fee of $10.0
million. In June 1997, after VISTIDE was approved for marketing in the European
Union, Gilead received an additional cash milestone payment of $10.0 million.
Except for payments for bulk cidofovir and the royalties described below, no
additional payments are due to Gilead under the agreement with Pharmacia &
Upjohn. Pharmacia & Upjohn also purchased 1,133,786 newly issued shares of
Series B Preferred Stock at $35.28 per share, a price equal to 145% of the
average closing price of Gilead's common stock over the 30 trading days prior to
public announcement of the European approval, for a total purchase price of
$40.0 million. The Series B Preferred Stock is not publicly registered, votes
together with Gilead's common stock and is convertible at any time into an equal
number of shares of Gilead's common stock at Pharmacia & Upjohn's option.
Pharmacia & Upjohn is restricted in its ability to sell the Series B Preferred
Stock (or underlying common stock), or purchase any additional stock of the
Company until June 2002.
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Gilead is responsible for maintaining the cidofovir patent portfolio and for
supplying bulk cidofovir to Pharmacia & Upjohn. Gilead is entitled to payments
for bulk cidofovir and royalty payments on a quarterly basis on the net sales of
VISTIDE by Pharmacia & Upjohn. Gilead is recognizing royalties on a delayed
basis, one quarter after the Pharmacia & Upjohn sales that generated the
royalties. The agreement with Pharmacia & Upjohn terminates on a
country-by-country basis as patent coverage for VISTIDE expires. Pharmacia &
Upjohn has the right to terminate the agreement prior to its expiration at any
time with six months notice. See "VISTIDE."
HOFFMANN-LA ROCHE
In September 1996, Gilead and Roche entered into a collaboration agreement
to develop and commercialize therapies to treat and prevent viral influenza.
Under the agreement, Roche received exclusive worldwide rights to all of
Gilead's proprietary influenza neuraminidase inhibitors, including GS 4104.
Gilead and Roche are jointly conducting the clinical development of GS 4104. In
October 1996, Roche made an initial license fee payment to Gilead of $10.3
million and Gilead is entitled to total additional cash milestone payments of up
to $40.0 million upon achievement of milestones relating to regulatory filings
and approvals in the United States, Europe and Japan. Through December 31, 1998,
Gilead recognized $6.0 million in milestone payments from Roche. Gilead
recognized $2.0 million in milestone payments in the first quarter of 1999 and
will recognize an additional $6.0 million in milestone payments relating to the
marketing applications filed by Roche in the United States and Europe in the
second quarter of 1999. Roche is funding 100% of its own and Gilead's research
and development costs for the program and will pay Gilead royalties on net sales
on GS 4104 and any other products developed under the collaboration. Under the
agreement, Roche is responsible for commercialization of GS 4104 on a worldwide
basis. The agreement with Roche terminates on a country-by-country basis as
patent coverage for any product developed under the agreement expires. Roche has
the right to terminate the agreement prior to expiration at any time upon 12
months notice. See "Clinical Development Programs--GS 4104."
For the years ended December 31, 1998, 1997 and 1996, the Company recorded
approximately $16.4 million, $8.2 million and $1.1 million, respectively, of
research and development reimbursement revenue related to the Roche agreement.
The $16.4 million recorded as revenue during 1998 includes $5.2 million
attributable to research and development expenses incurred in the fourth quarter
of 1997, which were subject to Roche's approval as of December 31, 1997. Such
expenses were approved for reimbursement and recognized in contract revenue in
1998. Except for this $5.2 million, research and development costs related to
the Roche agreement approximate the reimbursement revenue recognized in each
year and are included in research and development expenses.
In September 1996, Gilead and Roche Laboratories Inc. ("Roche Labs") entered
into an agreement to co-promote Roche's Roferon-Registered Trademark--A
(Interferon alfa-2a, recombinant) for the treatment of chronic hepatitis C
infection in the United States. This co-promotion agreement terminated at the
end of 1998.
GLAXO WELLCOME
In July 1990, Gilead entered into a collaborative research and development
agreement with Glaxo Wellcome Inc. ("Glaxo"). Concurrent with the signing of the
agreement Glaxo made an $8.0 million equity investment in Gilead and currently
holds 889,911 shares (approximately 2.8%) of the Company's outstanding common
stock. Under the terms of the Glaxo agreement, as amended, the Company received
$1.8 million in 1998, and $3.0 million in both 1997 and 1996, to fund research,
which is reported as contract revenue in Gilead's consolidated statements of
operations. The research and development costs reimbursed by Glaxo approximate
the related revenue and are included in research and development expense. This
agreement and the related funding was terminated in June 1998.
In December 1998, Gilead sold its antisense patent estate to Isis
Pharmaceuticals, Inc. ("Isis") for $6.0 million, payable in installments over
three years. Gilead has no ongoing research or funding
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obligations under the Isis agreement and does not expect to perform additional
research in the antisense field.
BAUSCH & LOMB
In August 1994, the Company entered into a license and supply agreement with
Bausch & Lomb (formerly Storz Instrument Company, a subsidiary of American Home
Products Corporation), pursuant to which Bausch & Lomb will develop and have the
right to market an eye drop formulation of cidofovir for the potential treatment
of topical ophthalmic viruses. The field of the exclusive, worldwide license to
Bausch & Lomb is limited to topical ophthalmic use for external viral eye
disease, and specifically excludes any treatment requiring injection, and any
treatment for other eye diseases such as CMV retinitis. Bausch & Lomb is
conducting clinical development of topical ophthalmic cidofovir and is currently
analyzing the data from Phase II clinical trials. Gilead is entitled to receive
a fee of $250,000 each year until Bausch & Lomb files an NDA under the
agreement. In addition, Bausch & Lomb is obligated to make a series of payments,
up to $3,000,000 in the aggregate, based on the achievement of milestones during
the term of the agreement. These milestones would be triggered by the
commencement of Phase III clinical trials and regulatory filings and approvals
in the United States, Europe and Japan. None of these milestones has been
achieved to date. Gilead is responsible for supplying bulk cidofovir to Bausch &
Lomb, and Bausch & Lomb is obligated to make royalty payments to Gilead based on
net sales of any products developed under the agreement. Under the agreement,
Bausch & Lomb is responsible for commercialization of topical ophthalmic
cidofovir on a worldwide basis. The agreement with Bausch & Lomb terminates on a
country-by-country basis as patent coverage for any product developed under the
agreement expires. Bausch & Lomb may terminate this agreement prior to its
expiration at any time on three months notice. See "Clinical Development
Programs--Cidofovir."
IOCB/REGA
In 1991 and 1992, the Company entered into agreements with IOCB/REGA
regarding a class of nucleotide compounds discovered at these institutions.
Under these agreements and later amendments, Gilead received from IOCB/REGA an
exclusive license to manufacture, use and sell the compounds covered by issued
United States patents and patent applications plus foreign counterparts
throughout the world, subject to an obligation to pay royalties on product sales
to IOCB/REGA. The compounds covered by the agreement with IOCB/REGA include
cidofovir, adefovir (the parent compound of adefovir dipivoxil) and PMPA. The
IOCB/REGA agreements do not cover GS 4104 or any of the Company's compounds in
clinical or preclinical development. The Company is currently paying IOCB/REGA
quarterly royalties on sales of VISTIDE and will be obligated to pay additional
royalties upon any future sales of adefovir dipivoxil or PMPA. See "VISTIDE" and
"Clinical Development Programs--PREVEON," "--Adefovir Dipivoxil for HBV" and
"--PMPA." The licenses from IOCB/REGA terminate on a country-by-country basis as
patent coverage for any product licensed under the agreements expires. IOCB/REGA
may terminate the licenses under these agreements with respect to any particular
product, in specified countries, if the Company does not make any sales of such
product in such countries within 12 months after regulatory approval. Under one
of these agreements, the Company has an option to receive an exclusive license
to any new developments by IOCB/REGA during the term of this agreement. Either
party may terminate this agreement on six months notice.
ACADEMIC AND CONSULTING RELATIONSHIPS
To supplement its research and development efforts, in the ordinary course
of business, the Company collaborates with and has licensed certain patents,
patent applications and technology from a number of universities and medical
research institutions.
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MANUFACTURING
The Company generally relies on third parties for the manufacture of bulk
drug substance and drug product for clinical and commercial purposes, including
cidofovir (VISTIDE), adefovir dipivoxil (PREVEON) and PMPA. In the case of GS
4104, Gilead's influenza neuraminidase inhibitor in clinical development, Roche
is responsible for the manufacture of clinical and any commercial supplies of
drug substance and drug product. Pursuant to these relationships, the Company
depends on such third parties to perform their manufacturing obligations
effectively and on a timely basis. There can be no assurance that such parties
will perform and any failures by third parties may delay clinical trials or the
submission of products for regulatory approval, impair the Company's ability to
deliver commercial products on a timely basis, or otherwise impair the Company's
competitive position, which could have a material adverse effect on the Company.
The Company has readily available alternative supply sources for all key raw
materials used in all of its drug substances and drug products. Suppliers of the
Company's manufactured drug substances and drug products must be qualified as
such by the FDA. The process of obtaining the FDA's approval to use a particular
supplier of either a drug substance or a drug product is a costly and lengthy
process. Further, there is no assurance that approval of a supplier ultimately
will be obtained.
The Company has qualified a sole source supplier with the FDA for the bulk
drug substance used in VISTIDE and another sole source supplier for the final
drug product. Gilead has established a second source of bulk drug substance
supply for VISTIDE, and intends to file for approval of this supplier with the
FDA in 1999. The Company anticipates including two suppliers of bulk drug
substance and one supplier of drug product for PREVEON in the NDA it intends to
file in 1999. PMPA drug substance is manufactured at Gilead and at a contract
manufacturer, and PMPA drug product for clinical trials is manufactured at two
contract manufacturing sites. In the event that supplies from any of Gilead's
suppliers were interrupted for any reason, the Company's ability to complete its
clinical trials or ship its products could be impaired, which would have a
material adverse effect on the Company. The Company believes that alternative
suppliers for any of the Company's products or products in development are
available, but establishing a new supplier would require agreement with such
supplier and FDA approval.
Gilead has developed in-house capabilities to synthesize and purify
nucleotides and oligonucleotides, and believes that it has a base of proprietary
technologies, including patent applications and trade secrets, for the
manufacture of these compounds. Gilead has established a pilot-scale, bulk
chemical facility, which operates in compliance with the FDA's current Good
Manufacturing Practices ("cGMP"), to meet its current preclinical and limited
early-stage clinical requirements. The Company believes that it has or will be
able to develop, acquire or contract for sufficient supply capacity to meet its
additional clinical and commercial manufacturing requirements, although there
can be no assurance that it will be able to do so. Gilead currently has no
commercial-scale cGMP manufacturing facilities for either the production of bulk
drug substance or final drug product, and no current plans to establish such
capacity.
The manufacture of sufficient quantities of new drugs can be an expensive,
time-consuming and complex process and may require the use of materials with
limited availability or require dependence on sole source suppliers. If the
Company is unable to develop manufacturing capabilities internally or contract
for large scale manufacturing with third parties on acceptable terms, the
Company's ability to conduct preclinical studies and clinical trials, and/or
meet demand for commercial products, will be adversely affected. This could
prevent or delay commercial shipment, submission of products for regulatory
approval and initiation of new development programs, which would have a material
adverse effect on the Company.
The production of the Company's compounds is based in part on technology
that the Company believes to be proprietary. Gilead has licensed this technology
to contract manufacturers to enable them to manufacture compounds for the
Company. There can be no assurance that such manufacturers will abide by any use
limitations or confidentiality restrictions in licenses with the Company. In
addition, any such manufacturer may develop process technology related to its
work for Gilead, which could increase the
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Company's reliance on such manufacturer or require the Company to obtain a
license from such manufacturer in order to have its products manufactured
elsewhere. There can be no assurance that such license, if required, would be
available on terms acceptable to the Company, if at all.
For certain of its potential products, the Company will need to develop
further its production technologies for use on a larger scale in order to
conduct clinical trials and produce such products for commercial sale at an
acceptable cost. There can be no assurance that the Company or its partners will
be able to implement any of these developments successfully.
MARKETING AND SALES
In connection with the launch of VISTIDE in 1996, Gilead established a sales
force of antiviral specialists in the United States. This group currently
consists of 26 sales representatives and three regional directors who detail
physicians, hospitals, clinics, pharmacies and other healthcare providers
involved in the treatment of AIDS patients with CMV retinitis. Gilead sells
VISTIDE to wholesalers and specialty distributors who, in turn, sell the product
to hospitals, home healthcare companies, pharmacies and other healthcare
providers. Gilead's sales force is supplemented by a marketing and sales staff
of approximately 20 people based at the Company's headquarters in Foster City,
California.
The Company's products are returnable in their original, unopened containers
up to one year beyond expiration date or if damaged when received by the
customer. Additionally, certain governmental agency customers are entitled to
discounts, and the Company is required to provide rebates under state Medicaid
programs. To date, returns, rebates and discounts have not been material.
The Company anticipates that it will expand its existing sales force in
order to promote PREVEON in the United States, if that product receives
marketing clearance from the FDA. A larger sales force and additional marketing
resources will be required to reach the broader market of healthcare
professionals treating patients infected with HIV. If any of the Company's other
products in development for specialty markets receive marketing clearance in the
United States, or if the Company obtains marketing rights to such a product from
a third party, Gilead's current intention would be to market and sell such a
product directly, supplementing its existing marketing and sales staff as
appropriate. Gilead has not established a marketing and sales capacity in Europe
or any other country outside of the United States. Pharmacia & Upjohn has
exclusive commercial rights to VISTIDE outside the United States, and Roche has
exclusive commercial rights to GS 4104 on a worldwide basis. The Company does
not currently intend to directly market and sell any product outside of the
United States and Europe.
The revenues received by Gilead for its products subject to commercial
collaborations, including VISTIDE outside of the United States and GS 4104 on a
worldwide basis, are dependent to a large degree on the efforts of third
parties. There can be no assurance that such efforts will be successful, that
the interests of the Company and its partners will not be in conflict or that
any of the Company's partners will not terminate their relationship with the
Company. See "Collaborative Relationships."
PATENTS AND PROPRIETARY RIGHTS
Gilead has a proprietary portfolio of patent rights and exclusive licenses
to patents and patent applications related to its products and technologies. The
Company has filed patent applications directed to the compositions of matter,
methods of preparation and uses of novel compounds on the commercial market,
under research or in development. Patent applications have been filed by Gilead
which encompass compounds that are relevant to many of the targets the Company
is currently researching, as well as other targets that may be of interest to
Gilead in the future. Gilead intends to file additional patent applications,
when appropriate, relative to improvements in its technologies and to specific
products that it develops.
Patents covering cidofovir (the active ingredient in VISTIDE) and adefovir
dipivoxil, including composition of matter claims, have been issued in the
United States, Western Europe and other
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jurisdictions. The Company has exclusive licenses from third parties covering
these patents and other patent applications. See "Collaborative
Relationships--IOCB/REGA." The Company does not have patent filings covering
adefovir dipivoxil in China or in other certain other Asian countries, although
it does have an application pending in Japan and is seeking patent protection in
other Asian countries on commercial forms of adefovir dipivoxil. Asia is a major
market for hepatitis B therapies, one of the potential indications for adefovir
dipivoxil. Patents on certain of the Company's compounds may issue many years
before marketing approval is obtained, limiting the ultimate commercial value of
the product. However, patent term extensions for cidofovir have been applied for
or granted in the United States and a number of European countries, compensating
in part for delays in obtaining marketing approval. Similar patent term
extensions may be available for other products in development.
Set forth below are the actual or estimated patent expiration dates in the
United States and Europe for the compounds included in the Company's marketed
product and products in clinical development:
<TABLE>
<CAPTION>
U.S. PATENT EUROPEAN PATENT
COMPOUND EXPIRATION EXPIRATION
- -------------------------------------------- -------------------- -------------------------
<S> <C> <C>
Cidofovir................................... 2010 2012
Adefovir dipivoxil.......................... 2014 2011
PMPA Prodrug................................ 2017 2017*
GS 4104..................................... 2016 2016*
</TABLE>
Expiration dates do not reflect patent term extensions or supplementary
protection certificates not yet applied for or granted. There can be no
assurance that pending patent applications will issue as patents or that issued
patents will provide significant proprietary protection.
The Company is the exclusive licensee or holder of patents and patent
applications relating to methoxyphosphonate derivatives and neuraminidase
inhibitors and their use in the treatment and prevention of viral infections.
The Company cannot predict whether its patent or license rights or those of
third parties will result in a significant position in these fields, whether its
patent applications or those of third parties will be issued, whether its
patents or those of third parties will provide significant proprietary
protection, or whether they will be dominated, circumvented or invalidated.
The commercial success of the Company will also depend in part on not
infringing patents or proprietary rights of others and not breaching the
licenses granted to the Company. There can be no assurance that the Company will
be able to obtain a license to any third-party technology that it may require to
conduct its business or that, if obtainable, such technology can be licensed at
a reasonable cost. Failure by the Company to obtain a license to any technology
that it may require to commercialize its technologies or products may have a
material adverse effect on the Company. In August 1998, the Company was served
with a patent infringement lawsuit filed by Chiron Corporation ("Chiron") in the
U.S. District Court for the Northern District of California. In the lawsuit,
Chiron alleges that Gilead is conducting scientific research that infringes
Chiron's patents covering the hepatitis C NS3 protease protein and gene
sequences and their use in screening for potential hepatitis C therapeutics. See
"Legal Proceedings."
The patent positions of pharmaceutical, biopharmaceutical and biotechnology
firms, including Gilead, are generally uncertain and involve complex legal and
factual questions. Consequently, even though Gilead is currently prosecuting its
patent applications with the United States and foreign patent offices, the
Company does not know whether any of its or its licensors' pending applications
will result in the issuance of any patents or, if any patents are issued,
whether they will provide significant proprietary protection. Since patent
applications in the United States are maintained in secrecy until patents are
issued, and since publication of discoveries in the scientific or patent
literature tend to lag behind actual discoveries by several months, Gilead
cannot be certain that it has rights as the first inventor of technologies
covered by pending patent applications or that it was the first to file patent
applications for such inventions.
- ------------------------
* Estimated date for pending application, not yet issued.
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The Company also relies upon unpatented trade secrets and improvements,
unpatented know-how and continuing technological innovation to develop and
maintain its competitive position which it seeks to protect, in part, by
confidentiality agreements with its corporate partners, collaborators,
employees, consultants and vendors. There can be no assurance that these
agreements will not be breached, that the Company would have adequate remedies
for any breach, or that the Company's trade secrets will not otherwise become
known or be independently discovered by competitors.
Gilead's practice is to require its corporate partners, collaborators,
employees, consultants and vendors to execute a confidentiality agreement upon
the commencement of a relationship with the Company. The agreements provide that
all confidential information developed or made known to an individual during the
course of the relationship shall be kept confidential and not disclosed to third
parties except in specified circumstances. In the case of employees, the
agreements provide that all inventions conceived by the individual while
employed by the Company shall be the exclusive property of the Company. There
can be no assurance, however, that these agreements will provide meaningful
protection for the Company's trade secrets in the event of unauthorized use or
disclosure of such information.
COMPETITION
The Company's products and development programs target a number of diseases
and conditions, including viral infections and cancer. Even if the Company is
successful in developing products to treat any of these diseases or conditions,
there can be no assurance that any product that receives marketing clearance
will achieve significant commercial acceptance. There are many commercially
available products for these diseases, and a large number of companies and
institutions are conducting well-funded research and development activities
directed at developing additional treatments for these diseases.
Ganciclovir, marketed in intravenous and oral formulations by Roche
Laboratories and as an ocular implant by Bausch & Lomb Incorporated, foscarnet,
marketed by Astra U.S.A., and formivirsen, a local injection marketed by
CibaVision, are commercially available for the treatment of CMV retinitis. These
products are directly competitive with VISTIDE. Several other potential CMV
retinitis therapeutics are being developed by other companies. A number of
therapeutics are currently marketed or are in advanced stages of clinical
development for the treatment of HIV infection and AIDS, including 13 products
currently marketed in the United States. These products represent significant
potential competition for PREVEON and PMPA. Among the companies with significant
commercial presence in the AIDS market are Glaxo Wellcome, Bristol-Myers Squibb,
Hoffmann-La Roche, Agouron Pharmaceuticals, Merck & Co. and DuPont Pharma.
Glaxo Wellcome, in collaboration with Biota Holdings Limited, is pursuing
development of zanamavir, a neuraminidase inhibitor to treat influenza. This
compound has been approved in some countries and is under review for approval in
the United States by the FDA. If approved, zanamavir would represent significant
potential competition for GS 4104. In addition, Glaxo Wellcome, in collaboration
with Biochem Pharma, is pursuing development of lamivudine, a nucleoside
analogue to treat HBV infection. This compound was recently approved for
marketing in the United States, China and several other countries and represents
significant potential competition for adefovir dipivoxil for HBV.
The Company believes that its products and product candidates have potential
competitive advantages over many of these products, particularly with regard to
dosing convenience and the potential for resistance development. However, there
can be no assurance that any of the Company's products or products in
development will compete successfully with other available products.
A number of companies are pursuing the development of technologies
competitive with the Company's research programs. These competing companies
include specialized pharmaceutical firms and large pharmaceutical companies
acting either independently or together with biopharmaceutical companies.
Furthermore, academic institutions, government agencies and other public and
private organizations conducting research may seek patent protection and may
establish collaborative arrangements for competitive products and programs.
Gilead anticipates that it will face increased competition in the future as
new products enter the market and advanced technologies become available. There
can be no assurance that existing products or new products developed by the
Company's competitors will not be more effective, or more effectively marketed
and sold, than any that may be developed by the Company. Competitive products
may render Gilead's technology and products obsolete or noncompetitive prior to
the Company's recovering research, development or commercialization expenses
incurred with respect to any such products.
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Many of the Company's existing or potential competitors, particularly large
pharmaceutical companies, have substantially greater financial, technical and
human resources than the Company. In addition, many of these competitors have
significantly greater experience than the Company in undertaking research,
preclinical studies and clinical trials of new pharmaceutical products,
obtaining FDA and other regulatory approvals, and manufacturing, marketing and
selling such products. Accordingly, the Company's competitors may succeed in
commercializing products more rapidly or more effectively than the Company,
which would have a material adverse effect on the Company.
The Company's competition will be determined in part by the potential
indications for which the Company's compounds are developed and ultimately
approved by regulatory authorities. For certain of the Company's potential
products, an important competitive factor may be the timing of market
introduction of its products or competitive products. Accordingly, the relative
speed with which Gilead can develop products, complete the clinical trials and
regulatory approval processes, and supply commercial quantities of the products
to the market are expected to be important competitive factors. The Company
expects that competition among products approved for sale will be based, among
other things, on product efficacy, safety, dosing convenience, availability,
price, third-party reimbursement and patent position.
The Company's competitive position also depends upon its ability to attract
and retain qualified personnel, obtain patent protection or otherwise develop
proprietary products or processes, and secure sufficient capital resources for
the substantial period between technological conception and commercial sales.
GOVERNMENT REGULATION
The production and marketing of the Company's products and its research and
development activities are subject to regulation for safety, efficacy and
quality by numerous government authorities in the United States and other
countries. In the United States, drugs are subject to rigorous FDA regulation.
The Federal Food, Drug and Cosmetic Act, as amended ("FFDCA"), and the
regulations promulgated thereunder, and other federal and state statutes and
regulations, govern, among other things the testing, manufacture, safety,
efficacy, labeling, storage, record keeping, approval, advertising and promotion
of the Company's products. Product development and approval within this
regulatory framework, and under equivalent regulations in other countries, takes
a number of years and involves the expenditure of substantial resources.
The steps required before a pharmaceutical agent may be marketed in the
United States include (i) preclinical laboratory tests, IN VIVO preclinical
studies and formulation studies, (ii) the submission to the FDA of an
investigational new drug application ("IND"), which must become effective before
clinical trials commence, (iii) adequate and well-controlled clinical trials to
establish the safety and efficacy of the drug, (iv) the submission of an NDA to
the FDA, and (v) the FDA approval of the NDA, prior to any commercial sale or
shipment of the drug. In addition to obtaining FDA approval for each product,
each drug manufacturing establishment must be registered with, and approved by,
the FDA. Domestic manufacturing establishments, including third party contract
manufacturers producing a drug sponsor's products, are subject to periodic
inspections by the FDA and must comply with cGMP. To supply products for use in
the United States, foreign manufacturing establishments must comply with cGMP
and are subject to periodic inspection by the FDA or by regulatory authorities
in certain of such countries under reciprocal agreements with the FDA. Drug
product and drug substance manufacturing establishments located in California
also must be licensed by the State of California in compliance with local
regulatory requirements.
Preclinical tests include laboratory evaluation of product chemistry and
formulation, as well as animal studies to assess the potential safety and
efficacy of the product. Compounds must be formulated according to cGMP and
preclinical safety tests must be conducted by laboratories that comply with FDA
regulations regarding current Good Laboratory Practices ("GLP"). The results of
the preclinical tests are
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submitted to the FDA as part of an IND and are reviewed by the FDA prior to the
commencement of clinical trials. Additional pharmacology and toxicology studies
are generally conducted concurrently with clinical trials.
Clinical trials involve the administration of the investigational new drug
to healthy volunteers or to patients, under the supervision of qualified
principal investigators. Clinical trials are conducted in accordance with Good
Clinical Practices under protocols that detail the objectives of the study, the
parameters to be used to monitor safety and the efficacy criteria to be
evaluated. Each protocol must be submitted to the FDA as part of the IND.
Further, each clinical trial must be conducted under the auspices of an
independent Institutional Review Board ("IRB") or Ethics Committee at the
institution at which the study will be conducted. The IRB will consider, among
other things, ethical factors, the safety of human subjects and the possible
liability of the institution.
Clinical trials are typically conducted in three sequential phases, but the
phases often overlap. In Phase I, the initial introduction of the drug into
healthy human subjects, the drug is tested for safety (adverse effects), dosage
tolerance, metabolism, distribution, excretion and pharmacodynamics (clinical
pharmacokinetics and pharmacology). Phase II involves studies in a limited
patient population to (i) determine the efficacy of the drug for specific,
targeted indications, (ii) determine dosage tolerance and optimal dosage and
(iii) identify possible adverse effects and safety risks. When a compound
appears to be effective and to have an acceptable safety profile in Phase II
clinical trials, Phase III clinical trials are undertaken to further evaluate
and confirm clinical efficacy and to further test for safety within an expanded
patient population at geographically dispersed clinical study sites. There can
be no assurance that Phase I, Phase II or Phase III clinical trials will be
completed successfully within any specified time period, if at all, with respect
to any of the Company's products subject to such testing. Furthermore, the
Company or the FDA may delay or suspend clinical trials at any time if it is
felt that the subjects or patients are being exposed to an unacceptable health
risk.
The results of the preclinical studies and clinical trials are submitted to
the FDA in the form of an NDA for approval of the marketing and commercial
shipment of the drug. The testing and approval process is likely to require
substantial time and effort and there can be no assurance that any approval will
be granted on a timely basis, if at all. The FDA may deny an NDA if applicable
regulatory criteria are not satisfied, require additional testing or
information, require significant improvements to manufacturing facilities or
require extensive post-marketing testing and surveillance to monitor the safety
or efficacy of the Company's products if they do not view the NDA as containing
adequate evidence of the quality, safety and efficacy of the drug.
Notwithstanding the submission of such data, the FDA may ultimately decide that
the application does not satisfy its regulatory criteria for approval. Moreover,
if regulatory approval of a drug is granted, such approval may entail
limitations on the indicated uses for which it may be marketed. Finally, product
approvals may be withdrawn if compliance with regulatory standards is not
maintained or if problems occur following initial marketing.
Among the conditions for NDA approval is the requirement that the
prospective manufacturer's quality control and manufacturing procedures conform
to cGMP, which must be followed at all times. In complying with standards set
forth in these regulations, manufacturers (including a drug sponsor's third-
party contract manufacturers) must continue to expend time, money and effort in
the area of production and quality control to ensure full technical compliance.
The FDA has implemented accelerated approval procedures for pharmaceutical
products that treat serious or life-threatening diseases and conditions, if
those products have the potential to address unmet medical needs. Under the Food
and Drug Modernization Act of 1997, effective in February 1998, such products
may be designated as "fast track" products, and may be approved on the basis of
surrogate as well as clinical endpoints. The FDA will generally review NDAs for
fast track products within six months. Drug sponsors are generally required to
conduct post-marketing clinical trials of drugs that have been approved under
the FDA's accelerated approval procedures, in order to characterize further the
drug's safety and
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efficacy profile. The FDA has granted fast track designation to PREVEON for the
treatment of HIV-infected patients and the Company believes that certain of its
other products in development may qualify as fast track products and be eligible
for accelerated approval. The Company cannot predict the ultimate impact,
however, of the FDA's accelerated approval procedures on the timing or
likelihood of approval of any of its potential products or those of any
competitor.
In addition to regulations enforced by the FDA, the Company also is subject
to regulation under the Occupational Safety and Health Act, the Environmental
Protection Act, the Toxic Substances Control Act, the Resource Conservation and
Recovery Act and other federal, state or local regulations. The Company's
research and development involves the controlled use of hazardous materials,
chemicals, viruses and various radioactive compounds. Although the Company
believes that its safety procedures for handling and disposing of such materials
comply with the standards prescribed by state and federal regulations, the risk
of accidental contamination or injury from these materials cannot be completely
eliminated. In the event of such an accident, the Company could be held liable
for significant damages or fines.
In the European Community, human pharmaceutical products are also subject to
extensive regulation. The European Community Pharmaceutical Directives govern,
among other things, the testing, manufacture, safety, efficacy, labeling,
storage, record keeping, advertising and promotion of human pharmaceutical
products. Effective in January 1995, the European Community enacted regulations
providing for a centralized licensing procedure, which is mandatory for certain
kinds of products, as well as a decentralized (country by country) procedure. A
license granted under the centralized procedure authorizes marketing of the
product in all of the member states of the European Community. Under the
decentralized procedure, a license granted in one member state can be extended
to additional member states pursuant to a simplified application process. In the
centralized procedure, the EMEA coordinates a scientific review by one or more
rapporteurs chosen from among the membership of the Committee for Proprietary
Medical Products ("CPMP"), which represent the medicine authorities of the
member states. The final approval is granted by a decision of the Commission or
Council of the European Community, based on the opinion of the CPMP. After
approval under the centralized procedure, pricing and reimbursement approvals
are generally required in most countries. VISTIDE was approved by the European
Community under the centralized procedure. GS 4104 is being reviewed under the
centralized procedure and the Company anticipates that PREVEON will be reviewed
under the centralized procedure when a marketing authorization application for
this product is filed.
PRICING AND REIMBURSEMENT
The business and financial condition of pharmaceutical and biotechnology
companies will continue to be affected by the efforts of government and
third-party payors to contain or reduce the cost of health care through various
means. For example, in certain foreign markets pricing or profitability of
prescription pharmaceuticals is subject to government control. In particular,
individual pricing negotiations are often required in many countries of the
European Community, even if approval to market the drug under the EMEA's
centralized procedure is obtained. In the United States, there have been, and
the Company expects that there will continue to be, a number of federal and
state proposals to implement similar government control. In addition, an
increasing emphasis on managed care in the United States has and will continue
to increase the pressure on pharmaceutical pricing. While the Company cannot
predict whether any such legislative or regulatory proposals will be adopted or
the effect such proposals or managed care efforts may have on its business, the
announcement of such proposals or efforts could have a material adverse effect
on the trading price of the Company's Common Stock, and the adoption of such
proposals or efforts could have a material adverse effect on the Company.
Further, to the extent that such proposals or efforts have a material adverse
effect on other pharmaceutical companies that are prospective corporate partners
for the Company, the Company's ability to establish a strategic alliance may be
adversely affected. In addition, in both the United States and elsewhere, sales
of prescription pharmaceuticals are dependent in part on the availability of
reimbursement to the consumer from third-party payors, such as government
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and private insurance plans that mandate rebates or predetermined discounts from
list prices. For example, a significant proportion of VISTIDE sales is subject
to reimbursement by government agencies, resulting in significant discounts from
list price and rebate obligations. The Company expects that PREVEON and several
of its other products in development, particularly for AIDS indications, will
have a similar reimbursement profile. In addition, third-party payors, as well
as patient advocacy organizations, are increasingly challenging the prices
charged for medical products and services. If the Company succeeds in bringing
one or more additional products to the market, there can be no assurance that
these products will be considered cost effective and that reimbursement will be
available or will be sufficient to allow the Company to sell its products on a
competitive basis.
HUMAN RESOURCES
As of December 31, 1998, Gilead employed 293 people full-time, of whom 75
hold Ph.D. and/or M.D. degrees and 46 hold other advanced degrees. Approximately
182 employees are engaged in research and development activities and 111 are
employed in finance, sales and marketing, corporate development, legal and
general administrative positions. Gilead believes that it maintains good
relations with its employees.
SCIENTIFIC ADVISORY BOARD
The Company's Scientific Advisory Board is composed of individuals with
expertise in fields related to the Company's programs. This Board holds formal
meetings with scientists from the Company at least once a year. In some cases,
individual members of this Board consult and meet informally with the Company on
a more frequent basis. Each of the members of this Board has a consulting
agreement with the Company.
The members of Gilead's Scientific Advisory Board are as follows:
DANIEL L. AZARNOFF, M.D., has been a member of Gilead's Scientific Advisory
Board since January 1990. He headed G.D. Searle & Co.'s research and development
from 1979 through 1985, and previously was Professor of Medicine and
Pharmacology at the University of Kansas. Dr. Azarnoff is a member of the
Institute of Medicine of the National Academy of Sciences.
JACQUELINE K. BARTON, PH.D., has been a member of Gilead's Scientific
Advisory Board since January 1989. She is a Professor of Chemistry at the
California Institute of Technology ("Cal Tech"), a member of the American
Academy of Arts and Sciences and a recipient of a MacArthur Foundation
Fellowship.
PAUL BERG, PH.D., has been a member of Gilead's Scientific Advisory Board
since April 1998 and also serves on the Company's Board of Directors. Dr. Berg
is currently Cahill Professor in Cancer Research in the Department of
Biochemistry at Stanford University School of Medicine, where he has been on the
faculty since 1959. He received the Nobel Prize for Chemistry in 1980.
PETER B. DERVAN, PH.D., has been a member of Gilead's Scientific Advisory
Board since September 1987. He is Bren Professor of Chemistry at Cal Tech and a
member of the National Academy of Sciences and the American Academy of Arts and
Sciences.
MICHAEL J. GAIT, PH.D., has been a member of Gilead's Scientific Advisory
Board since July 1989. He is a Senior Staff Scientist with the Medical Research
Council in Cambridge, England.
RALPH F. HIRSCHMANN, PH.D., has been a member of Gilead's Scientific
Advisory Board since October 1989. He is a Research Professor of Chemistry at
the University of Pennsylvania. Previously, Dr. Hirschmann was employed by Merck
& Co., most recently as Senior Vice President of Basic Research and Chemistry.
Dr. Hirschmann is a member of the American Academy of Arts and Sciences.
LAWRENCE L.-K. LEUNG, M.D., has been a member of Gilead's Scientific
Advisory Board since September 1994. He is Chief of the Division of Hematology
at the Stanford University Medical School. Dr. Leung was previously Director of
Cardiovascular Biology and Medicine at Gilead.
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RISK FACTORS
GILEAD IS DEVELOPING DRUGS TO TREAT AIDS AND AIDS-RELATED CONDITIONS, AND
THEREFORE CAN BE ADVERSELY AFFECTED BY CHANGES IN THE REGULATORY AND COMMERCIAL
ENVIRONMENT FOR AIDS THERAPIES.
Several of Gilead's products and products in development address AIDS or
AIDS-related conditions. These products include VISTIDE (cidofovir injection)
for CMV retinitis, PREVEON (adefovir dipivoxil) for HIV and AIDS and PMPA for
HIV and AIDS. The medical, regulatory and commercial environment for AIDS
therapies changes quickly and often in ways that Gilead is unable to accurately
predict. Gilead develops its AIDS products based upon current policy and the
current marketplace for AIDS therapies, as well as its prediction of future
policy and the future marketplace for these therapies. Gilead's business is
subject to substantial risk because these policies and markets change quickly
and unpredictably and in ways that could have a material adverse impact on its
ability to obtain regulatory approval and commercial acceptance of its
AIDS-related products.
GILEAD'S OPERATIONS DEPEND ON COMPLIANCE WITH COMPLEX FDA AND COMPARABLE
INTERNATIONAL REGULATIONS. FAILURE TO OBTAIN BROAD APPROVALS ON A TIMELY BASIS
OR TO ACHIEVE CONTINUED COMPLIANCE COULD DELAY COMMERCIALIZATION OF GILEAD'S
PRODUCTS.
The products that Gilead develops and sells must be approved and are subject
to extensive regulation by the FDA and comparable agencies in other countries.
Gilead has plans to file an application with the FDA for marketing approval of
PREVEON in the second quarter of 1999. In addition, Hoffmann-La Roche, Gilead's
corporate partner for the development and commercialization of GS 4104, expects
to file an application with the FDA for marketing approval of GS 4104 to treat
influenza in the second quarter of 1999. Gilead anticipates conducting a variety
of clinical trials and filing for marketing approval of additional products over
the next several years. These products may fail to receive marketing approval on
a timely basis, or at all. In addition, these products may receive marketing
approvals that place limitations on the uses of the product. These failures,
delays or limitations, as well as other regulatory changes, actions and recalls,
could delay commercialization of any products and adversely affect Gilead's
results of operations.
In addition, even after Gilead's products are marketed, the products and
their manufacturers are subject to continual review. Later discovery of
previously unknown problems with Gilead's products or manufacturers may result
in restrictions on such product or manufacturer, including withdrawal of the
product from the market.
RESULTS OF CLINICAL TRIALS AND APPROVAL OF PRODUCTS ARE UNCERTAIN, AND
GILEAD MAY BE DELAYED IN OR PROHIBITED FROM SELLING ITS PRODUCTS.
Gilead has a number of potential products that have reached the development
stage. These potential products include PREVEON, GS 4104, adefovir dipivoxil for
HBV and PMPA. Gilead will be required to demonstrate the safety and
effectiveness of these and any other products it develops in each intended use
through extensive preclinical studies and clinical trials in order to obtain
regulatory approval of those products. The results from preclinical and early
clinical studies do not always accurately predict results in later, large-scale
clinical trials for several reasons including:
- preliminary results may not be indicative of effectiveness;
- further clinical trials may not achieve the desired result; and
- further clinical trials may reveal unduly harmful side effects or may show
the drugs to be less effective than other drugs or delivery systems for
the desired indications.
Even successfully completed large-scale clinical trials may not result in
marketable products for several reasons, including:
- the potential products are not shown to be safe and effective;
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- regulatory authorities disagree with the results of Gilead's studies and
trials;
- required regulatory approvals are not obtained;
- the potential products are too difficult to develop into commercially
viable products; or
- the potential products do not obtain market acceptance.
A number of companies in Gilead's industry have suffered significant
setbacks in advanced clinical trials despite promising results in earlier
trials. In the end, Gilead may be unable to develop marketable products.
DELAYS IN PATIENT ENROLLMENT FOR CLINICAL TRIALS COULD INCREASE COSTS AND
DELAY REGULATORY APPROVALS.
The rate of completion of Gilead's clinical trials will depend on the rate
of patient enrollment. There will be substantial competition to enroll patients
in Gilead's clinical trials, particularly for AIDS and HBV therapies. This
competition has delayed Gilead's clinical trials in the past. In addition,
recent improvements in existing AIDS and HBV drug therapy may make it more
difficult for Gilead to enroll patients in its clinical trials as the patient
population may choose to enroll in clinical trials sponsored by other companies
or choose alternative therapies. Delays in planned patient enrollment can result
in increased development costs and delays in regulatory approvals.
PRODUCT DEVELOPMENT EFFORTS MAY NOT YIELD MARKETABLE PRODUCTS DUE TO RESULTS
OF STUDIES OR TRIALS, FAILURE TO ACHIEVE REGULATORY APPROVALS OR MARKET
ACCEPTANCE, PROPRIETARY RIGHTS OF OTHERS OR MANUFACTURING ISSUES.
Gilead's future business success will depend on its ability to successfully
develop and obtain regulatory approval to market new pharmaceutical products.
Development of a product requires substantial technical, financial and human
resources even if the product is not successfully completed. Gilead's potential
products may appear to be promising at various stages of development yet fail to
reach the market for a number of reasons, including:
- lack of efficacy or unacceptable toxicity during preclinical studies or
clinical trials;
- failure to receive necessary regulatory approvals;
- failure to achieve market acceptance;
- existence of proprietary rights of third parties; and
- inability to develop manufacturing methods that are efficient,
cost-effective and capable of meeting stringent regulatory standards.
GILEAD MAY UNDERESTIMATE DEVELOPMENT COSTS, ADVERSELY AFFECTING ITS
BUSINESS.
Due to uncertainties that are part of the development process, Gilead may
underestimate the costs associated with the development of a potential product.
Delays or unanticipated increases in costs of development or failure to obtain
regulatory approval or market acceptance for Gilead's products could adversely
affect Gilead's operating results.
GILEAD DEPENDS ON RELATIONSHIPS WITH OTHER COMPANIES FOR RESEARCH FUNDING,
CLINICAL DEVELOPMENT, SALES AND MARKETING PERFORMANCE AND REVENUES. FAILURE TO
MAINTAIN THESE RELATIONSHIPS WOULD NEGATIVELY IMPACT GILEAD'S BUSINESS.
Gilead has established a number of significant collaborative relationships
with major pharmaceutical companies, including Pharmacia & Upjohn, Hoffmann-La
Roche and Bausch & Lomb. Gilead depends to a large degree on these partners for
its research funding, clinical development and/or sales and marketing
performance. In addition, Gilead has historically relied on collaborative
relationships for a significant
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portion of its revenues and expects this to be the case in future periods.
Reliance or collaborative relationships poses a number of risks, including:
- Gilead cannot control whether its corporate partners will devote
sufficient resources to its programs or products;
- disputes may arise in the future with respect to the ownership of rights
to technology developed with corporate partners;
- disagreements with corporate partners could lead to delays in or
termination of the research, development or commercialization of product
candidates, or result in litigation or arbitration;
- contracts with Gilead's corporate partners may fail to provide significant
protection or may fail to be effectively enforced if one of these partners
fails to perform;
- corporate partners have considerable discretion in electing whether to
pursue the development of any additional products and may pursue
alternative technologies or products either on their own or in
collaboration with Gilead's competitors; and
- corporate partners with marketing rights may choose to devote fewer
resources to the marketing of Gilead's products than they do to products
of their own development.
Given these risks, there is a great deal of uncertainty regarding the
success of Gilead's current and future collaborative efforts. If these efforts
fail, Gilead's product development or commercialization of new products could be
delayed or revenue from existing products could decline.
INABILITY TO ESTABLISH SUCCESSFUL COLLABORATIVE RELATIONSHIPS MAY IMPAIR
GILEAD'S FINANCIAL RESULTS.
Gilead may seek future collaborative relationships with corporate partners
to fund some of its research and development expenses and to develop and
commercialize some of its potential products. For example, the Company is in
discussions with several potential corporate partners about collaborative
development and commercialization of adefovir dipivoxil for HBV, particularly in
Asian territories. Further, we anticipate that the Company's receipt of revenues
from collaborative agreements will continue to be affected by existing
agreements, as well as by the timing of drug development programs of its
corporate partners. Gilead may not be able to negotiate acceptable collaborative
arrangements in the future, and any arrangements it does negotiate may not be
successful. If the Company fails to establish additional collaborative
relationships, it will be required to undertake research, development, marketing
and manufacturing of its proposed products at its own expense.
GILEAD HAS A HISTORY OF LOSSES, EXPECTS TO OPERATE AT A LOSS FOR THE
FORESEEABLE FUTURE AND MAY NEVER BE PROFITABLE.
Gilead has never been profitable on a full-year basis and may never become
profitable. At December 31, 1998, Gilead's accumulated deficit was approximately
$218.5 million. Gilead's losses have resulted principally from expenses
associated with its research and development programs and, to a lesser extent,
from sales, general and administrative expenses. Gilead's revenues to date have
been generated primarily from collaborative arrangements rather than product
revenues. Gilead's current product revenues are derived solely from sales of
VISTIDE in the United States and a royalty arrangement for VISTIDE sales with
Pharmacia & Upjohn outside of the United States. VISTIDE has limited sales
potential relative to many pharmaceutical products.
GILEAD'S EXISTING PRODUCT AND PRODUCTS UNDER DEVELOPMENT MAY NOT BE ACCEPTED
BY PHYSICIANS, INSURERS AND PATIENTS.
Many of Gilead's products in development, if approved for marketing, have no
established market. The ability of these products to achieve and sustain market
acceptance will depend on the receipt and scope of regulatory approvals and
whether or not government authorities and managed care organizations will
adequately reimburse patients who use these products.
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In addition, Gilead needs to convince the medical and patient advocacy
community of:
- the effectiveness of these products in treating disease;
- the safety of these products when administered to patients; and
- the advantages of these products over competitive products.
Physicians, patients, patient advocates, payors and the medical community in
general may not accept and use any products that Gilead may develop. If Gilead's
products are not accepted, its results of operations will suffer.
MANY OTHER COMPANIES ARE TARGETING THE SAME DISEASES AND CONDITIONS AS
GILEAD. COMPETITIVE PRODUCTS FROM OTHER COMPANIES COULD SIGNIFICANTLY REDUCE THE
MARKET ACCEPTANCE OF GILEAD'S PRODUCTS.
Gilead's products and development programs target a number of diseases and
conditions, including viral infections and cancer. There are many commercially
available products for these diseases. Certain of these products are well
established therapies and have generated substantial sales. In addition, a large
number of companies and institutions are conducting well-funded research and
development activities directed at developing treatments for these diseases.
Products currently on the market and those under development by Gilead's
competitors could make its technology and products obsolete or noncompetitive.
Gilead expects that competition for the treatment of these diseases will
increase in the future as new products enter the market and advanced
technologies become available. Gilead will also be competing to license or
acquire technology from other companies.
Most of Gilead's competitors and potential competitors have substantially
greater resources than Gilead. Those resources include superior product
development capabilities and financial, scientific, manufacturing, managerial
and human resources. These competitors may achieve superior patent protection,
obtain key technology, receive regulatory approval or achieve product
commercialization earlier than Gilead.
THE SIGNIFICANTLY GREATER RESOURCES OF THE MARKETING ORGANIZATIONS OF LARGE
PHARMACEUTICAL COMPANIES COULD HINDER GILEAD'S ABILITY TO COMPETE SUCCESSFULLY.
Gilead's products compete, and the products Gilead may develop are likely to
compete, with products of other companies that currently have extensive and
well-funded marketing and sales operations. Because these companies are capable
of devoting significantly greater resources to their marketing efforts, Gilead's
marketing or sales efforts may not compete successfully against the efforts of
these other companies.
GILEAD'S EXISTING PRODUCTS ARE SUBJECT TO REIMBURSEMENT FROM GOVERNMENT
AGENCIES AND OTHER THIRD PARTIES. PHARMACEUTICAL PRICING AND REIMBURSEMENT
PRESSURES MAY REDUCE PROFITABILITY.
Successful commercialization of Gilead's products depends, in part, on the
availability of governmental and third-party payor reimbursement for the cost of
such products and related treatments. Reimbursement is generally provided by
government health administration authorities, private health insurers and other
organizations. Government authorities and third-party payors increasingly are
challenging the price of medical products and services, particularly for
innovative new products and therapies. This has resulted in lower average sales
prices. For example, a majority of VISTIDE sales is subject to reimbursement by
government agencies, resulting in significant discounts from list price and
rebate obligations. Gilead expects that several of its products in development,
particularly for AIDS indications, if they receive regulatory approval, will
have a similar reimbursement profile. Even if reimbursement is available,
reimbursement policies may adversely affect Gilead's ability to sell its
products on a profitable basis.
In addition, in many international markets, governments control the prices
of prescription pharmaceuticals. In these markets, once marketing approval is
received, pricing negotiation can take another six to 12 months or longer.
Product sales, attempts to gain market share or introductory pricing
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programs of Gilead's competitors could require Gilead to lower its prices in
these countries, which could adversely affect its results of operations.
GILEAD MAY NOT BE ABLE TO OBTAIN EFFECTIVE PATENTS TO PROTECT ITS
TECHNOLOGIES FROM USE BY COMPETITORS, AND PATENTS OF OTHER COMPANIES COULD
REQUIRE GILEAD TO STOP USING OR PAY FOR THE USE OF REQUIRED TECHNOLOGY.
Gilead's success will depend to a significant degree on its ability to:
- obtain patents and licenses to patent rights;
- preserve trade secrets; and
- operate without infringing on the proprietary rights of others.
Gilead has rights to United States and foreign issued patents and has filed
and will continue to file patent applications in the United States and abroad
relating to its technologies. There is a risk, however, that patents may not
issue from any of these applications or that the patents will not be sufficient
to protect Gilead's technology. Patent applications in the United States are
confidential until a patent is granted. As a result, Gilead would not know if
its competitors filed patent applications for technology covered by its pending
applications. Gilead also can not be certain that it was the first to invent the
technology that is the subject of its patent applications. Competitors may have
filed patent applications or received patents and may obtain additional patents
and proprietary rights that block or compete with Gilead's patents.
Gilead does not have patent filings covering adefovir dipivoxil in China or
in certain other Asian countries, although it does have an application pending
in Japan. Asia is a major market for hepatitis B therapies, one of the potential
indications for adefovir dipivoxil. Gilead may obtain patents for certain
products many years before marketing approval is obtained for those products.
Because patents have a limited life, which may begin to run prior to commercial
sale, the commercial value of the product may be limited.
Gilead's competitors may file patent applications covering its technology.
If so, Gilead may have to participate in interference proceedings or litigation
to determine the right to a patent. Litigation and interference proceedings are
expensive even if successful. In August 1998, the Company was served with a
patent infringement lawsuit filed by Chiron Corporation alleging that Gilead's
research infringes Chiron's patents covering the hepatitis C protein and gene
sequences and their use in screening for potential hepatitis C therapeutics.
Gilead's success depends in large part on its ability to operate without
infringing upon the patents or other proprietary rights of third parties. If
Gilead infringes patents of others, it may be prevented from commercializing
products or may be required to obtain licenses from these third parties. Gilead
cannot be certain that it would be able to obtain alternative technologies or
any required license. Even if Gilead were to obtain such technologies or
licenses, it cannot be certain that the terms would be reasonable. If Gilead
fails to obtain such licenses or alternative technologies, it may be unable to
develop some or all of its products.
In addition, Gilead uses significant unpatented proprietary technology and
relies on unpatented trade secrets and proprietary know-how to protect certain
aspects of its production and other technologies. Gilead's trade secrets may
become known or independently discovered by its competitors.
MANUFACTURING PROBLEMS COULD DELAY PRODUCT SHIPMENTS AND REGULATORY
APPROVALS.
Gilead generally relies on third parties for the manufacture of bulk drug
substance and final drug product for clinical and commercial purposes, including
for VISTIDE, adefovir dipivoxil, PMPA and GS 4104. Gilead depends on these third
parties to perform their obligations effectively and on a timely basis. If these
third parties fail to perform as required, Gilead's clinical trials or
submission of products for regulatory approval may be delayed. These delays
could impair Gilead's ability to deliver commercial products on a timely basis
and could impair its competitive position.
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GILEAD MAY NOT BE ABLE TO OBTAIN MATERIALS NECESSARY TO MANUFACTURE ITS
PRODUCTS.
Many of the materials Gilead utilizes in its operations are made at only one
facility. A shutdown in any of these facilities due to technical, regulatory or
other problems, resulting in an interruption in supply of these materials, could
have an adverse impact on Gilead's financial results. For example, Gilead has
qualified only one supplier with the FDA for the bulk drug substance used in
VISTIDE and one different supplier for the final drug product. Gilead has also
established a second source of bulk drug substance supply for VISTIDE but has
not yet qualified this source with the FDA and cannot be certain that the FDA
will approve this second source. Because the suppliers of key components and
materials must be named in the New Drug Application filed with the FDA for a
product, significant delays can occur if the qualification of a new supplier is
required. If supplies from Gilead's suppliers were interrupted for any reason,
Gilead could be unable to ship VISTIDE or any of its products in development.
GILEAD HAS LIMITED EXPERIENCE MANUFACTURING PRODUCTS AND COULD BE ADVERSELY
AFFECTED IF IT FAILS TO DEVELOP MANUFACTURING CAPACITY.
For some of Gilead's potential products, Gilead will need to develop further
its production technologies for use on a larger scale in order to conduct
clinical trials and produce such products for commercial sale at an acceptable
cost. Gilead cannot be certain that it will be able to implement any of these
developments successfully.
The manufacturing process for pharmaceutical products is highly regulated,
and regulators may shut down manufacturing facilities that they believe do not
comply with regulations. The FDA's current Good Manufacturing Practices are
extensive regulations governing manufacturing processes, stability testing,
record-keeping and quality standards. Similar, but not identical, regulations
are in effect in other countries.
GILEAD'S BUSINESS MAY GIVE RISE TO PRODUCT LIABILITY CLAIMS NOT COVERED BY
INSURANCE OR INDEMNITY AGREEMENTS.
Testing, manufacturing, marketing and use of VISTIDE and Gilead's products
in development involve substantial risk of product liability claims. These
claims may be made directly by consumers, healthcare providers, pharmaceutical
companies or others. Although Gilead maintains product liability insurance, a
single product liability claim could exceed its coverage limits, and multiple
claims are possible. If that happens, the insurance coverage Gilead has may not
be adequate. A successful product liability claim in excess of Gilead's coverage
could require Gilead to pay substantial amounts. This could adversely affect
Gilead's results of operations. Moreover, the amount and scope of any coverage
may be inadequate to protect Gilead in the event of a successful product
liability claim. In addition, in the future such insurance may not be renewed at
an acceptable cost or at all.
GILEAD'S USE OF HAZARDOUS MATERIAL, CHEMICALS, VIRUSES AND RADIOACTIVE
COMPOUNDS EXPOSES IT TO POTENTIAL LIABILITIES.
Gilead's research and development involves the controlled use of hazardous
materials, chemicals, viruses and various radioactive compounds. Although Gilead
believes that its safety procedures for handling and disposing of such materials
comply with the standards prescribed by state and federal regulations, Gilead
cannot completely eliminate the risk of accidental contamination or injury from
these materials. In the event of such an accident, Gilead could be held liable
for significant damages or fines.
IF GILEAD OR THIRD-PARTY SUPPLIERS AND BUSINESS PARTNERS FAIL TO ADEQUATELY
ADDRESS YEAR 2000 ISSUES, ITS BUSINESS COULD BE ADVERSELY AFFECTED.
Gilead is implementing a Year 2000 project designed to address the issue of
computer software and hardware correctly processing dates through and beyond the
Year 2000. Due to the uncertainty inherent in the Year 2000 problem, however,
there can be no assurance that Year 2000 failures will not have a material
impact on Gilead's operations, financial results or financial condition. In
addition, Gilead cannot predict whether its critical third-party suppliers and
business partners will achieve Year 2000 compliance, or whether the failure of
any third party to do so would have a material effect on Gilead's business.
25
<PAGE>
ITEM 2. PROPERTIES
Gilead's administrative offices and research laboratories are located in
Foster City, California. The Company leases approximately 163,200 square feet of
space in seven adjacent buildings. The leases on this space expire March 31,
2006, and the Company has an option to renew the leases for two additional
five-year periods. The Company believes that it will need to expand its
facilities in the future to support any significant growth in its operations.
Gilead anticipates it will be able to expand its facilities in nearby locations.
There can be no assurance, however, that such space will be available on
favorable terms, if at all.
ITEM 3. LEGAL PROCEEDINGS
In August 1998, the Company was served with a patent infringement lawsuit
filed by Chiron Corporation in the U.S. District Court for the Northern District
of California. In the lawsuit, Chiron alleges that Gilead is conducting
scientific research that infringes Chiron's patents covering the hepatitis C
protein and gene sequences and their use in screening for potential hepatitis C
therapeutics. Gilead has taken the position that its research activities do not
infringe the Chiron patents and believes that the lawsuit will not have a
material impact on Gilead's business, operating results or financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
Not Applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
Gilead common stock is traded on The Nasdaq Stock Market under the symbol
"GILD." The following table sets forth for the periods indicated the high and
low prices per share of the Company's common stock on The Nasdaq Stock Market.
These prices represent quotations among dealers without adjustments for retail
mark-ups, mark-downs or commissions, and may not represent prices of actual
transactions.
<TABLE>
<CAPTION>
1997 CLOSING HIGH CLOSING LOW
- -------------------------------------------------------------------------------------- ------------- -------------
<S> <C> <C>
First Quarter......................................................................... $ 34 1/4 $ 22 7/8
Second Quarter........................................................................ $ 32 1/8 $ 21 5/8
Third Quarter......................................................................... $ 46 1/8 $ 24 1/4
Fourth Quarter........................................................................ $ 44 7/8 $ 32 1/4
1998
- --------------------------------------------------------------------------------------
First Quarter......................................................................... $ 42 $ 35 5/8
Second Quarter........................................................................ $ 43 1/4 $ 31 5/8
Third Quarter......................................................................... $ 30 3/8 $ 18 1/4
Fourth Quarter........................................................................ $ 41 1/16 $ 18 3/4
</TABLE>
As of February 26, 1999, there were approximately 480 stockholders of
record. No dividends have been paid on the common stock since the Company's
inception, and the Company does not anticipate paying any dividends in the
foreseeable future.
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<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
We derived this information from Gilead's audited financial statements for
the year ended March 31, 1995 through the year ended December 31, 1998. This
information is only a summary, and you should read it in conjunction with
Gilead's historical financial statements and related notes and Management's
Discussion and Analysis of Financial Condition and Results of Operations
contained elsewhere herein, and the annual and quarterly reports and other
information on file with the Securities and Exchange Commission. See Items 7 and
8.
GILEAD SCIENCES, INC.
SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED DECEMBER 31, ENDED YEAR ENDED
CONSOLIDATED STATEMENT ---------------------------------- DECEMBER 31, MARCH 31,
OF OPERATIONS DATA: 1998 1997 1996 1995 (1) 1995
---------- ---------- ---------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Revenues:
Product sales, net............................. $ 6,074 $ 11,735 $ 8,477 $ -- $ --
Contract revenue............................... 24,198 27,413 24,910 2,685 4,922
Royalty revenue, net........................... 2,298 889 33 14 --
---------- ---------- ---------- ------------ -----------
Total revenues................................... 32,570 40,037 33,420 2,699 4,922
---------- ---------- ---------- ------------ -----------
Costs and expenses:
Cost of sales.................................. 594 1,167 910 -- --
Research and development....................... 75,298 59,162 41,881 25,670 30,360
Selling, general and administrative............ 31,003 25,472 26,692 9,036 9,669
---------- ---------- ---------- ------------ -----------
Total costs and expenses......................... 106,895 85,801 69,483 34,706 40,029
---------- ---------- ---------- ------------ -----------
Loss from operations............................. (74,325) (45,764) (36,063) (32,007) (35,107)
Interest income, net............................. 18,250 17,771 14,331 4,592 3,833
---------- ---------- ---------- ------------ -----------
Net loss......................................... $ (56,075) $ (27,993) $ (21,732) $ (27,415) $ (31,274)
---------- ---------- ---------- ------------ -----------
---------- ---------- ---------- ------------ -----------
Basic and diluted loss per common share.......... $ (1.85) $ (0.95) $ (0.78) $ (1.29) $ (1.65)
---------- ---------- ---------- ------------ -----------
---------- ---------- ---------- ------------ -----------
Common shares used to calculate basic and diluted
loss per common share.......................... 30,363 29,326 27,786 21,274 18,971
---------- ---------- ---------- ------------ -----------
---------- ---------- ---------- ------------ -----------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------- MARCH 31,
CONSOLIDATED BALANCE SHEET DATA: 1998 1997 1996 1995 (1) 1995
------------ ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Cash, cash equivalents and short-term
investments.................................. $ 279,939 $ 322,298 $ 295,963 $ 155,659 $ 89,146
Working capital................................ 256,560 306,867 284,154 145,539 80,190
Total assets................................... 302,860 352,069 310,673 166,659 102,395
Non-current portion of long-term debt.......... 563 1,331 2,914 3,482 5,454
Accumulated deficit............................ (218,554) (162,479) (134,486) (112,754) (85,339)
Total stockholders' equity (2)................. 270,547 317,347 291,660 151,499 86,056
</TABLE>
- ------------------------
(1) In October 1995, Gilead changed its fiscal year end from March 31 to
December 31, effective with the nine months ended December 31, 1995.
(2) No dividends have been declared or paid on Gilead's common stock.
27
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
OVERVIEW
Since its inception in June 1987, Gilead has devoted the substantial portion
of its resources to its research and development programs. In June 1996, the FDA
granted marketing clearance of VISTIDE for the treatment of CMV retinitis in
patients with AIDS. Since that time, the Company has independently marketed
VISTIDE in the United States with an antiviral specialty sales force and has
entered into a collaboration agreement with Pharmacia & Upjohn to market VISTIDE
in all countries outside the United States.
The Company began to incur significant expenses relating to
commercialization of VISTIDE and other potential product candidates in 1996.
With the exception of the second quarter of 1997 and the third quarter of 1996,
when the Company earned significant one-time fees related to collaborations, the
Company has incurred losses since its inception. Gilead expects to continue to
incur losses for at least an additional year, due primarily to its research and
development programs, including preclinical studies, clinical trials and
manufacturing, as well as marketing and sales efforts in support of VISTIDE and
other potential products.
FORWARD-LOOKING STATEMENTS AND RISK FACTORS
This Report contains forward-looking statements relating to clinical and
regulatory developments, marketing and sales matters, future expense levels,
financial results and Year 2000 matters. These statements involve inherent risks
and uncertainties. The Company's actual financial and operating results may
differ significantly from those discussed in the forward-looking statements.
Factors that might cause such a difference include, but are not limited to, the
risks summarized below and described in more detail under "Risk Factors" on
pages 19 to 24 of this Report. In particular, factors that could result in a
material difference include, but are not limited to, those relating to the
ongoing development and commercialization of the Company's potential
pharmaceutical products and, in the case of Year 2000 matters, the ability to
identify and correct all relevant computer code and the success of remedial
efforts implemented by third-party suppliers and business partners.
The successful development and commercialization of the Company's products
will require substantial and ongoing efforts at the forefront of the life
sciences industry. The Company is pursuing preclinical or clinical development
of a number of product candidates. Even if these product candidates appear
promising during various stages of development, they may not reach the market
for a number of reasons. Such reasons include the possibilities that the
potential products will be found ineffective or unduly toxic during preclinical
or clinical trials, fail to receive necessary regulatory approvals, be difficult
to manufacture on a large scale, be uneconomical to market or be precluded from
commercialization by either proprietary rights or competing products of others.
As a company in an industry undergoing rapid change, the Company faces
significant challenges and risks, including the risks inherent in its research
and development programs, uncertainties in obtaining and enforcing patents, the
lengthy, expensive and uncertain regulatory approval process, intense
competition from pharmaceutical and biotechnology companies, increasing pressure
on pharmaceutical pricing from payors, patients and government agencies and
uncertainties associated with the market acceptance of and size of the market
for VISTIDE or any of the Company's products in development.
The Company expects that its financial results will continue to fluctuate
from quarter to quarter and that such fluctuations may be substantial. There can
be no assurance that the Company will successfully develop, commercialize,
manufacture and market additional products, nor can there be assurance that the
Company will either achieve or sustain profitability. As of December 31, 1998,
the Company's accumulated deficit was approximately $218.6 million.
28
<PAGE>
As a result of the proposed acquisition of NeXstar described below, Gilead's
business will be subject to additional risks related to NeXstar's business.
Stockholders and potential investors in the Company should carefully consider
these risks in evaluating the Company and should be aware that the realization
of any of these risks could have a dramatic and negative impact on the Company's
operating results, financial condition and stock price. In addition, the
forward-looking statements included in this Report relate to Gilead as a
stand-alone business, and do not take into account the potential impact of the
proposed acquisition of NeXstar.
RESULTS OF OPERATIONS
REVENUES
The Company had total revenues of $32.6 million, $40.0 million and $33.4
million for the years ended December 31, 1998, 1997 and 1996, respectively.
Total revenues include revenues from net product sales, contracts, including
research and development ("R&D") collaborations, and net royalties.
Net product sales revenue was $6.1 million, $11.7 million, and $8.5 million
for 1998, 1997, and 1996, respectively. All of the Company's product sales
revenue relates to VISTIDE, which the Company began to sell in mid-1996. As
expected, VISTIDE sales declined in 1998, primarily due to a decline in the
incidence of CMV retinitis as a result of more effective HIV therapies. The 38%
increase in net product sales revenue in 1997 as compared to 1996 is due to the
fact that 1997 results represent a full year of sales, while 1996 revenue
reflects approximately six months of sales. The Company anticipates that VISTIDE
product sales revenue will be comparable to 1998 levels or will decline further
in 1999 and later years as HIV therapy continues to improve.
Net royalty revenue was $2.3 million in 1998 and $0.9 million in 1997, and
was derived from two sources. During 1998 and 1997, respectively, the Company
earned $1.7 million and $0.7 million of net royalties from Pharmacia & Upjohn on
sales of VISTIDE outside of the United States. This amount increased primarily
because the number of countries in which Pharmacia & Upjohn sells the product
expanded in 1998 as compared to 1997. The Company expects that royalties from
Pharmacia & Upjohn's sales of VISTIDE will continue to increase during 1999 as a
result of recognizing a full year of sales in a greater number of countries. The
Company also reported $0.6 million and $0.2 million in 1998 and 1997,
respectively, of royalty revenue from Roche Labs for co-promoting Roferon in the
United States for the treatment of chronic hepatitis C virus infection. This
co-promotion agreement with Roche Labs concluded at the end of 1998. While the
Company expects to receive transition payments under this agreement in 1999,
such amounts are not expected to be significant. Royalty revenue is recognized
as income when received, which is generally in the quarter following that in
which the corresponding sales occur. The Company did not earn significant
royalty revenue before 1997.
Contract revenue was $24.2 million, $27.4 million and $24.9 million in 1998,
1997, and 1996, respectively. The most significant source of contract revenue in
each of these three years relates to the development of GS 4104 under an R&D
collaboration agreement between the Company and Roche. GS 4104 is an orally
administered compound to treat and prevent viral influenza in humans. During
1998, 1997 and 1996, the Company recorded approximately $16.4 million, $14.2
million and $11.4 million, respectively, of contract revenue under this
agreement with Roche. The $16.4 million recorded during 1998 represents
reimbursed R&D expenses and includes $5.2 million attributable to R&D expenses
incurred in the fourth quarter of 1997, which were subject to Roche's approval
as of December 31, 1997. Such expenses were approved for reimbursement and
recognized as revenue in 1998. During 1997 and 1996, the Company recognized as
contract revenue R&D reimbursements of $8.2 million and $1.1 million,
respectively. Also during 1997 and 1996, the Company recognized milestone
payments of $6.0 million and a license fee of $10.3 million, respectively.
Gilead is entitled to additional milestone payments of up to $34.0 million upon
achieving certain developmental and regulatory milestones. R&D reimbursements
under the Roche agreement are expected to be significantly lower in 1999 as
compared both to 1998 and 1997. The reimbursements will approximate actual
related R&D costs the Company incurs.
29
<PAGE>
Contract revenue for each year in the three-year period ended December 31,
1998 also includes reimbursement of research expenses under the Company's
collaborative R&D agreement with Glaxo related to the Company's antisense
program ($1.8 million in 1998 and $3.0 million in both 1997 and 1996). In June
1998, the agreement and the funding for the program were terminated, resulting
in reduced revenue in 1998 as compared to 1997 and 1996.
In 1998, Gilead and Isis entered into an agreement under which Gilead sold
Isis the holdings of its antisense patent estate, including patents and patent
applications covering antisense chemistry and antisense drug delivery systems.
Under the terms of the agreement, Isis is required to pay Gilead a total of $6.0
million in four installments. The first $2.0 million was paid in December 1998,
and the remaining $4.0 million is payable in three additional payments (one
payment per year in 1999, 2000 and 2001). The total sale price of $6.0 million
is included in contract revenue in 1998.
During 1997, Gilead recognized a $10.0 million milestone payment under its
collaborative agreement with Pharmacia & Upjohn following the marketing
authorization for VISTIDE in the European Union, which is the only milestone
payment provided for under that agreement. The Company also recognized as
revenue a $10.0 million license fee from Pharmacia & Upjohn in 1996, the year
the agreement went into effect.
COSTS AND EXPENSES
Cost of product sales was $0.6 million, $1.2 million and $0.9 million for
the years ended December 31, 1998, 1997 and 1996, respectively, and resulted
from sales of VISTIDE. The Company's declining cost of sales corresponds to the
decrease in net product sales.
The Company's R&D expenses were $75.3 million for the year ended December
31, 1998, compared to $59.2 million for the year ended December 31, 1997. This
27% increase is primarily attributable to costs associated with the ongoing
series of PREVEON Phase III clinical trials, as well as the expanded access
program for patients with HIV infection, which commenced in the fourth quarter
of 1997. PREVEON is an investigational reverse transcriptase inhibitor currently
being studied to treat HIV. Increased R&D expenses also reflect costs associated
with an additional product candidate that is advancing into later stage clinical
trials (adefovir dipivoxil for the treatment of chronic hepatitis B infection).
R&D expenses of $41.9 million in 1996 increased by 41% in 1997. The increase in
1997 as compared to 1996 is primarily attributable to costs associated with GS
4104 clinical trials, as well as PREVEON clinical trials and the commencement of
the expanded access program for patients with HIV. The Company expects its R&D
expenses to continue to increase significantly in 1999 over 1998 amounts,
reflecting anticipated increased expenses related to clinical trials for several
product candidates as well as related increases in staffing and manufacturing.
Selling, general and administrative ("SG&A") expenses were $31.0 million in
1998 compared to $25.5 million in 1997, an increase of 22%. This increase
represents costs incurred to expand sales, marketing and operational capacity in
anticipation of the potential commercial launch of PREVEON and to support a
greater level of R&D activities. SG&A expenses were $26.7 million during 1996,
which is 5% greater than SG&A expense levels in 1997. The Company launched its
first product, VISTIDE, in June 1996, and the level of expenses in that year is
largely attributable to costs incurred to establish the Company's United States
marketing and sales capabilities. As expected, these expenses were somewhat
lower in 1997. The Company's selling, general and administrative expenses are
expected to increase substantially during 1999, as Gilead continues to expand
its sales and marketing capacity and increase support activities for its R&D
efforts.
NET INTEREST INCOME
The Company had net interest income of $18.3 million, $17.8 million and
$14.3 million in 1998, 1997 and 1996, respectively. The increased level of net
interest income in 1998 as compared to 1997 is primarily due to increased
returns on the investment portfolio in 1998. Net interest income in 1997
exceeded the
30
<PAGE>
1996 amount mainly due to the full-year benefit in 1997 of the investment of the
proceeds from the Company's public offering of common stock in 1996 and a $40.0
million equity investment by Pharmacia & Upjohn in 1997. The Company expects net
interest income to decline substantially in 1999 due to increased spending
levels and the corresponding decreasing balances of invested cash.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents and short-term investments totaled $279.9 million
at December 31, 1998, compared to $322.3 million at December 31, 1997. This
$42.4 million decrease is primarily due to the net use of cash to fund
operations of $46.7 million, partially offset by proceeds of $9.0 million from
the issuance of common stock under the Company's stock purchase plan and from
the exercise of stock options. Significant changes in working capital during
1998 include a decrease in other current assets of $9.6 million. The decrease
results from the payment in full during 1998 of reimburseable R&D expenses and a
milestone payment totaling approximately $12.4 million due from Roche, partially
offset by an increase in inventory of $3.0 million as well as a $1.0 million
receivable from Isis at December 31, 1998 in connection with the sale of the
Company's antisense patent estate. The balance of the amount due from Isis, $3.0
million, is reported as a noncurrent receivable in other assets at December 31,
1998 and comprises substantially all of the $2.9 million increase in that
balance as compared to the end of the prior year. The balance of other accrued
liabilities is $12.4 million and $5.7 million at December 31, 1998 and 1997,
respectively. Of this $6.7 million increase, $5.0 million represents an accrued
liability to Roche, which represents Roche's 1998 R&D funding in excess of the
Company's related R&D spending. The Company's deferred revenue is $3.3 million
and $9.5 million at December 31, 1998 and 1997, respectively. At December 31,
1997, deferred revenue includes $7.2 million from Roche, representing its
advance reimbursement of budgeted R&D costs for the first quarter of 1998. The
December 31, 1998 balance did not include a comparable amount because the 1999
budget was not approved at that date.
At December 31, 1996, cash and cash equivalents and short-term investments
were $296.0 million. The $26.3 million increase at December 31, 1997 as compared
to the prior year is primarily attributable to a $40.0 million preferred stock
investment from Pharmacia & Upjohn and proceeds of $13.2 million from the
issuance of common stock under the Company's stock purchase plan and from the
exercise of stock options, partially offset by $19.9 million of net cash used in
operations. Significant changes in working capital during 1997 include a $13.7
million increase in other current assets, of which $12.4 million represents
reimbursable R&D expenses and a milestone payment due from Roche. Accrued
clinical and preclinical expenses increased by $8.0 million as a result of a
having a larger number of products in later stage clinical trials. Also, the
Company's deferred revenue increased by $9.0 million during 1997 as a result of
increased deferred revenues from Pharmacia & Upjohn and Roche. In October 1996,
the Company entered into a $3.0 million term loan to finance its facilities
expansion, which began in the fourth quarter of 1996.
During 1999, the Company expects that its balances of cash and cash
equivalents and short-term investments will continue to decline substantially as
R&D, SG&A and capital equipment spending levels increase.
The Company believes that its existing capital resources, supplemented by
net product sales, contract revenue and net royalty revenue, will be adequate to
satisfy its capital needs for the foreseeable future. As of December 31, 1998,
Gilead was entitled to cash payments of up to $34.0 million from Roche upon
achieving specific developmental and regulatory milestones, although there can
be no assurance that the milestones will be met. The Company's future capital
requirements will depend on many factors, including the progress of the
Company's R&D efforts, the scope and results of preclinical studies and clinical
trials, the cost, timing and outcomes of regulatory reviews, the rate of
technological advances, determinations as to the commercial potential of the
Company's products under development, the commercial performance of VISTIDE and
any of the Company's products in development that receive marketing approval,
levels of administrative and legal expenses, the status of competitive products,
the establishment of manufacturing
31
<PAGE>
capacity or third-party manufacturing arrangements, the expansion of sales and
marketing capabilities, possible geographic expansion and the establishment of
additional collaborative relationships with other companies.
The Company had federal net operating loss and federal research and
development tax credit carryforwards of approximately $223.0 million and $7.9
million, respectively, at December 31, 1998. Utilization of the net operating
losses and credit carryforwards may be subject to a substantial annual
limitation due to the ownership change limitations provided by the Internal
Revenue Code of 1986. The acquisition of NeXstar is not expected to have a
material impact on the ability to utilize these tax loss and credit
carryforwards.
The Company may in the future require additional funding, which could be in
the form of proceeds from equity or debt financings or additional collaborative
agreements with corporate partners. If such funding is required, there can be no
assurance that it will be available on favorable terms, if at all.
IMPACT OF YEAR 2000
The Company is implementing a Year 2000 project to address the issue of
computer software and hardware correctly processing dates through and beyond the
Year 2000. The goal of this project is to ensure that all computer software and
hardware that the Company uses or relies upon is retired, replaced or made Year
2000 compliant before December 31, 1999.
There are three primary aspects to the Company's Year 2000 project:
computers and other equipment, information systems software and third-party
suppliers and business partners. Gilead is addressing each of these areas on a
phased basis, as follows: 1) educating the internal user community at Gilead; 2)
conducting an inventory of all software and hardware; 3) evaluating all software
and hardware for Year 2000 compliance; 4) implementing modifications, retirement
or replacement of software or hardware, prioritized based on an analysis of
importance to Gilead's business; 5) testing and validating all modified or
replaced software and hardware; and 6) designing and implementing contingency
and business continuation plans for critical systems.
To date, Gilead has completed the education and inventory phases of the
project, and estimates that 80% of software and hardware has completed the
evaluation phase. Implementation of modifications or replacements and testing
and validation are on schedule, and the Company anticipates that, for business-
critical systems, all of these activities will be complete by the end of 1999.
The Company has prioritized the implementation phase to first address
software or hardware that affects product manufacturing, quality control and
safety, employee safety, revenues or cash reserves. Two systems that have been
identified as critical to Gilead's operations are software programs from JD
Edwards, Inc. ("JDE") and Beckman-Coulter, Inc. ("Beckman"). The JDE system is
an enterprise-wide program that tracks financial information, processes sales
orders and monitors purchasing and manufacturing activities. During 1998, the
Company upgraded the JDE system to a Year 2000 compliant version, which is
presently operational. The Beckman system monitors and records laboratory data.
The Beckman system upgrades are approximately 80% complete and are scheduled to
be finished during the second quarter of 1999.
To date, the Company has initiated evaluations of more than 90% of its
critical third-party suppliers and business partners. The Company anticipates
completing these evaluations by the second quarter of 1999, on a prioritized
basis. Responses to Gilead's inquiries regarding Year 2000 compliance in many
cases have been general and nonbinding. To date, substantially all respondents
indicate that their Year 2000 compliance efforts are progressing on schedule,
and that their computer systems either are or will be Year 2000-compliant at the
appropriate time. A significant majority of these respondents are presently in
the final testing phase of their Year 2000 compliance projects, and many of them
indicate that they are concurrently developing contingency plans.
32
<PAGE>
Among the most critical third parties the Company relies on are the
financial institutions that manage Gilead's cash and investments of
approximately $280 million, the Company's stock transfer agent, contract
manufacturers, contract research and laboratory organizations and the FDA. The
Company intends to continue monitoring and evaluating these third parties to the
extent practical through the end of 1999.
Gilead anticipates that the total cost of its Year 2000 compliance efforts
will not be material to its financial condition or results of operations. The
current estimate for external costs of total compliance efforts is approximately
$2.1 million, of which $1.1 million has been incurred to date. Of the amount
incurred to date, $0.8 million has been expensed and the remainder has been
capitalized. The $1.0 million of remaining costs includes $0.8 million of
capitalizable costs, primarily computer hardware and software, and $0.2 million
of costs to be charged to expense, primarily consulting fees. These external
costs are included in Gilead's operating budget for 1999. However, this estimate
does not include any costs to Gilead that may be associated with the failure of
any third-party supplier or business partner to achieve Year 2000 compliance.
The Company is also developing a series of contingency plans for certain of
its critical applications. These plans involve, among other actions, manual
solutions, increased inventories and modified staffing strategies. These
contingency plans are expected to be finalized and ready for implementation, if
necessary, before the end of 1999.
The Company's Year 2000 project is designed to significantly reduce
uncertainty and risk arising from the Year 2000 problem. The Company believes
that the implementation actions described above reduce the potential for
disruption of operations or significant financial impact. Due to the uncertainty
inherent in the Year 2000 problem, however, there can be no assurance that Year
2000 failures will not occur. Should such a Year 2000 failure occur with any of
Gilead's business critical operating systems, appropriate contingency plans have
been established which the Company believes would result in only a temporary
disruption in its ability to sell and distribute products. The Company does not
believe that any such disruption would have a material impact on its financial
condition or results of operations.
The Company cannot predict with any certainty whether its critical
third-party suppliers and business partners will achieve Year 2000 compliance,
or whether the failure of any such third party to do so would have a material
effect on the Company's business. However, the Company has established
contingency plans for maintaining operations with all its critical third-party
suppliers and business partners to minimize any disruption in its day-to-day
business operations.
MARKET RISK
The Company's non-trading portfolio of investments creates an exposure to
interest rate risk. By policy, the Company limits amounts invested in securities
by maturity, industry group, investment type and issuer, except for securities
issued by the U.S. government. The goals of the Company's investment policy, in
order of priority, are as follows:
1. Safety and preservation of principal and diversification of risk.
2. Liquidity of investments sufficient to meet cash flow requirements.
3. Competitive after-tax rate of return.
33
<PAGE>
Changes in interest rate levels affect the fair value of these financial
instruments. A sensitivity analysis to measure potential losses in the fair
value of Gilead's short-term investment portfolio arising from a change in
interest rates indicates that a one percentage point increase in interest rates
would have decreased the fair value of the short-term investment portfolio by
approximately $2.7 million at December 31, 1998. A one percentage point decrease
in interest rates at December 31, 1998 would have increased the fair value of
the short-term investment portfolio by $2.7 million. These amounts were
determined by calculating the weighted average effects of duration and convexity
on the estimated overall portfolio return given the specified changes in
interest rates. The adjusted portfolio returns were then multiplied by the fair
value of the portfolio to derive the change in portfolio value that would result
in each 100 basis point interest rate change scenario. The model assumes there
are no changes in credit risk spreads.
All of Gilead's revenue is invoiced in U.S. dollars. The Company has no
active foreign subsidiaries. Gilead's exposure to foreign currency exchange rate
fluctuations arises from certain purchases denominated in foreign currencies.
The Company periodically enters into foreign exchange forward contracts with
financial institutions in accordance with its foreign exchange risk management
policy to hedge the currency exchange risk associated with certain firmly
committed purchase transactions. In general, these contracts mature within three
months or less and do not expose the Company to market risk because gains and
losses on the contracts offset gains and losses on the transactions being
hedged. At December 31, 1998, the Company's outstanding forward foreign exchange
contracts, their fair values and the unhedged exposure were immaterial. Due to
the Company's hedging activities, the Company's potential loss of earnings from
a change in foreign exchange rates is minimal. The effect of foreign exchange
rate fluctuations on Gilead in the year ended December 31, 1998 was not
material.
PROPOSED MERGER AGREEMENT
On March 1, 1999, Gilead and NeXstar announced a definitive merger agreement
providing for the acquisition by Gilead of all the outstanding common stock of
NeXstar. The merger is structured as a tax-free, stock-for-stock transaction.
The Company intends to account for this merger under the pooling-of-interests
method. NeXstar, headquartered in Boulder, Colorado, is engaged in the
discovery, development, manufacture and commercialization of products to treat
serious and life-threatening illnesses. In addition to its Boulder headquarters,
NeXstar maintains research, development and manufacturing facilities in San
Dimas, California, and marketing subsidiaries worldwide. Under the terms of the
merger agreement, NeXstar stockholders will receive between 0.3786 and 0.5000 of
a share of Gilead common stock for each share of NeXstar common stock. The exact
exchange ratio will be determined based on the trading range of Gilead common
stock over a specified period prior to completion of the merger. The merger is
subject to certain conditions, including approval of the stockholders of Gilead
and NeXstar. The transaction is expected to be completed in mid-1999.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements required by this item are set forth beginning at
page 44 of this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING FINANCIAL
DISCLOSURE
Not applicable.
34
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
IDENTIFICATION OF DIRECTORS AND EXECUTIVE OFFICERS
DIRECTORS
The names of the directors in alphabetical order, and certain information
about them as of March 18, 1999, are set forth below:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH GILEAD/PRINCIPAL OCCUPATION
- ------------------------------------- --- ---------------------------------------------------------------------
<S> <C> <C>
Paul Berg(1)......................... 72 Cahill Professor, Department of Biochemistry, Stanford University
School of Medicine
Etienne F. Davignon.................. 66 Chairman, Societe Generale de Belgique
James M. Denny, Sr.(1)(2)............ 66 Managing Director, William Blair Capital Partners V
John C. Martin....................... 47 President and Chief Executive Officer
Gordon E. Moore(1)(2)................ 70 Chairman Emeritus, Intel Corporation
Donald H. Rumsfeld................... 66 Chairman of the Gilead Board of Directors
George P. Shultz(2).................. 78 Distinguished Fellow, Hoover Institution, Stanford University
</TABLE>
- ------------------------
(1) Member of the compensation committee
(2) Member of the audit committee
Dr. Berg joined the Gilead board of directors in April 1998. Dr. Berg is
currently Cahill Professor in Cancer Research in the Department of Biochemistry
at Stanford University School of Medicine, where he has been on the faculty
since 1959. He has served as Director of the Stanford University Beckman Center
for Molecular and Genetic Medicine since its founding in 1985. Dr. Berg is a
director of Affymetrix, Inc. and Transgene, Inc. He is the founder and a
scientific advisor to Schering-Plough's DNAX Research Institute. Dr. Berg also
serves as a member of Gilead's Scientific Advisory Board. Dr. Berg received the
Nobel Prize for Chemistry in 1980.
Mr. Davignon joined the Gilead board of directors in September 1990. He has
served as the Chairman of Societe Generale de Belgique, a diversified financial
and industrial company, since 1985. Mr. Davignon served as the European
Community's Commissioner for Industry and International Markets from 1977 to
1981, and as the EC's Vice President for Research, Industry and Energy Policies
from 1981 to 1984. Mr. Davignon is a director of Fiat S.A., Compagnie de Suez,
Minorco S.A. and a number of other European companies.
Mr. Denny joined the Gilead board of directors in January 1996. Mr. Denny is
a Managing Director of William Blair Capital Partners V and VI, private equity
funds. Mr. Denny is a retired Vice Chairman of Sears, Roebuck & Co. As Vice
Chairman, he had responsibility for Allstate Insurance Corporation, Coldwell
Banker Real Estate Group and the corporate financial organization. Previously,
he served as Executive Vice President and Chief Financial and Planning Officer
of G.D. Searle & Co., as well as Chairman of Pearle Health Services, Inc., a
Searle-affiliated company. He is a director of Allstate Corporation, Astra A.B.,
GATX Corporation and ChoicePoint, Inc. and is a Chairman of Northwestern
Memorial Hospital.
Dr. Martin is Gilead's President and Chief Executive Officer. Dr. Martin
joined Gilead in October 1990 as Vice President for Research and Development,
was appointed Chief Operating Officer in October 1995, and was appointed
President and Chief Executive Officer and elected to the Gilead board of
directors in April 1996. From 1984 to 1990 he was employed at Bristol-Myers
Squibb, a pharmaceutical company, where he was Director of Antiviral Chemistry.
Dr. Martin was employed at Syntex Corporation,
35
<PAGE>
a pharmaceutical company, from 1978 to 1984. Dr. Martin is the co-inventor of
ganciclovir, a pharmaceutical now used for treatment of cytomegalovirus
infection. He is currently the President of the International Society for
Antiviral Research. Dr. Martin received his Ph.D. in organic chemistry from the
University of Chicago.
Dr. Moore joined the Gilead board of directors in January 1996, and served
as a member of Gilead's Business Advisory Board from July 1991 until January
1996. Dr. Moore is a co-founder and Chairman Emeritus of Intel Corporation,
where he previously served as Chairman, President and Chief Executive Officer.
He also served as Director of Research and Development for the Fairchild
Semiconductor Division of Fairchild Camera and Instrument Corporation. Dr. Moore
is a director of Transamerica Corporation and is Chairman of the Board of
Trustees at the California Institute of Technology. He received the National
Medal of Technology in 1990.
Mr. Rumsfeld joined the Gilead board of directors in July 1988 and was
elected Chairman of the Board in January 1997. Mr. Rumsfeld has been in private
business since August 1993. He served as the Chairman and Chief Executive
Officer of General Instrument Corporation, a diversified electronics company,
from 1990 to 1993, and was Chief Executive Officer of G.D. Searle & Co., a
pharmaceutical company, from 1977 to 1985. Mr. Rumsfeld formerly served as
Presidential Envoy to the Middle East, U.S. Secretary of Defense, White House
Chief of Staff, U.S. Ambassador to NATO and a U.S. Congressman. Mr. Rumsfeld is
a director of ABB AB, Gulfstream Aerospace Corp., RAND Corporation and Tribune
Company. In 1977, Mr. Rumsfeld was awarded the Medal of Freedom, the nation's
highest civilian award.
Dr. Shultz joined the Gilead board of directors in January 1996. Dr. Shultz
currently serves as Distinguished Fellow at the Hoover Institution and as a
director of the Bechtel Group, Inc., AirTouch Communications and Gulfstream
Aerospace Corporation. Dr. Shultz served as U.S. Secretary of State from 1982 to
1989 and earlier served as Secretary of Labor, Director of the Office of
Management and Budget and Secretary of the Treasury. Previously, he served as
Dean of the Graduate School of Business at the University of Chicago and as
President of the Bechtel Group, Inc. In 1989, Dr. Shultz was awarded the Medal
of Freedom, the nation's highest civilian honor.
EXECUTIVE OFFICERS
The names of Gilead's executive officers who are not also directors of
Gilead and certain information about each of them are set forth below:
Jeffrey W. Bird, age 38, is Gilead's Senior Vice President, Business
Operations. Dr. Bird joined Gilead in September 1988 and worked as Director of
Scientific Programs and Research Scientist until March 1990. After completing
his medical degree, he returned to Gilead in December 1991 as Director of
Corporate Development, became Vice President of Corporate Development in March
1995 and was appointed Senior Vice President, Business Operations in January
1998, at which time he became an executive officer. Dr. Bird received his M.D.
and Ph.D. degrees at Stanford University Medical School.
Norbert W. Bischofberger, age 43, is Gilead's Senior Vice President,
Research. Dr. Bischofberger joined Gilead in 1990 as Director of Organic
Chemistry, became Vice President of Organic Chemistry in March 1993 and was
named Vice President of Research in August 1995. Dr. Bischofberger was appointed
Senior Vice President, Research in January 1998, at which time he became an
executive officer. Prior to joining Gilead, Dr. Bischofberger worked in research
at Genentech, Inc. from 1986 to 1990, most recently as Manager of DNA Synthesis.
He received his B.S. in chemistry at the University of Innsbruck in Austria, and
his Ph.D. in Organic Chemistry at the Eidgennossische Technische Hochschule
(ETH) in Zurich, Switzerland.
Howard S. Jaffe, age 41, is Gilead's Senior Vice President, Drug
Development. Dr. Jaffe joined Gilead in December 1991 as Vice President,
Clinical Affairs, became Vice President and Chief Medical Officer in March 1995
and became Senior Vice President, Drug Development in August 1996. Dr. Jaffe is
36
<PAGE>
an assistant clinical professor and attending physician at the University of
California, San Francisco. From 1986 until joining Gilead, he was employed by
Genentech, Inc., most recently as Director of Clinical Research and Cytokine
Project Team Leader. Dr. Jaffe received his M.D. from the Yale University School
of Medicine and performed his residency and fellowship training at the
University of California, San Francisco.
Mark L. Perry, age 43, is Gilead's Senior Vice President, Chief Financial
Officer and General Counsel. Mr. Perry joined Gilead in July 1994 as its Vice
President and General Counsel and became Chief Financial Officer in May 1996.
Mr. Perry was appointed Senior Vice President, Chief Financial Officer and
General Counsel in January 1998. He has also served as Corporate Secretary since
May 1994. From 1981 to 1994, Mr. Perry was with Cooley Godward LLP in San
Francisco and Palo Alto, California. Cooley Godward serves as Gilead's primary
outside counsel. Mr. Perry was an associate with Cooley Godward from 1981 to
1987, and a partner from 1987 to 1994. Mr. Perry received his J.D. from the
University of California, Davis and is a member of the California bar.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires Gilead's
directors and executive officers, and persons who own more than ten percent of a
registered class of Gilead's equity securities, to file with the SEC initial
reports of ownership and reports of changes in ownership of common stock and
other equity securities of Gilead. Executive officers, directors and greater
than ten percent stockholders are required by SEC regulation to furnish Gilead
with copies of all Section 16(a) forms they file.
To Gilead's knowledge, based solely on a review of the copies of such
reports furnished to Gilead and written representations that no other reports
were required, during 1998, all Section 16(a) filing requirements applicable to
its executive officers, directors and greater than ten percent beneficial owners
were met.
ITEM 11. EXECUTIVE COMPENSATION
COMPENSATION OF DIRECTORS
Each non-employee director of Gilead receives a fee of $1,000 for each
meeting attended. In the year ended December 31, 1998, the total compensation
paid to current non-employee directors was $19,000. The members of the Gilead
board of directors are also eligible for reimbursement for their expenses
incurred in connection with attendance at Gilead board of directors meetings in
accordance with Gilead's policy.
Each non-employee director of Gilead also receives stock option grants under
the Directors' Option Plan. The Directors' Option Plan provides for
non-discretionary grants of nonstatutory stock options to non-employee directors
of Gilead, on an automatic basis pursuant to a pre-approved schedule. Options
granted under the Directors' Option Plan are at prices not less than fair market
value on the date of grant, become exercisable over a period of five years in
equal quarterly installments at the rate of 5% per quarter and expire after ten
years. Such vesting is conditioned upon continuous service as a non-employee
director of or consultant to Gilead. The exercise price of options granted must
be paid in cash or shares of common stock of Gilead at the time the option is
exercised.
Each non-employee director was granted as of January 2, 1996, or will be
granted on the date he or she is first elected to be a non-employee director, an
option to purchase 25,000 shares of Gilead common stock, the initial grant.
Thereafter, on each anniversary date of a non-employee director's initial grant,
such non-employee director shall automatically be granted an option to purchase
5,000 shares of Gilead common stock, the annual grant. A non-employee director
who is also the Chairperson of the Gilead board of directors shall be granted an
option to purchase an additional 20,000 shares of Gilead common stock at the
time of his or her initial grant or later election as Chairperson, and an
additional 4,000 shares
37
<PAGE>
of Gilead common stock at the time of his or her annual grant. Each non-employee
director who also serves on a standing committee of the Gilead board of
directors shall automatically be granted an option to purchase an additional
1,000 shares of Gilead common stock at the time of his or her initial grant, and
an additional 1,000 shares of Gilead common stock at the time of his or her
annual grant, for each such committee. Each non-employee director who serves on
a standing committee and who is also the Chairperson of that committee shall
automatically be granted an option to purchase an additional 2,000 shares of
Gilead common stock at the time of his or her annual grant. No other options may
be granted under the Directors' Option Plan.
During 1998, Gilead granted options covering 66,000 shares (net of
cancellations) to its current non-employee directors, at exercise prices ranging
from $25.00 to $38.25 per share. Each option granted had an exercise price equal
to fair market value on the date of grant.
As of February 26, 1999, options to purchase a total of 305,000 shares of
Gilead common stock were outstanding under the Directors' Option Plan.
COMPENSATION OF EXECUTIVE OFFICERS
SUMMARY OF COMPENSATION
The following table shows, for the years ended December 31, 1998, 1997, and
1996, certain compensation awarded or paid to, or earned by, Gilead's Chief
Executive Officer and its four other most highly compensated executive officers
at December 31, 1998 (the "named executive officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
ANNUAL COMPENSATION ---------------
FISCAL YEAR ------------------------ SECURITIES
ENDED SALARY UNDERLYING
NAME AND PRINCIPAL POSITION DECEMBER 31, ($)(1) BONUS ($) OPTIONS (#)(2)
- ----------------------------------------------------- ---------------- ------------ ---------- ---------------
<S> <C> <C> <C> <C>
John C. Martin....................................... 1998 $ 354,375 $ 150,000 65,000
President and Chief Executive 1997 $ 326,667 $ 150,000 75,000
Officer 1996 $ 298,333 $ 110,000 75,000
Jeffrey W. Bird...................................... 1998 $ 222,750 $ 100,000 65,000
Senior Vice President, 1997 $ 187,917 $ 100,000 40,000
Business Operations 1996 $ 150,417 $ 30,000 20,000
Norbert W. Bischofberger............................. 1998 $ 222,752 $ 115,000 55,000
Senior Vice President, 1997 $ 199,583 $ 75,000 40,000
Research 1996 $ 179,167 $ 50,000 30,000
Howard S. Jaffe...................................... 1998 $ 278,461 $ 100,000 35,000
Senior Vice President, 1997 $ 269,167 $ 100,000 40,000
Drug Development 1996 $ 250,417 $ 100,000 65,000
Mark L. Perry........................................ 1998 $ 253,125 $ 100,000 35,000
Senior Vice President, 1997 $ 244,458 $ 75,000 40,000
Chief Financial Officer and 1996 $ 238,000 $ 60,000 20,000
General Counsel
</TABLE>
- ------------------------
(1) Includes amounts earned but deferred at the election of the named executive
officer pursuant to Gilead's 401(k) employee savings and retirement plan. To
date, Gilead has not made any matching contributions under such plan.
38
<PAGE>
(2) Gilead has not granted any stock appreciation rights, has not made any
long-term incentive plan awards and did not make any restricted stock grants
to the named executive officers during the periods covered.
STOCK OPTION GRANTS AND EXERCISES
As of February 26, 1999, options to purchase a total of 3,921,698 shares of
common stock had been granted and remained outstanding under the 1991 Stock
Option Plan, and options to purchase 842,530 shares of common stock remained
available for grant thereunder. In addition, as of such date, options to
purchase a total of 190,351 shares of common stock were outstanding under
Gilead's 1987 Incentive Stock Option Plan and 1987 Supplemental Stock Option
Plan and pursuant to certain option grants made outside of Gilead's option
plans.
Gilead grants both incentive stock options and nonstatutory stock options to
its executive officers under the 1991 Stock Option Plan. The following tables
show, for the year ended December 31, 1998, the last fiscal year, certain
information regarding options granted to, exercised by, and held at year end by
the named executive officers:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
------------------------------------------------- VALUE AT ASSUMED ANNUAL
NUMBER OF RATES OF STOCK PRICE
SECURITIES % OF TOTAL OPTIONS EXERCISE OR APPRECIATION FOR OPTION
UNDERLYING GRANTED TO BASE TERM(3)
OPTIONS GRANTED EMPLOYEES IN FISCAL PRICE EXPIRATION ------------------------
NAME (#)(1) YEAR(2) ($/SH.) DATE 5% ($) 10% ($)
- ---------------------------------- --------------- ------------------- ----------- ----------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
John C. Martin.................... 65,000 6.12% $ 22.875 07/22/08 $ 935,096 $ 2,369,633
Jeffrey W. Bird................... 30,000 2.82% $ 38.000 01/21/08 $ 716,946 $ 1,816,818
35,000 3.29% $ 22.875 07/22/08 $ 503,513 $ 1,275,956
Norbert W. Bischofberger.......... 20,000 1.88% $ 38.000 01/21/08 $ 477,964 $ 1,211,212
35,000 3.29% $ 22.875 07/22/08 $ 503,513 $ 1,275,956
Howard S. Jaffe................... 35,000 3.29% $ 22.875 07/22/08 $ 503,513 $ 1,275,956
Mark L. Perry..................... 35,000 3.29% $ 22.875 07/22/08 $ 503,513 $ 1,275,956
</TABLE>
- ------------------------
(1) The terms of such options, which include both incentive and nonstatutory
stock options, are consistent with those of options granted to other
employees under Gilead's 1991 Stock Option Plan. The options vest at the
rate of 20% after one year and 5% per quarter thereafter during the
optionee's employment. Subject to certain exceptions, the maximum term of
options granted under the 1991 Stock Option Plan is ten years.
(2) Based on options to purchase 1,062,400 shares of Gilead common stock granted
to employees, including executive officers, for the year ended December 31,
1998.
(3) The potential realizable value is based on the term of the option at the
date of the grant (10 years). It is calculated by assuming that the stock
price on the date of grant appreciates at the indicated annual rate,
compounded annually for the entire term, and that the option is exercised
and sold on the last day of the option term for the appreciated stock price.
Actual gains, if any, are dependent on the actual future performance of
Gilead common stock and the timing of exercise and sale transactions by the
holder. There can be no assurance that the amounts reflected in this table,
or that any gains, will be achieved.
39
<PAGE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
SHARES VALUE OPTIONS AT 12/31/98 (#) AT 12/31/98 ($)
ACQUIRED ON REALIZED -------------------------- --------------------------
NAME EXERCISE (#) ($)(1) EXERCISABLE/UNEXERCISABLE(2) EXERCISABLE/UNEXERCISABLE(3)
- ------------------------------------ ------------- ---------- -------------------------- --------------------------
<S> <C> <C> <C> <C>
John C. Martin...................... 25,165 $ 540,196 288,325/208,000 $ 7,509,989/$3,378,875
Jeffery W. Bird..................... 15,832 $ 587,141 59,097/120,600 $ 1,631,730/$1,815,612
Norbert W. Bischofberger............ 2,000 $ 44,500 91,599/112,600 $ 2,374,795/$1,776,613
Howard S. Jaffe..................... 42,735 $ 886,837 76,065/132,200 $ 1,745,509/$2,715,038
Mark L. Perry....................... 15,000 $ 397,500 74,000/121,000 $ 2,115,875/$1,991,937
</TABLE>
- ------------------------
(1) Represents the fair market value of Gilead common stock on the date of
exercise (based on the closing sales price reported on the Nasdaq Stock
Market or the actual sales price if the shares were sold by the optionee)
less the exercise price, and does not necessarily indicate that the shares
were sold by the optionee.
(2) Includes both in-the-money and out-of-the-money options.
(3) Fair market value of Gilead common stock at December 31, 1998 ($41.0625,
based on the closing sales price reported on the Nasdaq Stock Market), less
the exercise price.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the ownership
of Gilead common stock as of February 26, 1999 by: (1) each current director and
nominee for director; (2) each named executive officer (as defined above in Item
11); (3) all executive officers and directors of Gilead as a group; and (4) all
those known by Gilead to be beneficial owners of more than five percent of
Gilead common stock and series B preferred stock on a combined basis.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP(1)
-------------------------
<S> <C> <C>
NUMBER OF PERCENT OF
BENEFICIAL OWNER SHARES TOTAL
- ------------------------------------------------------------------------------------------ ---------- -------------
Wellington Management Company, LLP(2) .................................................... 4,287,860 13.4%
75 State Street
Boston, MA 02109
T. Rowe Price Associates(3) .............................................................. 3,164,300 9.9%
100 East Pratt Street
Baltimore, MD 21202
Capital Research and Management Company(4) ............................................... 2,895,000 9.0%
333 South Hope Street
Los Angeles, CA 90025
Capital Guardian Trust Company and Capital International S.A.(5) ......................... 1,895,000 5.9%
11100 Santa Monica Boulevard, Suite 1500
Los Angeles, CA 90025
John C. Martin(6)......................................................................... 349,045 1.1%
Donald H. Rumsfeld(7)..................................................................... 166,232 *
Norbert W. Bischofberger(8)............................................................... 112,153 *
Howard S. Jaffe(9)........................................................................ 96,213 *
</TABLE>
40
<PAGE>
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP(1)
-------------------------
NUMBER OF PERCENT OF
BENEFICIAL OWNER SHARES TOTAL
- ------------------------------------------------------------------------------------------ ---------- -------------
<S> <C> <C>
Mark L. Perry(10)......................................................................... 94,548 *
Jeffrey W. Bird(11)....................................................................... 79,043 *
James M. Denny, Sr.(12)................................................................... 53,524 *
Etienne F. Davignon(13)................................................................... 53,330 *
Gordon E. Moore(14)....................................................................... 47,531 *
George P. Shultz(15)...................................................................... 31,400 *
Paul Berg(16)............................................................................. 5,200 *
All executive officers and directors as a group (11 persons)(17).......................... 1,088,219 3.4%
</TABLE>
- ------------------------
* Less than one percent
(1) This table is based upon information supplied by Gilead's officers,
directors and principal stockholders and Schedules 13D and 13G filed with
the Securities and Exchange Commission. Unless otherwise indicated in the
footnotes to this table, and subject to community property laws where
applicable, each of the stockholders named in this table has sole voting
and investment power with respect to the shares indicated as beneficially
owned. Applicable percentages are based on 30,884,298 shares of Gilead
common stock and 1,133,786 shares of Gilead series B preferred stock
outstanding on February 26, 1999, for a total of 32,018,084 outstanding
shares, adjusted as required by rules promulgated by the SEC.
(2) Based on a Schedule 13G filed with the Commission on January 24, 1999. The
Wellington Management Company, LLP is a registered investment adviser. The
Wellington Management Company in its capacity as investment adviser is
considered a "beneficial owner" in the aggregate of 4,287,860 shares of
Gilead common stock. Such shares are owned by numerous investment advisory
clients of The Wellington Management Company, none of which is known to
have beneficial ownership of more than 5% of that class of securities of
Gilead. As of December 31, 1998 The Wellington Management Company had
shared voting power with respect to 1,770,280 shares and shared dispositive
power with respect to 4,228,860 shares.
(3) Based on a Schedule 13G filed with the Commission on February 12, 1999. T.
Rowe Price Associates, Inc., in its capacity as a registered investment
adviser is considered a "beneficial owner" in the aggregate of 3,164,300
shares of Gilead common stock. Such shares are owned by various individual
and institutional investors for which T. Rowe Price Associates, Inc. serves
as investment adviser with power to direct investments and/or sole power to
vote the shares. For purposes of the reporting requirements of the
Securities and Exchange Act of 1934, T. Rowe Price Associates is deemed to
be a beneficial owner of such shares; however, T. Rowe Price Associates
expressly disclaims such beneficial ownership.
(4) Based on a Schedule 13G filed with the Commission on February 8, 1999. The
Capital Research and Management Company is a registered investment adviser
that manages The American Funds Group of mutual funds. The Capital Research
and Management Company in its capacity as investment adviser is considered
a "beneficial owner" in the aggregate of 2,895,000 shares of Gilead common
stock. Such shares are owned by accounts under the discretionary investment
management of The Capital Research and Management Company. As of December
31, 1998, The Capital Research and Management Company had sole dispositive
power with respect to 2,895,000 shares.
(5) Based on a Schedule 13G filed with the Commission on February 8, 1999. The
Capital Guardian Trust Company is a California state-chartered trust
company that acts as investment manager to large
41
<PAGE>
institutional accounts (primarily pension funds). Capital International
S.A. provides investment management services to institutional accounts. The
Capital Guardian Trust Company and Capital International S.A., in their
capacity as investment managers, are considered "beneficial owners" in the
aggregate of 1,865,000 shares of Gilead common stock. Such shares are owned
by accounts under the discretionary investment management of The Capital
Guardian Trust Company and Capital International S.A. As of December 31,
1998, The Capital Guardian Trust Company had sole voting power with respect
to 1,662,000 shares and sole dispositive power with respect to 1,865,000
shares and Capital International S.A. had sole voting and dispositive power
with respect to 30,000 shares.
(6) Includes 318,325 shares subject to stock options exercisable within 60
days.
(7) Includes 39,889 shares held in a grantor annuity trust for which Mr.
Rumsfeld is the donor and trustee and 37,000 shares subject to stock
options exercisable within 60 days.
(8) Includes 12,534 shares held in trust for which Dr. Bischofberger and his
wife are trustees and 96,599 shares subject to stock options exercisable
within 60 days.
(9) Includes 13,548 shares held in trust for which Dr. Jaffe and his wife are
trustees and 82,665 shares subject to stock options exercisable within 60
days.
(10) Includes 500 shares held in account for Mr. Perry's minor child for which
Mr. Perry is the custodian and 86,000 shares subject to stock options
exercisable within 60 days.
(11) Includes 72,597 shares subject to stock options exercisable within 60
days.
(12) Includes 19,998 shares held by a partnership in which Mr. Denny is a
managing partner, as to which Mr. Denny disclaims beneficial ownership.
Also includes 7,426 shares held in partnership with Mr. Denny's wife and
26,100 shares subject to stock options exercisable within 60 days.
(13) Includes 53,330 shares subject to stock options exercisable within 60
days.
(14) Includes 30,866 shares subject to stock options exercisable within 60
days.
(15) Includes 21,400 shares subject to stock options exercisable within 60
days.
(16) Includes 5,200 shares subject to stock options exercisable within 60 days.
(17) Includes 830,082 shares subject to stock options exercisable within 60
days. See notes (6) through (16) above.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In November 1990, Gilead entered into a Relocation Loan Agreement with John
C. Martin, currently Gilead's President and Chief Executive Officer. The
principal amount of the loan is $100,000 with a term of ten years. The loan is
non-interest bearing and 100% of the principal amount will be forgiven on a pro
rata basis over years six through ten as long as Dr. Martin is still employed by
Gilead. In the event Dr. Martin ceases to be employed by Gilead, the loan
becomes interest-bearing and due within ninety days. The loan is secured by a
deed of trust on Dr. Martin's residence. As of December 31, 1998, $40,000 was
outstanding.
In October 1994, Gilead entered into a Loan Agreement with Mark L. Perry,
currently Gilead's Senior Vice President, Chief Financial Officer and General
Counsel. The principal amount of the loan is $100,000 with a term of ten years.
The loan is non-interest bearing and 50% of the principal amount will be
forgiven on a pro rata basis over years six through ten as long as Mr. Perry is
still employed by Gilead. In the event Mr. Perry ceases to be employed by
Gilead, the loan becomes interest-bearing and due within sixty days. The loan is
secured by a deed of trust on Mr. Perry's residence. As of December 31, 1998,
the entire loan amount was outstanding.
42
<PAGE>
During 1998, Gilead paid an aggregate of $2,551,134 to Pharma Research
Corporation, a contract research organization. James M. Denny, a member of
Gilead's board of directors, is a managing director of William Blair Capital,
LLC, which manages William Blair Capital Fund V, which owns a controlling
interest (45% of the voting stock) in Pharma Research Corporation. Mr. Denny is
not involved in the supervision of the operations of Pharma Research
Corporation. Pharma Research Corporation provided services to Gilead prior to
William Blair Capital's investment.
Gilead has entered into indemnity agreements with all of its officers
(including the named executive officers) and directors which provide, among
other things, that Gilead will indemnify such officer or director, under the
circumstances and to the extent provided for therein, for expenses, damages,
judgments, fines and settlements he may be required to pay in actions or
proceedings which he is or may be made a party by reason of his position as a
director, officer or other agent of Gilead, and otherwise to the full extent
permitted under Delaware law and Gilead's by-laws.
43
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(A) THE FOLLOWING DOCUMENTS ARE FILED AS PART OF THIS FORM 10-K:
(1) All schedules are omitted because they are not required or the required
information is included in the financial statements or notes thereto.
(2) Exhibits
<TABLE>
<CAPTION>
EXHIBIT EXHIBIT
FOOTNOTE NUMBER DESCRIPTION OF DOCUMENT
- ------------- ----------- ----------------------------------------------------------------------------------------------
<C> <C> <S>
(1) 3.1 Amended and Restated Certificate of Incorporation of the Registrant.
3.2 By-laws of the Registrant, as amended and restated March 30, 1999.
(3) 3.3 Certificate of Amendment of Restated Certificate of Incorporation.
4.1 Reference is made to Exhibits 3.1, 3.2, and 3.3.
(4) 4.2 Rights Agreement, dated as of November 21, 1994, between Registrant and First Interstate Bank,
with exhibits.
(4) 4.3 Form of letter sent to Gilead Sciences, Inc. stockholders, dated December 14, 1994.
(3) 10.1 Form of Indemnity Agreement entered into between the Registrant and its directors and
executive officers.
(5) 10.3 Form of Employee Proprietary Information and Invention Agreement entered into between
Registrant and certain of its officers and key employees.
(2) 10.4 Registrant's 1987 Incentive Stock Option Plan and related agreements.
(2) 10.5 Registrant's 1987 Supplemental Stock Option Plan and related agreements.
10.7 Registrant's Employee Stock Purchase Plan, as amended March 30, 1999.
10.8 Registrant's 1991 Stock Option Plan, as amended March 30, 1999.
(2) 10.15 Form of Non-Qualified Stock Option issued to certain executive officers and directors in 1991.
(2) 10.16 Relocation Loan Agreement, dated as of November 1, 1990 among Registrant, John C. Martin and
Rosemary Martin.
(2) 10.17 Vintage Park Research and Development Net Lease by and between Registrant and Vintage Park
Associates dated March 27, 1992 for premises located at 344B, 346 and 353 Lakeside Drive,
Foster City, California with related addendum, exhibits and amendments.
(2) 10.21 Letter Agreement, dated as of September 23, 1991 between Registrant and IOCB/ REGA, with
exhibits with certain confidential information deleted.
(6) 10.23 Vintage Park Research and Development Net Lease by and between Registrant and Vintage Park
Associates dated September 16, 1993 for premises located at 335 Lakeside Drive, Foster City,
California with related exhibits.
(7) 10.26 Amendment Agreement, dated October 25, 1993 between Registrant and IOCB/ REGA, and related
license agreements and exhibits with certain confidential information deleted.
(7) 10.28 Loan Agreement among Registrant and The Daiwa Bank, Limited dated May 17, 1994 with certain
confidential information deleted.
(8) 10.29 License and Supply agreement between Registrant and American Cyanamid Company dated August 1,
1994 with certain confidential information deleted.
(4) 10.30 Loan Agreement, dated as of October 1, 1994 among Registrant and Mark L. Perry and Melanie P.
Pena.
10.33+ Registrant's 1995 Non-Employee Directors' Stock Option Plan, as amended January 26, 1999, and
related form of stock option grant.
</TABLE>
44
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT EXHIBIT
FOOTNOTE NUMBER DESCRIPTION OF DOCUMENT
- ------------- ----------- ----------------------------------------------------------------------------------------------
<C> <C> <S>
(9) 10.34 Collaborative Research Agreement, dated as of March 25, 1996, by and between Registrant and
Glaxo Wellcome Inc. with certain confidential information deleted.
(10) 10.36 Vintage Park Research and Development Lease by and between Registrant and WCB Sixteen Limited
Partnership dated June 24, 1996 for premises located at 333 Lakeside Drive, Foster City,
California.
(10) 10.37 Amendment No. 1 to Vintage Park Research and Development Lease by and between Registrant and
WCB Seventeen Limited Partnership dated June 24, 1996 for premises located at 335 Lakeside
Drive, Foster City, California.
(10) 10.38 Amendment No. 2 to Vintage Park Research and Development Lease by and between Registrant and
WCB Seventeen Limited Partnership dated June 24, 1996 for premises located at 344B, 346 and
353 Lakeside Drive, Foster City, California.
(11) 10.40 License and Supply Agreement between Registrant and Pharmacia & Upjohn S.A. dated August 7,
1996 with certain confidential information deleted.
(11) 10.41 Series B Preferred Stock Purchase Agreement between Registrant and Pharmacia & Upjohn S.A.
dated August 7, 1996.
(11) 10.42 Development and License Agreement between Registrant and F. Hoffmann-La Roche Ltd and
Hoffmann-La Roche Inc dated September 27, 1996 with certain confidential information deleted.
(12) 10.45 Amended and Restated Copromotion Agreement between Registrant and Roche Laboratories, Inc.
dated September 12, 1997 with certain confidential information deleted.
(13) 10.46 Amendment No. 1 to Collaborative Research Agreement, dated as of December 22, 1997, between
Registrant and Glaxo Wellcome Inc.
10.47* Patent Rights Purchase Agreement between Registrant and Isis Pharmaceuticals, Inc. dated
December 18, 1998.
10.48+ Amendment No. 3 to Vintage Park Research and Development Lease by and between Registrant and
Spieker Properties, L.P. dated August 14, 1998 for premises located at 355 Lakeside Drive,
Foster City, California.
(14) 10.49 Agreement and Plan of Merger dated February 28, 1999 by and among Registrant, Gazelle
Acquisition Sub, Inc. and NeXstar Pharmaceuticals, Inc.
(14) 10.50 Share Option Agreement dated February 28, 1999 by and between Registrant and NeXstar
Pharmaceuticals, Inc.
(14) 10.51 Form of Voting Agreement in connection with merger with NeXstar Pharmaceuticals, Inc.
23.1 Consent of Ernst & Young LLP, Independent Auditors. Reference is made to page 70.
24.1 Power of Attorney. Reference is made to page 68.
27.1+ Financial Data Schedule.
</TABLE>
- ------------------------
+ Previously filed.
* Confidential treatment has been requested.
(1) Filed as an exhibit to Registrant's Registration Statement on Form S-8 (No.
33-46058) and incorporated herein by reference.
(2) Filed as an exhibit to Registrant's Registration Statement on Form S-1 (No.
33-44534) or amendments thereto and incorporated herein by reference.
(3) Filed as an exhibit to Registrant's Registration Statement on Form S-3 (No.
333-868) or amendments thereto and incorporated herein by reference.
45
<PAGE>
(4) Filed as an exhibit to Registrant's Quarterly Report on Form 10-Q for the
quarter ended December 31, 1994 and incorporated herein by reference.
(5) Filed as an exhibit to Registrant's Registration Statement on Form S-1 (No.
33-55680) or amendments thereto and incorporated herein by reference.
(6) Filed as an exhibit to Registrant's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1993 and incorporated herein by reference.
(7) Filed as an exhibit to Registrant's Annual Report on Form 10-K for the
fiscal year ended March 31, 1994 and incorporated herein by reference.
(8) Filed as an exhibit to Registrant's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1994 and incorporated herein by reference.
(9) Filed as an exhibit to Registrant's Annual Report on Form 10-K for the nine
month period ended December 31, 1995.
(10) Filed as an exhibit to Registrant's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1996 and incorporated herein by reference.
(11) Filed as an exhibit to Registrant's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1996 and incorporated herein by reference.
(12) Filed as an exhibit to Registrant's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1997 and incorporated herein by reference.
(13) Filed as an exhibit to Registrant's Annual Report on Form 10-K for the
year ended December 31, 1997 and incorporated herein by reference.
(14) Filed as an exhibit to Registrant's Current Report on Form 8-K filed on
March 9, 1999 and incorporated herein by reference.
(B) REPORTS ON FORM 8-K
There were no reports on Form 8-K filed by the Registrant during the fourth
quarter of the fiscal year ended December 31, 1998. On March 9, 1999, the
Registrant filed a Current Report on Form 8-K regarding the proposed merger with
NeXstar Pharmaceuticals, Inc.
46
<PAGE>
GILEAD SCIENCES, INC.
CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
CONTENTS
<TABLE>
<S> <C>
Report of Ernst & Young LLP, Independent Auditors...................................... 48
Audited Consolidated Financial Statements
Consolidated Balance Sheets............................................................ 49
Consolidated Statements of Operations.................................................. 50
Consolidated Statement of Stockholders' Equity......................................... 51
Consolidated Statements of Cash Flows.................................................. 52
Notes to Consolidated Financial Statements............................................. 53
</TABLE>
47
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Gilead Sciences, Inc.
We have audited the accompanying consolidated balance sheets of Gilead
Sciences, Inc. as of December 31, 1998 and 1997 and the related consolidated
statements of operations, stockholders' equity and cash flows for each of the
three years in the period ended December 31, 1998. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Gilead
Sciences, Inc. at December 31, 1998 and 1997, and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended December 31, 1998, in conformity with generally accepted accounting
principles.
/s/ ERNST & YOUNG LLP
Palo Alto, California
January 21, 1999
48
<PAGE>
GILEAD SCIENCES, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1998 1997
--------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................................... $ 32,475 $ 31,990
Short-term investments.............................................. 247,464 290,308
Other current assets................................................ 8,371 17,960
--------- ---------
Total current assets.................................................. 288,310 340,258
Property and equipment, net........................................... 10,182 10,313
Other assets.......................................................... 4,368 1,498
--------- ---------
$ 302,860 $ 352,069
--------- ---------
--------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................................... $ 3,422 $ 3,303
Accrued clinical and preclinical expenses........................... 11,925 12,989
Other accrued liabilities........................................... 12,358 5,705
Deferred revenue.................................................... 3,275 9,541
Current portion of long-term debt and equipment financing
obligations....................................................... 770 1,853
--------- ---------
Total current liabilities............................................. 31,750 33,391
Non-current portion of long-term debt................................. 563 1,331
Commitments
Stockholders' equity:
Preferred stock, par value $.001 per share, issuable in series;
5,000,000 shares authorized; 1,133,786 shares of Series B
convertible preferred issued and outstanding at December 31, 1998
and 1997 (liquidation preference of $40,000)...................... 1 1
Common stock, par value $.001 per share; 60,000,000 shares
authorized; 30,710,435 shares and 30,041,584 shares issued and
outstanding at December 31, 1998 and 1997, respectively........... 31 30
Additional paid-in capital.......................................... 489,183 479,737
Accumulated other comprehensive income.............................. 43 344
Deferred compensation............................................... (157) (286)
Accumulated deficit................................................. (218,554) (162,479)
--------- ---------
Total stockholders' equity............................................ 270,547 317,347
--------- ---------
$ 302,860 $ 352,069
--------- ---------
--------- ---------
</TABLE>
See accompanying notes
49
<PAGE>
GILEAD SCIENCES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Revenues:
Product sales, net........................................... $ 6,074 $ 11,735 $ 8,477
Contract revenue............................................. 24,198 27,413 24,910
Royalty revenue, net......................................... 2,298 889 33
--------- --------- ---------
Total revenues................................................. 32,570 40,037 33,420
--------- --------- ---------
Costs and expenses:
Cost of product sales........................................ 594 1,167 910
Research and development..................................... 75,298 59,162 41,881
Selling, general and administrative.......................... 31,003 25,472 26,692
--------- --------- ---------
Total costs and expenses....................................... 106,895 85,801 69,483
--------- --------- ---------
Loss from operations........................................... (74,325) (45,764) (36,063)
Interest income................................................ 18,442 18,260 15,042
Interest expense............................................... (192) (489) (711)
--------- --------- ---------
Net loss....................................................... $ (56,075) $ (27,993) $ (21,732)
--------- --------- ---------
--------- --------- ---------
Basic and diluted loss per common share........................ $ (1.85) $ (0.95) $ (0.78)
--------- --------- ---------
--------- --------- ---------
Common shares used to calculate basic and diluted loss per
common share................................................. 30,363 29,326 27,786
--------- --------- ---------
--------- --------- ---------
</TABLE>
See accompanying notes
50
<PAGE>
GILEAD SCIENCES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
ADDITIONAL ACCUMULATED OTHER
PREFERRED PAID-IN COMPREHENSIVE DEFERRED ACCUMULATED
STOCK COMMON STOCK CAPITAL INCOME COMPENSATION DEFICIT
------------- ------------- ----------- ----------------- --------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995...... $ -- $ 24 $ 265,460 $ 167 $ (1,398) $ (112,754)
Net Loss........................ -- -- -- -- -- (21,732)
Unrealized loss on
available-for-sale short-term
investments, net.............. -- -- -- (78) -- --
Comprehensive loss............ -- -- -- -- -- --
Issuance of 500,853 shares of
common stock upon the exercise
of stock options.............. -- 1 3,077 -- -- --
Issuance of 181,590 shares of
common stock pursuant to the
employee stock purchase
plan.......................... -- -- 1,856 -- -- --
Issuance of 4,305,844 shares of
common stock at $37.75 per
share (net of issuance costs
of $7,063).................... -- 4 155,478 -- -- --
Compensation related to
accelerated vesting on stock
options....................... -- -- 706 -- -- --
Amortization of deferred
compensation.................. -- -- -- -- 849 --
--- --- ----------- --- ------- ------------
Balance at December 31, 1996...... $ -- $ 29 $ 426,577 $ 89 $ (549) $ (134,486)
Net Loss........................ -- -- -- -- -- (27,993)
Unrealized gain on
available-for-sale short-term
investments, net.............. -- -- -- 255 -- --
Comprehensive loss............ -- -- -- -- -- --
Issuance of 1,190,541 shares of
common stock upon the exercise
of stock options.............. -- 1 11,243 -- -- --
Issuance of 92,878 shares of
common stock pursuant to the
employee stock purchase
plan.......................... -- -- 1,918 -- -- --
Issuance of 1,133,786 shares of
preferred stock............... 1 -- 39,999 -- -- --
Amortization of deferred
compensation.................. -- -- -- -- 263 --
--- --- ----------- --- ------- ------------
Balance at December 31, 1997...... $ 1 $ 30 $ 479,737 $ 344 $ (286) $ (162,479)
Net Loss........................ -- -- -- -- -- (56,075)
Unrealized loss on
available-for-sale short-term
investments, net.............. -- -- -- (301) -- --
Comprehensive loss............ -- -- -- -- -- --
Issuance of 568,969 shares of
common stock upon the exercise
of stock options.............. -- 1 6,859 -- -- --
Issuance of 99,882 shares of
common stock pursuant to the
employee stock purchase
plan.......................... -- -- 2,153 -- -- --
Amortization of deferred
compensation.................. -- -- -- -- 129 --
Amounts recognized under
compensatory stock
transactions.................. -- -- 434 -- -- --
--- --- ----------- --- ------- ------------
Balance at December 31, 1998...... $ 1 $ 31 $ 489,183 $ 43 $ (157) $ (218,554)
--- --- ----------- --- ------- ------------
--- --- ----------- --- ------- ------------
<CAPTION>
TOTAL
STOCKHOLDERS'
EQUITY
-------------
<S> <C>
Balance at December 31, 1995...... $ 151,499
-------------
Net Loss........................ (21,732)
Unrealized loss on
available-for-sale short-term
investments, net.............. (78)
-------------
Comprehensive loss............ (21,810)
-------------
Issuance of 500,853 shares of
common stock upon the exercise
of stock options.............. 3,078
Issuance of 181,590 shares of
common stock pursuant to the
employee stock purchase
plan.......................... 1,856
Issuance of 4,305,844 shares of
common stock at $37.75 per
share (net of issuance costs
of $7,063).................... 155,482
Compensation related to
accelerated vesting on stock
options....................... 706
Amortization of deferred
compensation.................. 849
-------------
Balance at December 31, 1996...... $ 291,660
-------------
Net Loss........................ (27,993)
Unrealized gain on
available-for-sale short-term
investments, net.............. 255
-------------
Comprehensive loss............ (27,738)
-------------
Issuance of 1,190,541 shares of
common stock upon the exercise
of stock options.............. 11,244
Issuance of 92,878 shares of
common stock pursuant to the
employee stock purchase
plan.......................... 1,918
Issuance of 1,133,786 shares of
preferred stock............... 40,000
Amortization of deferred
compensation.................. 263
-------------
Balance at December 31, 1997...... $ 317,347
-------------
Net Loss........................ (56,075)
Unrealized loss on
available-for-sale short-term
investments, net.............. (301)
-------------
Comprehensive loss............ (56,376)
-------------
Issuance of 568,969 shares of
common stock upon the exercise
of stock options.............. 6,860
Issuance of 99,882 shares of
common stock pursuant to the
employee stock purchase
plan.......................... 2,153
Amortization of deferred
compensation.................. 129
Amounts recognized under
compensatory stock
transactions.................. 434
-------------
Balance at December 31, 1998...... $ 270,547
-------------
-------------
</TABLE>
See accompanying notes
51
<PAGE>
GILEAD SCIENCES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................. $ (56,075) $ (27,993) $ (21,732)
Adjustments to reconcile net loss
to net cash used in operating activities:
Depreciation and amortization........................... 2,757 2,983 3,773
Stock plan compensation expense......................... 434 -- 706
Changes in assets and liabilities:
Other current assets.................................. 9,589 (13,670) (2,732)
Other assets.......................................... (2,870) (250) (175)
Accounts payable...................................... 119 802 89
Accrued clinical and preclinical expenses............. (1,064) 7,982 1,084
Other accrued liabilities............................. 6,653 1,272 2,204
Deferred revenue...................................... (6,266) 9,014 319
--------- --------- ---------
Total adjustments................................... 9,352 8,133 5,268
--------- --------- ---------
Net cash used in operating activities....................... (46,723) (19,860) (16,464)
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of short-term investments....................... (486,067) (410,997) (437,627)
Sales of short-term investments........................... 390,251 196,515 248,552
Maturities of short-term investments...................... 138,359 88,408 153,257
Capital expenditures...................................... (2,497) (3,861) (3,727)
--------- --------- ---------
Net cash provided by (used in) investing activities......... 40,046 (129,935) (39,545)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of financing obligations and long-term debt...... (1,851) (3,361) (2,843)
Proceeds from issuance of long-term debt.................. -- -- 3,000
Proceeds from issuance of preferred stock................. -- 40,000 --
Proceeds from issuances of common stock................... 9,013 13,162 160,416
--------- --------- ---------
Net cash provided by financing activities................... 7,162 49,801 160,573
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents........ 485 (99,994) 104,564
Cash and cash equivalents at beginning of year.............. 31,990 131,984 27,420
--------- --------- ---------
Cash and cash equivalents at end of year.................... $ 32,475 $ 31,990 $ 131,984
--------- --------- ---------
--------- --------- ---------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid............................................... $ 202 $ 509 $ 731
--------- --------- ---------
--------- --------- ---------
</TABLE>
See accompanying notes
52
<PAGE>
GILEAD SCIENCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND PRINCIPLES OF CONSOLIDATION
Gilead Sciences, Inc. (the "Company" or "Gilead") was incorporated in the
State of Delaware on June 22, 1987. All of the Company's operations are located
in the United States. The consolidated financial statements include the accounts
of the Company and its wholly-owned subsidiary Gilead Sciences Limited, which
was formed under the laws of the United Kingdom in November 1995. To date, the
subsidiary has been inactive and has no material assets or liabilities.
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.
BUSINESS SEGMENTS
In 1998, the Company adopted Statement of Financial Accounting Standards
("SFAS") No. 131, DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED
INFORMATION, which addresses how public business enterprises must report
information about operating segments. For a number of years, the Company has
been primarily engaged in one reportable operating segment, the discovery,
development and marketing of a new class of human therapeutics based on
nucleotides. Gilead's President and Chief Executive Officer evaluates
performance and allocates resources based on the operating results of the whole
Company. The operating expenses of the Company are not allocated to individual
business components so that no measure of profit or loss for any individual
component of the Company is available. Gilead attributes revenues from customers
to individual countries based on the location of the customer. At the present
time, the Company is organized and managed along functional lines.
VISTIDE-Registered Trademark- (cidofovir injection), a drug for the treatment of
cytomegalovirus ("CMV") retinitis in patients with AIDS, received marketing
clearance from the FDA in June 1996 and is the Company's first commercially
available product. Gilead sells this product in the United States through major
drug wholesalers and it is currently the Company's only source of product sales
revenue. Gilead has recorded no product sales from customers outside of the U.S.
Gilead also derives revenue from contracts, including reimbursement of
research and development ("R&D") costs and the sale of patent rights, and from
royalties. During 1998, Gilead recognized royalty revenue from sales of VISTIDE
outside the United States by Pharmacia & Upjohn S.A. ("P&U"), and from the
co-promotion with Roche Laboratories Inc. ("Roche Labs") of
Roferon-A-Registered Trademark- (Interferon alfa-2a, recombinant) for the
treatment of chronic hepatitis C infection in the United States. Gilead has
recorded contract revenue from P&U, F. Hoffmann-La Roche, Ltd. and Glaxo
Wellcome Inc. ("Glaxo"), companies located in Sweden, Switzerland and the United
Kingdom, respectively. The amounts, sources and nature of the Company's contract
and royalty revenues are described in more detail in Note 3. Long-lived assets
located outside of the U.S. are immaterial at December 31, 1998 and 1997.
REVENUE RECOGNITION
The Company recognizes product sales revenue at the time product is shipped.
Provisions are made for estimated product returns, cash discounts and government
discounts and rebates. Gilead retains no
53
<PAGE>
GILEAD SCIENCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
future performance obligations under the terms of its product sales. Contract
revenue recognized under the Company's collaborative R&D agreements, license and
supply agreements and patent rights purchase agreement is recorded as earned
based upon the performance requirements of the contract. Payments received in
advance under these agreements are recorded as deferred revenue until earned.
Under the Company's collaborative R&D agreements, the Company has no explicit or
implied obligation or intent to repay any amounts earned and recognized. Royalty
revenue is recognized when received, which is generally in the quarter following
that in which the corresponding sales occur.
RESEARCH AND DEVELOPMENT COSTS
All R&D costs, including those funded by third parties, are expensed as
incurred.
STOCK-BASED COMPENSATION
In accordance with the provisions of SFAS No. 123, ACCOUNTING FOR
STOCK-BASED COMPENSATION, the Company has elected to follow Accounting
Principles Board Opinion ("APB") No. 25, ACCOUNTING FOR STOCK ISSUED TO
EMPLOYEES, and related interpretations in accounting for its employee stock
option plans. Under APB No. 25, if the exercise price of the Company's employee
and director stock options equals or exceeds the fair value of the underlying
stock on the date of grant, no compensation expense is recognized. Subsequent to
the effective date of SFAS No. 123, the Company's policy is to record
compensation expense over the vesting period for stock grants to consultants and
scientific advisors based on the fair value of the options. See Note 7 for pro
forma disclosures of stock-based compensation pursuant to SFAS No. 123.
BASIC AND DILUTED LOSS PER COMMON SHARE
For all periods presented, both basic and diluted loss per common share are
computed based on the weighted average number of common shares outstanding
during the period. Convertible preferred stock and stock options could
potentially dilute basic earnings per share in the future, but were excluded
from the computation of diluted loss per share as their effect is antidilutive
for the periods presented.
CASH AND CASH EQUIVALENTS
The Company considers highly liquid investments with insignificant interest
rate risk and a remaining maturity of three months or less at the purchase date
to be cash equivalents. Gilead may enter into overnight repurchase agreements
under which it purchases securities with an obligation to resell them the
following day. Securities purchased under agreements to resell are recorded at
face value and reported in cash and cash equivalents.
SECURITIES AVAILABLE-FOR-SALE
Management determines the appropriate classification of debt securities at
the time of purchase and reevaluates such designation at each balance sheet
date. The Company's debt securities are classified as available-for-sale and
carried at estimated fair values in cash equivalents and short-term investments.
At December 31, 1998, cash and cash equivalents includes $30.5 million of
securities designated as available-for-sale ($28.5 million at December 31,
1997). Fair values of available-for-sale securities are based on prices obtained
from commercial pricing services. Unrealized gains and losses on
available-for-sale
54
<PAGE>
GILEAD SCIENCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
securities are excluded from earnings and reported as a separate component of
stockholders' equity. Interest income includes interest, dividends, amortization
of purchase premiums and discounts, and realized gains and losses on sales of
securities. The cost of securities sold is based on the specific identification
method.
CONCENTRATIONS OF CREDIT RISK
Cash and cash equivalents and short-term investments are the financial
instruments that primarily subject the Company to credit risk. By policy, the
Company limits amounts invested in securities by maturity, industry group,
investment type and issuer, except for securities issued by the U.S. government.
Gilead is not exposed to any significant concentrations of credit risk. The
goals of the Company's investment policy, in order of priority, are as follows:
1. Safety and preservation of principal and diversification of risk;
2. Liquidity of investments sufficient to meet cash flow requirements; and
3. Competitive after-tax rate of return.
ACCOUNTS RECEIVABLE AND OTHER CURRENT ASSETS
Trade receivables, net of allowances for returns, discounts, rebates and bad
debts, are reported on the consolidated balance sheet in other current assets.
At December 31, 1997, other current assets includes reimbursable R&D expenses
and a milestone payment totaling approximately $12.4 million due from F.
Hoffmann-La Roche, Ltd. and Hoffmann-La Roche Inc. (collectively, "Roche"). For
additional information, refer to Note 3.
PROPERTY AND EQUIPMENT
All of the Company's capitalized software is purchased. Gilead has no
internally developed computer software. Property and equipment are stated at
cost and consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1998 1997
--------- ---------
<S> <C> <C>
Equipment subject to financing obligations.............. $ 34 $ 2,732
Laboratory equipment.................................... 7,037 5,571
Office furniture and equipment.......................... 2,863 2,019
Computer equipment...................................... 3,685 2,062
Capitalized software.................................... 1,422 956
Leasehold improvements.................................. 12,797 12,583
--------- ---------
27,838 25,923
Less accumulated depreciation and amortization.......... (17,656) (15,610)
--------- ---------
$ 10,182 $ 10,313
--------- ---------
--------- ---------
</TABLE>
55
<PAGE>
GILEAD SCIENCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Property and equipment are depreciated on a straight-line basis over their
estimated useful lives, as follows:
<TABLE>
<CAPTION>
ESTIMATED USEFUL LIFE (IN
DESCRIPTION YEARS)
- --------------------------------------------------------------- -----------------------------
<S> <C>
Laboratory equipment........................................... 4-8
Office furniture and equipment................................. 6
Computer equipment............................................. 2-3
Capitalized software........................................... 3
</TABLE>
Leasehold improvements and equipment subject to financing obligations are
amortized on a straight-line basis over the shorter of the estimated useful life
of the item or the term of the related lease or borrowing.
LONG-LIVED ASSETS
The carrying value of long-lived assets is reviewed on a regular basis for
the existence of facts or circumstances both internally and externally that may
suggest impairment. Specific potential indicators of impairment include:
- a significant decrease in the fair value of an asset;
- a significant change in the extent or manner in which an asset is used or
a significant physical change in an asset;
- a significant adverse change in legal factors or in the business climate
that affects the value of an asset or an adverse action or assessment by a
regulator;
- an accumulation of costs significantly in excess of the amount originally
expected to acquire or construct an asset; and
- operating or cash flow losses combined with a history of operating or cash
flow losses or a projection or forecast that demonstrates continuing
losses associated with an income-producing asset.
Should there be indication of an impairment, the Company will confirm this
by comparing the estimated future cash flows expected to result from the use of
the asset and its eventual disposition to the carrying amount of the asset.
Assets are grouped at the lowest level for which there are identifiable cash
flows that are largely independent of the cash flows generated by other asset
groups. If the fair value of the asset is less than the carrying amount of the
asset, an impairment loss, measured as the excess of the carrying value of the
asset over its fair value, will be recognized. The cash flow estimates used in
such calculations are based on management's best estimates, using appropriate
and customary assumptions and projections at the time. The Company has not
recorded any losses related to the impairment of long-lived assets in the years
ended December 31, 1998, 1997 and 1996.
56
<PAGE>
GILEAD SCIENCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
OTHER ACCRUED LIABILITIES
Other accrued liabilities are summarized as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1998 1997
--------- ---------
<S> <C> <C>
Accrued compensation....................................... $ 2,251 $ 1,833
Accrued Medicaid rebates................................... 1,705 1,881
Estimated liability to Roche (Note 3)...................... 5,000 --
Other...................................................... 3,402 1,991
--------- ---------
$ 12,358 $ 5,705
--------- ---------
--------- ---------
</TABLE>
FOREIGN CURRENCY INSTRUMENTS
The Company periodically enters into foreign exchange forward contracts with
financial institutions in accordance with its foreign exchange risk management
policy to hedge the currency exchange risk associated with certain firmly
committed purchase transactions. In general, these contracts do not expose the
Company to market risk because gains and losses on the contracts offset gains
and losses on the transactions being hedged. The Company's exposure to credit
risk from these contracts is a function of changes in interest and currency
exchange rates and, therefore, varies over time. Gilead limits its risk that
counterparties to these contracts may be unable to perform by transacting only
with major U.S. banks. The Company also limits its risk of loss by entering into
contracts that provide for net settlement at maturity. Therefore, the Company's
overall risk of loss in the event of a counterparty default is limited to the
amount of any unrecognized and unrealized gains on outstanding contracts (i.e.,
those contracts that have a positive fair value) at the date of default.
Gains and losses on these contracts are deferred and reported as a component
of the related transaction in the period in which it occurs. At both December
31, 1998 and 1997, the Company's outstanding forward foreign exchange contracts
and their fair values were immaterial.
NEW ACCOUNTING PRONOUNCEMENT
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES, which establishes
accounting and reporting standards for derivative instruments, including forward
foreign exchange contracts, and for hedging activities. SFAS No. 133 is
effective for years beginning after June 15, 1999. Under Gilead's existing
derivatives activity levels and hedging strategies, the adoption of SFAS No. 133
would not have a significant impact on the Company's present financial
accounting and reporting practices.
RECLASSIFICATIONS
Certain prior period amounts have been reclassified to conform to the 1998
presentation.
57
<PAGE>
GILEAD SCIENCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
2. INVESTMENTS
The following is a summary of available-for-sale securities (in thousands):
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
---------- ------------- ----------- ----------
<S> <C> <C> <C> <C>
DECEMBER 31, 1998
U.S. treasury securities and obligations of
U.S. government agencies................... $ 78,703 $ 62 $ (123) $ 78,642
Certificates of deposit...................... 38,058 65 (11) 38,112
Corporate debt securities.................... 34,676 152 (18) 34,810
Asset-backed securities...................... 89,565 101 (185) 89,481
Other debt securities........................ 36,984 -- -- 36,984
---------- ----- ----- ----------
Total...................................... $ 277,986 $ 380 $ (337) $ 278,029
---------- ----- ----- ----------
---------- ----- ----- ----------
DECEMBER 31, 1997
U.S. treasury securities and obligations of
U.S. government agencies................... $ 35,615 $ 55 $ (6) $ 35,664
Certificates of deposit...................... 65,485 20 (2) 65,503
Corporate debt securities.................... 78,054 192 (1) 78,245
Asset-backed securities...................... 118,362 121 (35) 118,448
Other debt securities........................ 20,965 -- -- 20,965
---------- ----- ----- ----------
Total...................................... $ 318,481 $ 388 $ (44) $ 318,825
---------- ----- ----- ----------
---------- ----- ----- ----------
</TABLE>
The following table presents certain information related to sales of
available-for-sales securities (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Proceeds from sales........................... $ 390,251 $ 196,515 $ 248,552
Gross realized gains on sales................. $ 1,127 $ 225 $ 451
Gross realized losses on sales................ $ 654 $ 142 $ 65
</TABLE>
At December 31, 1998, $63.6 million of the Company's portfolio of short-term
investments (excluding asset-backed securities) has a contractual maturity of
less than one year and $94.4 million of the portfolio has a contractual maturity
greater than one year but less than three years. None of the estimated
maturities of the Company's asset-backed securities exceed three years. Under
the Company's investment policy, it may enter into repurchase agreements
("repos") with major banks and authorized dealers provided that such repos are
collateralized by U.S. government securities with a fair value of at least 102
percent of the fair value of securities sold to Gilead.
3. CONTRACT REVENUE AND ROYALTIES
PHARMACIA & UPJOHN
In August 1996, the Company and P&U entered into a License and Supply
Agreement ("P&U Agreement") to market VISTIDE in all countries outside the
United States. Under the terms of the P&U
58
<PAGE>
GILEAD SCIENCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
3. CONTRACT REVENUE AND ROYALTIES (CONTINUED)
Agreement, P&U paid Gilead an initial license fee of $10.0 million. During the
second quarter of 1997, VISTIDE was approved for marketing in the European Union
by the European Commission, which triggered an additional cash milestone payment
of $10.0 million by P&U to the Company. Also as a result of achieving this
milestone, in the second quarter of 1997 the Company issued and P&U purchased
1,133,786 shares of Series B Convertible Preferred Stock for approximately $40.0
million, or $35.28 per share. For additional information about the preferred
stock, refer to Note 7.
Under the terms of the P&U Agreement and related agreements covering
expanded access programs for VISTIDE outside of the United States, the Company
is responsible for maintaining the cidofovir patent portfolio and for supplying
to P&U bulk cidofovir used to manufacture the finished VISTIDE product
("Product"). Gilead is entitled to receive a royalty based upon P&U's sale of
Product. It receives a portion of the royalty upon shipping either bulk drug
substance or Product to P&U, and the remainder upon P&U's sale of Product to
third parties. Any royalties that Gilead receives before Product is sold to
third parties are recorded as deferred revenue until such third-party sales
occur. At December 31, 1998, the Company has recorded on its balance sheet
approximately $3.3 million of P&U deferred revenue ($2.1 million at December 31,
1997).
HOFFMANN-LA ROCHE
In September 1996, Gilead and Roche entered into a collaboration agreement
("Roche Agreement") to develop and commercialize therapies to treat and prevent
viral influenza. Under the Roche Agreement, Roche received exclusive worldwide
rights to Gilead's proprietary influenza neuraminidase inhibitors. In October
1996, Roche made an initial license fee payment to Gilead of $10.3 million,
which the Company reported as contract revenue. Upon achieving certain
developmental milestones, in both the second and fourth quarters of 1997, Gilead
earned cash payments of $3.0 million per quarter, for a total of $6.0 million.
Gilead is entitled to additional cash payments of up to $34.0 million upon
achieving additional developmental and regulatory milestones. If any commercial
products are developed under the collaboration, Roche will pay Gilead royalties
based on net product sales.
Under the Roche Agreement, Roche reimburses the Company for its related R&D
costs under this program by funding such costs quarterly and generally in
advance, based on an annual budget. Reimbursements are included in contract
revenue as the Company incurs the related R&D costs. Amounts incurred by the
Company in excess of amounts funded may also be reimbursed, subject to Roche's
approval. In this event, revenue is not recognized until such approval has been
obtained. Conversely, if amounts funded by Roche exceed the Company's related
R&D costs, the Company may be required to repay such excess funding to Roche.
For the years ended December 31, 1998, 1997 and 1996, the Company recorded
approximately $16.4 million, $8.2 million and $1.1 million, respectively, of R&D
reimbursement revenue related to the Roche Agreement, which is reported as
contract revenue in the accompanying consolidated statements of operations. The
$16.4 million recorded as revenue during 1998 includes $5.2 million attributable
to R&D expenses incurred in the fourth quarter of 1997, which were subject to
Roche's approval as of December 31, 1997. Such expenses were approved for
reimbursement and recognized in contract revenue in 1998. Except for this $5.2
million, R&D costs related to the Roche Agreement approximate the reimbursement
revenue in each year presented and are included in R&D expenses.
59
<PAGE>
GILEAD SCIENCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
3. CONTRACT REVENUE AND ROYALTIES (CONTINUED)
At December 31, 1998, the Company has recorded an accrued liability of $5.0
million, which represents 1998 R&D funding from Roche in excess of actual 1998
R&D costs. The Company and Roche are in the process of finalizing the 1999
budget and, as a result, the Company has not yet received funding for estimated
1999 R&D spending under the Roche Agreement. At December 31, 1997, deferred
revenue includes $7.2 million, representing Roche's advance reimbursement of
budgeted R&D costs for the first quarter of 1998.
In September 1996, Gilead and Roche Labs entered into an agreement to
co-promote Roche's Roferon-A for the treatment of chronic hepatitis C infection
in the United States. Roche paid Gilead a $0.2 million one-time fee in 1996 in
connection with the signing of this agreement. Beginning in 1997, Roche was
required to pay Gilead a royalty based on the net product sales. The Company
recognizes these royalties when received. During 1998, Gilead received $0.6
million, which is reported as royalty revenue. This co-promotion agreement
concluded at the end of 1998. While the Company expects to receive transition
payments under the agreement in 1999, such amounts are not expected to be
significant.
GLAXO WELLCOME
In July 1990, the Company entered into a collaborative research agreement
with Glaxo. Concurrent with the signing of the agreement, Glaxo made an $8.0
million equity investment in the Company and holds 889,911 shares (approximately
2.8%) of the Company's outstanding common stock at December 31, 1998. Under the
terms of the Glaxo agreement, as amended over time, the Company received $1.8
million in 1998, and $3.0 million in both 1997 and 1996, to fund research, which
is reported as contract revenue in the accompanying consolidated statements of
operations. The R&D costs reimbursed by Glaxo approximate the related revenue
and are included in R&D expense. This agreement and the related funding were
terminated in June 1998.
BAUSCH & LOMB
In August 1994, the Company entered into a license and supply agreement with
Bausch & Lomb Incorporated (formerly Storz Instrument Company, a subsidiary of
American Home Products Corporation), to develop and market an eyedrop
formulation of cidofovir for the potential treatment of topical ophthalmic
viruses. The Company received a $0.3 million annual fee under this agreement in
each of the years ended December 31, 1997 and 1996, which is reported as
contract revenue. If specified milestones are achieved, the Company may receive
up to $3.0 million in milestone payments. The Company also may be entitled to
receive future royalties on product sales under the agreement.
ISIS PHARMACEUTICALS
In December 1998, Gilead and Isis Pharmaceuticals, Inc. ("Isis") entered
into an agreement under which Gilead sold Isis its antisense patent estate,
including patents and patent applications covering antisense chemistry and
antisense drug delivery systems. Under the terms of the agreement, Isis is
required to pay Gilead a total of $6.0 million in four nonrefundable
installments. The first $2.0 million was paid in December 1998, and the
remaining $4.0 million is payable in three additional payments (one payment of
$1.0 million in both 1999 and 2000, and one payment of $2.0 million in 2001).
The total sale price of $6.0 million is included in contract revenue in the
Company's consolidated statement of operations for the
60
<PAGE>
GILEAD SCIENCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
3. CONTRACT REVENUE AND ROYALTIES (CONTINUED)
year ended December 31, 1998. Gilead has no ongoing research or funding
obligations under the agreement.
4. LONG-TERM DEBT
In October 1996, the Company entered into an unsecured $3.0 million term
loan to finance its office and R&D facilities expansion. The four-year loan
requires quarterly principal payments of $0.2 million, plus applicable interest,
commencing October 1, 1996. The interest rate was fixed at 6.9 percent for the
first year of the loan, and resets periodically thereafter based on applicable
LIBOR rates. At December 31, 1998, the total debt outstanding is approximately
$1.3 million, the current portion outstanding is $0.8 million and the book value
of the debt approximates its fair value.
The terms of the debt require the Company to comply with certain financial
and operating covenants. At December 31, 1998, the Company was in compliance
with all such covenants.
5. COMMITMENTS
The Company leases its facilities pursuant to operating leases that have
expiration dates in March 2006, with two five-year renewal options. Rent expense
net of sublease income under these leases totaled approximately $2.2 million,
$2.3 million and $2.1 million for the years ended December 31, 1998, 1997 and
1996, respectively.
At December 31, 1998, the aggregate noncancelable future minimum payments
under the operating leases, net of aggregate future minimum rentals to be
received by the Company under noncancelable subleases, are as follows (in
thousands):
<TABLE>
<S> <C>
Year ending December 31:
1999............................................................. $ 2,825
2000............................................................. 2,992
2001............................................................. 3,106
2002............................................................. 3,224
2003............................................................. 3,347
Thereafter......................................................... 8,005
---------
$ 23,499
---------
---------
</TABLE>
The Company has in place a letter of credit agreement from a bank, which
secures the aggregate future payments under one of its facilities leases. At
December 31, 1998, a total of $0.5 million was secured under this letter of
credit arrangement.
61
<PAGE>
GILEAD SCIENCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
6. COMPREHENSIVE INCOME
On January 1, 1998, the Company adopted SFAS No. 130, REPORTING
COMPREHENSIVE INCOME, which establishes new requirements for reporting and
displaying comprehensive income (loss) and its components. The adoption of SFAS
No. 130 has no impact on the Company's net loss or total stockholders' equity.
This new accounting standard requires net unrealized gains or losses on the
Company's available-for-sale securities to be reported as accumulated other
comprehensive income (loss). Prior year financial statements have been
reclassified to conform to the requirements of SFAS No. 130.
The following reclassification adjustments are required to avoid
double-counting net realized gains on sales of securities that were previously
included in comprehensive income prior to the sales of the securities (in
thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Net gains on sales of securities included in interest
income............................................... $ 473 $ 83 $ 386
--------- --------- ---------
--------- --------- ---------
Other comprehensive income:
Net unrealized gain arising during the year.......... $ 172 $ 338 $ 308
Reclassification adjustment.......................... (473) (83) (386)
--------- --------- ---------
Net unrealized gain (loss) reported in other
comprehensive income............................. $ (301) $ 255 $ (78)
--------- --------- ---------
--------- --------- ---------
</TABLE>
7. STOCKHOLDERS' EQUITY
PREFERRED STOCK
The Company has 5,000,000 shares of authorized preferred stock issuable in
series. The Company's Board of Directors is authorized to determine the
designation, powers, preferences and rights of any such series. The Company has
reserved 400,000 shares of preferred stock for potential issuance under the
Preferred Share Purchase Rights Plan.
In June 1997, the Company issued 1,133,786 shares of Series B Convertible
Preferred Stock to P&U for approximately $40.0 million, or $35.28 per share.
Each preferred share is convertible at the option of the holder into one share
of common stock at any time, and each has a liquidation value equal to its
purchase price. The Series B Preferred Stock has substantially the same voting
rights as the Company's common stock. Dividends are noncumulative and payable at
the rate of 5 percent of the original issue price per year only when, as and if
declared by the Company's Board of Directors. No dividends have been declared or
paid on the Series B Convertible Preferred Stock.
EMPLOYEE STOCK PURCHASE PLAN
Under the Company's Employee Stock Purchase Plan ("ESPP"), employees can
purchase shares of the Company's common stock based on a percentage of their
compensation. The purchase price per share must equal at least the lower of 85
percent of the market value on the date offered or the date purchased. A total
of 1,250,000 shares of common stock are reserved for issuance under the ESPP. As
of December 31, 1998, 794,049 shares had been issued under the ESPP (694,167
shares as of December 31, 1997).
62
<PAGE>
GILEAD SCIENCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
7. STOCKHOLDERS' EQUITY (CONTINUED)
Emerging Issues Task Force ("EITF") Issue No. 97-12, ACCOUNTING FOR
INCREASED SHARE AUTHORIZATIONS IN AN IRS SECTION 423 EMPLOYEE STOCK PURCHASE
PLAN UNDER APB OPINION NO. 25, provides that new shares authorized under
existing Section 423 employee stock purchase plans may give rise to compensation
expense under circumstances specified in that accounting standard. During 1998,
the Company recognized compensation expense of $0.4 million related to an ESPP
share authorization approved in 1998 in accordance with the provisions of EITF
Issue No. 97-12. In future years, the Company will not be required to recognize
additional compensation expense related to the 1998 share authorization.
STOCK OPTION PLANS
In December 1987, the Company adopted the 1987 Incentive Stock Option Plan
and the Supplemental Stock Option Plan for issuance of common stock to
employees, consultants and scientific advisors. In April 1991, the Company's
Board of Directors approved the granting of certain additional nonqualified
stock options with terms and conditions substantially similar to those granted
under the 1987 Supplemental Stock Option Plan. At the grant date, none of the
options described above had exercise prices that were less than the fair value
of the underlying stock on that date. The options vest over five years pursuant
to a formula determined by the Company's Board of Directors and expire after ten
years. No shares are available for grant of future options under any of these
plans.
In November 1991, the Company adopted the 1991 Stock Option Plan ("1991
Plan") for issuance of common stock to employees and consultants. Options issued
under the 1991 Plan shall, at the discretion of the Company's Board of
Directors, be either incentive stock options or nonqualified stock options. In
May 1998, the 1991 Plan was amended such that the exercise price of all stock
options must be at least equal to the fair value of the Company's common stock
on the date of grant. The options vest over five years pursuant to a formula
determined by the Company's Board of Directors and expire after ten years. At
December 31, 1998, 958,380 shares were available for grant of future options.
In November 1995, the Company adopted the 1995 Non-Employee Directors' Stock
Option Plan ("Directors' Plan") for issuance of common stock to non-employee
Directors pursuant to a predetermined formula. The exercise price of options
granted under the Directors' Plan must be at least equal to the fair value of
the Company's common stock on the date of grant. The options vest over five
years from the date of grant in quarterly 5 percent installments and expire
after ten years. At December 31, 1998, 85,000 shares were available for grant of
future options under the Directors' Plan.
63
<PAGE>
GILEAD SCIENCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
7. STOCKHOLDERS' EQUITY (CONTINUED)
The following table summarizes activity under all stock option plans for
each of the three years in the period ended December 31, 1998. All option grants
presented in the table had exercise prices not less than the fair value of the
underlying stock on the grant date (shares in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------------
1998 1997 1996
------------------------ ---------------------- ------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
----------- ----------- --------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning of year........................ 4,117 $ 19.39 4,651 $ 14.96 4,144 $ 10.55
Granted............................................. 1,128 27.69 923 29.21 1,239 25.89
Forfeited........................................... (241) 27.11 (266) 20.51 (231) 13.70
Exercised........................................... (569) 12.06 (1,191) 9.42 (501) 6.15
----- --------- -----
Outstanding, end of year.............................. 4,435 $ 22.16 4,117 $ 19.39 4,651 $ 14.96
----- ----------- --------- ----------- ----- -----------
----- ----------- --------- ----------- ----- -----------
Exercisable, end of year.............................. 1,885 $ 16.66 1,673 $ 13.83 2,025 $ 10.23
----- ----------- --------- ----------- ----- -----------
----- ----------- --------- ----------- ----- -----------
</TABLE>
In 1995, the Company granted 75,000 stock options with exercise prices less
than the fair value of the underlying stock at the grant date. For these options
only, the Company recorded deferred compensation expense of $0.5 million, based
on the difference between the grant price and the fair value of the underlying
stock at the date of grant. This deferred compensation is being amortized to
expense over the five-year vesting period of the options. Amortization expense
for the years ended December 31, 1998, 1997 and 1996 totaled $0.1 million, $0.3
million and $0.8 million, respectively.
The following table summarizes information about exercise price ranges of
outstanding and exercisable options at December 31, 1998 (options in thousands):
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
----------------------------------------------- OPTIONS EXERCISABLE
WEIGHTED- --------------------------
AVERAGE WEIGHTED- WEIGHTED-
REMAINING AVERAGE AVERAGE
OPTIONS CONTRACTUAL LIFE EXERCISE OPTIONS EXERCISE
RANGE OF EXERCISE PRICES OUTSTANDING IN YEARS PRICE EXERCISABLE PRICE
- ------------------------------------------- --------------- ----------------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
$ 0.24 - $16.50............................ 1,245 4.47 $ 10.55 1,072 $ 10.57
$17.50 - $22.88............................ 1,417 7.96 20.50 421 18.86
$23.00 - $32.00............................ 1,114 8.27 27.65 279 28.70
$32.13 - $42.88............................ 659 8.48 37.45 113 36.54
------ --- ----------- ----------- ------
Total.................................. 4,435 7.14 $ 22.16 1,885 $ 16.66
------ --- ----------- ----------- ------
------ --- ----------- ----------- ------
</TABLE>
PRO FORMA DISCLOSURES
The table below reflects Gilead's net loss and basic and diluted loss per
common share if compensation cost for the Company's stock plans had been
determined based on their estimated fair values at the grant dates for awards
under those plans. Since pro forma compensation cost is amortized over the
vesting
64
<PAGE>
GILEAD SCIENCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
7. STOCKHOLDERS' EQUITY (CONTINUED)
periods of the related awards, and because SFAS No. 123 is applicable only to
options granted or shares issued subsequent to March 31, 1995, its pro forma
effect will not be fully reflected until 1999.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Pro forma net loss (in thousands).............. $ (68,656) $ (38,503) $ (29,586)
Pro forma basic and diluted loss per share..... $ (2.26) $ (1.31) $ (1.06)
</TABLE>
Fair values of the options were estimated at grant dates using a
Black-Scholes option pricing model. The Company used the multiple option
approach and the following assumptions:
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Expected life in years (from vesting date)--options..................... 1.78 1.75 1.54
Expected life in years--ESPP............................................ 1.51 0.75 1.54
Interest rate--options.................................................. 5.5% 6.2% 6.0%
Interest rate--ESPP..................................................... 5.2% 5.6% 6.0%
Volatility.............................................................. 66% 66% 69%
Dividend yield.......................................................... 0% 0% 0%
</TABLE>
The weighted average estimated fair value of each stock option granted for
the years ended December 31, 1998, 1997 and 1996 was $15.90, $17.14 and $15.17,
respectively. The weighted average estimated fair value of each ESPP share
granted for the years ended December 31, 1998, 1997 and 1996 was $11.97, $9.57
and $5.49, respectively.
PREFERRED SHARE PURCHASE RIGHTS PLAN
In November 1994, the Company adopted a Preferred Share Purchase Rights Plan
(the "Plan"). The Plan provides for the distribution of a preferred stock
purchase right (a "Right") as a dividend for each share of Gilead common stock
held of record at the close of business on December 14, 1994. The Rights are not
currently exercisable. Under certain conditions involving an acquisition or
proposed acquisition by any person or group of 15 percent or more of the
Company's common stock, the Rights permit the holders (other than the 15 percent
holder) to purchase Gilead common stock at a 50 percent discount from the market
price at that time, upon payment of an exercise price of $60 per Right. In
addition, in the event of certain business combinations, the Rights permit the
purchase of the common stock of an acquirer at a 50 percent discount from the
market price at that time. Under certain conditions, the Rights may be redeemed
by the Company's Board of Directors in whole, but not in part, at a price of
$.01 per Right. The Rights have no voting privileges and are attached to and
automatically trade with Gilead common stock. The Rights expire on November 21,
2004.
8. INCOME TAXES
As of December 31, 1998, the Company had federal net operating loss
carryforwards of approximately $223.0 million. The Company also had federal R&D
tax credit carryforwards of approximately $7.9 million. The net operating loss
and credit carryforwards will expire at various dates beginning in 2001 through
2018, if not utilized.
65
<PAGE>
GILEAD SCIENCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
8. INCOME TAXES (CONTINUED)
Significant components of the Company's deferred tax assets for federal and
state income taxes are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1998 1997
--------- ---------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards...................... $ 77,200 $ 57,100
R&D credits........................................... 10,700 6,800
Capitalized R&D for California........................ 11,200 4,400
Other................................................. 4,500 2,300
--------- ---------
Total deferred tax assets............................... 103,600 70,600
Valuation allowance for deferred tax assets............. (103,600) (70,600)
--------- ---------
Net deferred tax assets................................. $ -- $ --
--------- ---------
--------- ---------
</TABLE>
The valuation allowance increased by $33.0 million and $15.3 million during
the years ended December 31, 1998 and 1997, respectively.
Utilization of the net operating losses and credit carryforwards may be
subject to a substantial annual limitation due to the ownership change
limitations provided by the Internal Revenue Code of 1986.
Approximately $14.9 million of the valuation allowance at December 31, 1998
relates to the tax benefits of stock option deductions, which will be credited
to additional paid-in capital when realized.
9. RELATED PARTY TRANSACTIONS
During 1998, Gilead paid an aggregate of $2.6 million to Pharma Research
Corporation, a contract research organization, for services rendered in
connection with clinical studies. A member of Gilead's Board of Directors is the
managing director of an investment fund that owns a controlling interest in
Pharma Research Corporation.
10. SUBSEQUENT EVENTS (UNAUDITED)
On January 26, 1999, the Board of Directors authorized an additional 200,000
shares of common stock as available for grant under the Directors' Plan. This
increase is subject to stockholder approval at the Company's annual
stockholders' meeting to be held in 1999.
On March 1, 1999, Gilead and NeXstar Pharmaceuticals, Inc. ("NeXstar")
announced a definitive merger agreement providing for the acquisition by Gilead
of all the outstanding common stock of NeXstar. The merger is structured as a
tax-free, stock-for-stock transaction. The Company intends to account for this
merger under the pooling-of-interests method. NeXstar, headquartered in Boulder,
Colorado, is engaged in the discovery, development, manufacture and
commercialization of products to treat serious and life-threatening illnesses.
In addition to its Boulder headquarters, NeXstar maintains research, development
and manufacturing facilities in San Dimas, California, and marketing
subsidiaries worldwide. Under the terms of the merger agreement, NeXstar
stockholders will receive between 0.3786 and 0.5000 of a share of Gilead common
stock for each share of NeXstar common stock. The exact exchange ratio will be
66
<PAGE>
GILEAD SCIENCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
10. SUBSEQUENT EVENTS (UNAUDITED) (CONTINUED)
determined based on the trading range of Gilead common stock over a specified
period prior to completion of the merger. The merger is subject to certain
conditions, including approval of the stockholders of Gilead and NeXstar. The
transaction is expected to be completed in mid-1999.
On March 30, 1999 the Gilead Board amended and restated the bylaws of the
Company, approved an amendment to the 1991 Plan increasing the number of shares
reserved for issuance by 3.5 million to a total of 10 million shares, and
approved an amendment to the ESPP increasing the number of shares reserved
for issuance by 330,000 to a total of 1.58 million shares. This share increase
authorization will not give rise to compensation expense under EITF Issue No.
97-12.
11. QUARTERLY RESULTS (UNAUDITED)
The following table is in thousands, except per share amounts:
<TABLE>
<CAPTION>
1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
1998
Total revenues.............................................. $ 13,560 $ 7,036 $ 3,038 $ 8,936
Total costs and expenses.................................... 25,902 26,887 24,715 29,393
Net loss.................................................... (7,384) (14,844) (17,559) (16,290)
Basic and diluted loss per share............................ (0.25) (0.49) (0.58) (0.53)
1997
Total revenues.............................................. $ 5,466 $ 19,726 $ 4,937 $ 9,909
Total costs and expenses.................................... 17,460 21,170 20,017 27,155
Net income (loss)........................................... (7,948) 2,711 (10,331) (12,424)
Basic and diluted income (loss) per share................... (0.27) 0.09 (0.35) (0.42)
</TABLE>
67
<PAGE>
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 to be signed on
its behalf by the undersigned, thereunto duly authorized.
<TABLE>
<S> <C> <C>
GILEAD SCIENCES, INC.
BY: /s/ MARK L. PERRY
-----------------------------------------
Mark L. Perry
SENIOR VICE PRESIDENT, CHIEF FINANCIAL
OFFICER AND GENERAL COUNSEL (PRINCIPAL
FINANCIAL AND ACCOUNTING OFFICER)
Date: June 22, 1999
</TABLE>
68
<PAGE>
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement (Form
S-8 No. 33-46058) pertaining to the Gilead Sciences, Inc. 1987 Incentive Stock
Option Plan, 1987 Supplemental Stock Option Plan, 1991 Stock Option Plan,
Employee Stock Purchase Plan, and 1995 Non-Employee Directors' Stock Option
Plan, the Registration Statement (Form S-8 No. 33-62060) pertaining to the
Gilead Sciences, Inc. 1991 Stock Option Plan, and the Registration Statement
(Form S-8 No. 33-81670) pertaining to the Gilead Sciences, Inc. Employee Stock
Purchase Plan, of our report dated January 21, 1999, with respect to the
consolidated financial statements of Gilead Sciences, Inc. included in the
Annual Report (Form 10-K/A) for the year ended December 31, 1998.
/s/ ERNST & YOUNG LLP
Palo Alto, California
June 22, 1999
69
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
3.2 By-laws of the Registrant, as amended and restated March 30, 1999.
10.7 Registrant's Employee Stock Purchase Plan, as amended March 30, 1999.
10.8 Registrant's 1991 Stock Option Plan, as amended March 30, 1999.
10.33+ Registrant's 1995 Non-Employee Directors' Stock Option Plan, as amended January 26, 1999, and related
form of stock option grant.
10.47 Patent Rights Purchase Agreement between Registrant and Isis Pharmaceuticals, Inc. dated December 18,
1998.*
10.48+ Amendment No. 3 to Vintage Park Research and Development Lease by and between Registrant and Spieker
Properties, L.P. dated August 14, 1998 for premises located at 355 Lakeside Drive, Foster City,
California.
23.1 Consent of Ernst & Young LLP, Independent Auditors. Reference is made to page 69.
24.1+ Power of Attorney.
27.1+ Financial Data Schedule.
</TABLE>
- ------------------------
+ Previously filed.
* Confidential treatment has been requested for certain portions of this
Exhibit under 17 C.F.R. Sections 200.80(b)(4), 200.83 and 240.24b-2.
<PAGE>
Exhibit 3.2
GILEAD SCIENCES, INC.
AMENDED AND RESTATED BYLAWS
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
ARTICLE I OFFICES. . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1. Registered Office. . . . . . . . . . . . . . . . . . . . 1
Section 2. Other Offices. . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II CORPORATE SEAL . . . . . . . . . . . . . . . . . . . . . . . 1
Section 3. Corporate Seal . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE III STOCKHOLDERS' MEETINGS . . . . . . . . . . . . . . . . . . . 1
Section 4. Place of Meetings. . . . . . . . . . . . . . . . . . . . 1
Section 5. Annual Meeting . . . . . . . . . . . . . . . . . . . . . 1
Section 6. Special Meetings . . . . . . . . . . . . . . . . . . . . 3
Section 7. Notice of Meetings . . . . . . . . . . . . . . . . . . . 4
Section 8. Quorum . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 9. Adjournment and Notice of Adjourned Meetings . . . . . . 5
Section 10. Voting Rights. . . . . . . . . . . . . . . . . . . . . . 5
Section 11. Joint Owners of Stock. . . . . . . . . . . . . . . . . . 5
Section 12. List of Stockholders . . . . . . . . . . . . . . . . . . 6
Section 13. Action Without Meeting . . . . . . . . . . . . . . . . . 6
Section 14. Organization . . . . . . . . . . . . . . . . . . . . . . 6
ARTICLE IV DIRECTORS. . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 15. Number and Term of Office. . . . . . . . . . . . . . . . 7
Section 16. Powers . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 18. Vacancies. . . . . . . . . . . . . . . . . . . . . . . . 7
Section 19. Resignation. . . . . . . . . . . . . . . . . . . . . . . 7
Section 20. Removal. . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 21. Meetings . . . . . . . . . . . . . . . . . . . . . . . . 8
(a) Annual Meetings. . . . . . . . . . . . . . . . . . . . . 8
(b) Regular Meetings . . . . . . . . . . . . . . . . . . . . 8
(c) Special Meetings . . . . . . . . . . . . . . . . . . . . 8
(d) Telephone Meetings . . . . . . . . . . . . . . . . . . . 8
(e) Notice of Meetings . . . . . . . . . . . . . . . . . . . 8
(f) Waiver of Notice . . . . . . . . . . . . . . . . . . . . 9
</TABLE>
i.
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
Section 22. Quorum and Voting. . . . . . . . . . . . . . . . . . . . 9
Section 23. Action Without Meeting . . . . . . . . . . . . . . . . . 9
Section 24. Fees and Compensation. . . . . . . . . . . . . . . . . . 9
Section 25. Committees . . . . . . . . . . . . . . . . . . . . . . . 9
(a) Executive Committee. . . . . . . . . . . . . . . . . . . 9
(b) Other Committees . . . . . . . . . . . . . . . . . . . .10
(c) Term . . . . . . . . . . . . . . . . . . . . . . . . . .10
(d) Meetings . . . . . . . . . . . . . . . . . . . . . . . .10
Section 26. Organization . . . . . . . . . . . . . . . . . . . . . .11
ARTICLE V OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . . .11
Section 27. Officers Designated. . . . . . . . . . . . . . . . . . .11
Section 28. Tenure and Duties of Officers. . . . . . . . . . . . . .11
(a) General. . . . . . . . . . . . . . . . . . . . . . . . .11
(b) Duties of Chairman of the Board of Directors . . . . . .11
(c) Duties of President. . . . . . . . . . . . . . . . . . .11
(d) Duties of Vice Presidents. . . . . . . . . . . . . . . .12
(e) Duties of Secretary. . . . . . . . . . . . . . . . . . .12
(f) Duties of Chief Financial Officer. . . . . . . . . . . .12
Section 29. Delegation of Authority. . . . . . . . . . . . . . . . .12
Section 30. Resignations . . . . . . . . . . . . . . . . . . . . . .12
Section 31. Removal. . . . . . . . . . . . . . . . . . . . . . . . .13
ARTICLE VI EXECUTION OF CORPORATE INSTRUMENTS AND VOTING OF
SECURITIES OWNED BY THE CORPORATION. . . . . . . . . . . . .13
Section 32. Execution of Corporate Instruments . . . . . . . . . . .13
Section 33. Voting of Securities Owned by the Corporation. . . . . .13
ARTICLE VII SHARES OF STOCK. . . . . . . . . . . . . . . . . . . . . . .13
Section 34. Form and Execution of Certificates . . . . . . . . . . .13
Section 35. Lost Certificates. . . . . . . . . . . . . . . . . . . .14
Section 36. Transfers. . . . . . . . . . . . . . . . . . . . . . . .14
Section 37. Fixing Record Dates. . . . . . . . . . . . . . . . . . .14
</TABLE>
ii.
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
Section 38. Registered Stockholders. . . . . . . . . . . . . . . . .15
ARTICLE VIII OTHER SECURITIES OF THE CORPORATION. . . . . . . . . . . . .15
Section 39. Execution of Other Securities. . . . . . . . . . . . . .15
ARTICLE IX DIVIDENDS. . . . . . . . . . . . . . . . . . . . . . . . . .16
Section 40. Declaration of Dividends . . . . . . . . . . . . . . . .16
Section 41. Dividend Reserve . . . . . . . . . . . . . . . . . . . .16
ARTICLE X FISCAL YEAR. . . . . . . . . . . . . . . . . . . . . . . . .16
Section 42. Fiscal Year. . . . . . . . . . . . . . . . . . . . . . .16
ARTICLE XI INDEMNIFICATION. . . . . . . . . . . . . . . . . . . . . . .16
(a) Directors and Executive Officers . . . . . . . . . . . .16
(b) Other Officers, Employees and Other Agents . . . . . . .17
(c) Expenses . . . . . . . . . . . . . . . . . . . . . . . .17
(d) Enforcement. . . . . . . . . . . . . . . . . . . . . . .17
(e) Non-Exclusivity of Rights. . . . . . . . . . . . . . . .18
(f) Survival of Rights . . . . . . . . . . . . . . . . . . .18
(g) Insurance. . . . . . . . . . . . . . . . . . . . . . . .18
(h) Amendments . . . . . . . . . . . . . . . . . . . . . . .18
(i) Saving Clause. . . . . . . . . . . . . . . . . . . . . .18
(j) Certain Definitions. . . . . . . . . . . . . . . . . . .19
ARTICLE XII NOTICES. . . . . . . . . . . . . . . . . . . . . . . . . . .19
Section 44. Notices. . . . . . . . . . . . . . . . . . . . . . . . .19
(a) Notice to Stockholders . . . . . . . . . . . . . . . . .19
(b) Notice to Directors. . . . . . . . . . . . . . . . . . .20
(c) Affidavit of Mailing . . . . . . . . . . . . . . . . . .20
(d) Time Notices Deemed Given. . . . . . . . . . . . . . . .20
(e) Methods of Notice. . . . . . . . . . . . . . . . . . . .20
(f) Failure to Receive Notice. . . . . . . . . . . . . . . .20
(g) Notice to Person with Whom Communication Is Unlawful . .20
(h) Notice to Person with Undeliverable Address. . . . . . .20
ARTICLE XIII AMENDMENTS . . . . . . . . . . . . . . . . . . . . . . . . .21
</TABLE>
iii.
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
Section 45. Amendments . . . . . . . . . . . . . . . . . . . . . . .21
ARTICLE XIV LOANS TO OFFICERS. . . . . . . . . . . . . . . . . . . . . .21
Section 46. Loans to Officers. . . . . . . . . . . . . . . . . . . .21
</TABLE>
iv.
<PAGE>
AMENDED AND RESTATED BYLAWS
OF
GILEAD SCIENCES, INC.
(A DELAWARE CORPORATION)
ARTICLE I
OFFICES
SECTION 1. REGISTERED OFFICE. The registered office of the
corporation in the State of Delaware shall be in the City of Wilmington,
County of New Castle.
SECTION 2. OTHER OFFICES. The corporation shall also have and
maintain an office or principal place of business in California, at such
place as may be fixed by the Board of Directors, and may also have offices at
such other places, both within and without the State of Delaware as the Board
of Directors may from time to time determine or the business of the
corporation may require.
ARTICLE II
CORPORATE SEAL
SECTION 3. CORPORATE SEAL. The corporate seal shall consist of a
die bearing the name of the corporation and the inscription, "Corporate
Seal-Delaware." Said seal may be used by causing it or a facsimile thereof
to be impressed or affixed or reproduced or otherwise.
ARTICLE III
STOCKHOLDERS' MEETINGS
SECTION 4. PLACE OF MEETINGS. Meetings of the stockholders of the
corporation shall be held at such place, either within or without the State
of Delaware, as may be designated from time to time by the Board of
Directors, or, if not so designated, then at the office of the corporation
required to be maintained pursuant to Section 2 hereof.
SECTION 5. ANNUAL MEETING.
(a) The annual meeting of the stockholders of the
corporation, for the purpose of election of directors and for such other
business as may lawfully come before it, shall be held on such date and at
such time as may be designated from time to time by the Board of Directors.
Nominations of persons for election to the Board of Directors of the
corporation and the proposal of business to be considered by the stockholders
may be made at an annual meeting of stockholders: (i) pursuant to the
corporation's notice of meeting of stockholders; (ii) by or at the direction
of the Board of Directors; or (iii) by any stockholder of the corporation who
was a stockholder of record at the time of giving of notice provided for in
the following paragraph, who is entitled to vote at the meeting and who
complied with the notice procedures set forth in Section 5.
1.
<PAGE>
(b) At an annual meeting of the stockholders, only such
business shall be conducted as shall have been properly brought before the
meeting. For nominations or other business to be properly brought before an
annual meeting by a stockholder pursuant to clause (iii) of Section 5(a) of
these Bylaws, (i) the stockholder must have given timely notice thereof in
writing to the Secretary of the corporation, (ii) such other business must be
a proper matter for stockholder action under the Delaware General Corporation
Law, (iii) if the stockholder, or the beneficial owner on whose behalf any
such proposal or nomination is made, has provided the corporation with a
Solicitation Notice (as defined in this Section 5(b)), such stockholder or
beneficial owner must, in the case of a proposal, have delivered a proxy
statement and form of proxy to holders of at least the percentage of the
corporation's voting shares required under applicable law to carry any such
proposal, or, in the case of a nomination or nominations, have delivered a
proxy statement and form of proxy to holders of a percentage of the
corporation's voting shares reasonably believed by such stockholder or
beneficial owner to be sufficient to elect the nominee or nominees proposed
to be nominated by such stockholder, and must, in either case, have included
in such materials the Solicitation Notice, and (iv) if no Solicitation Notice
relating thereto has been timely provided pursuant to this section, the
stockholder or beneficial owner proposing such business or nomination must
not have solicited a number of proxies sufficient to have required the
delivery of such a Solicitation Notice under this Section 5. To be timely, a
stockholder's notice shall be delivered to the Secretary at the principal
executive offices of the corporation not later than the close of business on
the ninetieth (90th) day nor earlier than the close of business on the one
hundred twentieth (120th) day prior to the first anniversary of the preceding
year's annual meeting; provided, however, that in the event that the date of
the annual meeting is advanced more than thirty (30) days prior to or delayed
by more than thirty (30) days after the anniversary of the preceding year's
annual meeting, notice by the stockholder to be timely must be so delivered
not earlier than the close of business on the one hundred twentieth (120th)
day prior to such annual meeting and not later than the close of business on
the later of the ninetieth (90th) day prior to such annual meeting or the
tenth (10th) day following the day on which public announcement of the date
of such meeting is first made. In no event shall the public announcement of
an adjournment of an annual meeting commence a new time period for the giving
of a stockholder's notice as described above. Such stockholder's notice
shall set forth: (A) as to each person whom the stockholder proposed to
nominate for election or reelection as a director all information relating to
such person that is required to be disclosed in solicitations of proxies for
election of directors in an election contest, or is otherwise required, in
each case pursuant to Regulation 14A under the Securities Exchange Act of
1934, as amended (the "1934 Act") and Rule 14a-11 thereunder (including such
person's written consent to being named in the proxy statement as a nominee
and to serving as a director if elected); (B) as to any other business that
the stockholder proposes to bring before the meeting, a brief description of
the business desired to be brought before the meeting, the reasons for
conducting such business at the meeting and any material interest in such
business of such stockholder and the beneficial owner, if any, on whose
behalf the proposal is made; and (C) as to the stockholder giving the notice
and the beneficial owner, if any, on whose behalf the nomination or proposal
is made (i) the name and address of such stockholder, as they appear on the
corporation's books, and of such beneficial owner, (ii) the class and number
of shares of the corporation which are owned beneficially and of record by
such stockholder and such beneficial owner, and (iii) whether either such
stockholder or beneficial owner intends to deliver a proxy statement and form
of proxy to holders of, in the case of the proposal, at least the percentage
of the
2.
<PAGE>
corporation's voting shares required under applicable law to carry the
proposal or, in the case of a nomination or nominations, a sufficient number
of holders of the corporation's voting shares to elect such nominee or
nominees (an affirmative statement of such intent, a "Solicitation Notice").
(c) Notwithstanding anything in the second sentence of
Section 5(b) of these Bylaws to the contrary, in the event that the number of
directors to be elected to the Board of Directors of the corporation is
increased and there is no public announcement naming all of the nominees for
director or specifying the size of the increased Board of Directors made by
the corporation at least one hundred (100) days prior to the first
anniversary of the preceding year's annual meeting, a stockholder's notice
required by this Section 5 shall also be considered timely, but only with
respect to nominees for any new positions created by such increase, if it
shall be delivered to the Secretary at the principal executive offices of the
corporation not later than the close of business on the tenth (10th) day
following the day on which such public announcement is first made by the
corporation.
(d) Only such persons who are nominated in accordance with
the procedures set forth in this Section 5 shall be eligible to serve as
directors and only such business shall be conducted at a meeting of
stockholders as shall have been brought before the meeting in accordance with
the procedures set forth in this Section 5. Except as otherwise provided by
law, the Chairman of the meeting shall have the power and duty to determine
whether a nomination or any business proposed to be brought before the
meeting was made, or proposed, as the case may be, in accordance with the
procedures set forth in these Bylaws and, if any proposed nomination or
business is not in compliance with these Bylaws, to declare that such
defective proposal or nomination shall not be presented for stockholder
action at the meeting and shall be disregarded.
(e) Notwithstanding the foregoing provisions of this
Section 5, in order to include information with respect to a stockholder
proposal in the proxy statement and form of proxy for a stockholder's
meeting, stockholders must provide notice as required by the regulations
promulgated under the 1934 Act. Nothing in these Bylaws shall be deemed to
affect any rights of stockholders to request inclusion of proposals in the
corporation proxy statement pursuant to Rule 14a-8 under the 1934 Act.
(f) For purposes of this Section 5, "public announcement"
shall mean disclosure in a press release reported by the Dow Jones News
Service, Associated Press or comparable national news service or in a
document publicly filed by the corporation with the Securities and Exchange
Commission pursuant to Section 13, 14 or 15(d) of the 1934 Act.
SECTION 6. SPECIAL MEETINGS.
(a) Special meetings of the stockholders of the corporation
may be called, for any purpose or purposes, by (i) the Chairman of the Board
of Directors, (ii) the Chief Executive Officer, or (iii) the Board of
Directors pursuant to a resolution adopted by a majority of the total number
of authorized directors (whether or not there exist any vacancies in
previously authorized directorships at the time any such resolution is
presented to the Board of Directors for adoption) and shall be held at such
place, on such date, and at such time as the Board of Directors shall fix.
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(b) If a special meeting is properly called by any person
or persons other than the Board of Directors, the request shall be in
writing, specifying the general nature of the business proposed to be
transacted, and shall be delivered personally or sent by registered mail or
by telegraphic or other facsimile transmission to the Chairman of the Board
of Directors, the Chief Executive Officer, or the Secretary of the
corporation. No business may be transacted at such special meeting otherwise
than specified in such notice. The Board of Directors shall determine the
time and place of such special meeting, which shall be held not less than
thirty-five (35) nor more than one hundred twenty (120) days after the date
of the receipt of the request. Upon determination of the time and place of
the meeting, the officer receiving the request shall cause notice to be given
to the stockholders entitled to vote, in accordance with the provisions of
Section 7 of these Bylaws. If the notice is not given within one hundred
(100) days after the receipt of the request, the person or persons properly
requesting the meeting may set the time and place of the meeting and give the
notice. Nothing contained in this paragraph (b) shall be construed as
limiting, fixing, or affecting the time when a meeting of stockholders called
by action of the Board of Directors may be held.
(c) Nominations of persons for election to the Board of
Directors may be made at a special meeting of stockholders at which directors
are to be elected pursuant to the corporation's notice of meeting (i) by or
at the direction of the Board of Directors or (ii) by any stockholder of the
corporation who is a stockholder of record at the time of giving notice
provided for in these Bylaws who shall be entitled to vote at the meeting and
who complies with the notice procedures set forth in this Section 6(c). In
the event the corporation calls a special meeting of stockholders for the
purpose of electing one or more directors to the Board of Directors, any such
stockholder may nominate a person or persons (as the case may be), for
election to such position(s) as specified in the corporation's notice of
meeting, if the stockholder's notice required by Section 5(b) of these Bylaws
shall be delivered to the Secretary at the principal executive offices of the
corporation not earlier than the close of business on the one hundred
twentieth (120th) day prior to such special meeting and not later than the
close of business on the later of the ninetieth (90th) day prior to such
meeting or the tenth (10th) day following the day on which public
announcement is first made of the date of the special meeting and of the
nominees proposed by the Board of Directors to be elected at such meeting.
In no event shall the public announcement of an adjournment of a special
meeting commence a new time period for the giving of a stockholder's notice
as described above.
SECTION 7. NOTICE OF MEETINGS. Except as otherwise provided by
law or the Certificate of Incorporation, written notice of each meeting of
stockholders shall be given not less than ten (10) nor more than sixty (60)
days before the date of the meeting to each stockholder entitled to vote at
such meeting, such notice to specify the place, date and hour and purpose or
purposes of the meeting. Notice of the time, place and purpose of any
meeting of stockholders may be waived in writing, signed by the person
entitled to notice thereof, either before or after such meeting, and will be
waived by any stockholder by his attendance thereat in person or by proxy,
except when the stockholder attends a meeting for the express purpose of
objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened. Any
stockholder so waiving notice of such meeting shall be bound by the
proceedings of any such meeting in all respects as if due notice thereof had
been given.
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SECTION 8. QUORUM. At all meetings of stockholders, except where
otherwise provided by statute or by the Certificate of Incorporation, or by
these Bylaws, the presence, in person or by proxy duly authorized, of the
holders of a majority of the outstanding shares of stock entitled to vote
shall constitute a quorum for the transaction of business. In the absence of
a quorum, any meeting of stockholders may be adjourned, from time to time,
either by the chairman of the meeting or by vote of the holders of a majority
of the shares represented thereat, but no other business shall be transacted
at such meeting. The stockholders present at a duly called or convened
meeting, at which a quorum is present, may continue to transact business
until adjournment, notwithstanding the withdrawal of enough stockholders to
leave less than a quorum. Except as otherwise provided by statute, the
Certificate of Incorporation or these Bylaws, in all matters other than the
election of directors, the affirmative vote of the majority of shares present
in person or represented by proxy at the meeting and entitled to vote on the
subject matter shall be the act of the stockholders. Except as otherwise
provided by statute, the Certificate of Incorporation or these Bylaws,
directors shall be elected by a plurality of the votes of the shares present
in person or represented by proxy at the meeting and entitled to vote on the
election of directors. Where a separate vote by a class or classes or series
is required, except where otherwise provided by the statute or by the
Certificate of Incorporation or these Bylaws, a majority of the outstanding
shares of such class or classes or series, present in person or represented
by proxy, shall constitute a quorum entitled to take action with respect to
that vote on that matter and, except where otherwise provided by the statute
or by the Certificate of Incorporation or these Bylaws, the affirmative vote
of the majority (plurality, in the case of the election of directors) of the
votes cast by the holders of shares ofsuch class or classes or series shall
be the act of such class or classes or series.
SECTION 9. ADJOURNMENT AND NOTICE OF ADJOURNED MEETINGS. Any
meeting of stockholders, whether annual or special, may be adjourned from
time to time either by the chairman of the meeting or by the vote of a
majority of the shares casting votes. When a meeting is adjourned to another
time or place, notice need not be given of the adjourned meeting if the time
and place thereof are announced at the meeting at which the adjournment is
taken. At the adjourned meeting, the corporation may transact any business
which might have been transacted at the original meeting. If the adjournment
is for more than thirty (30) days or if after the adjournment a new record
date is fixed for the adjourned meeting, a notice of the adjourned meeting
shall be given to each stockholder of record entitled to vote at the meeting.
SECTION 10. VOTING RIGHTS. For the purpose of determining those
stockholders entitled to vote at any meeting of the stockholders, except as
otherwise provided by law, only persons in whose names shares stand on the
stock records of the corporation on the record date, as provided in Section
12 of these Bylaws, shall be entitled to vote at any meeting of stockholders.
Cumulative voting shall not be available to stockholders. Every person
entitled to vote shall have the right to do so either in person or by an
agent or agents authorized by a proxy granted in accordance with Delaware
law. An agent so appointed need not be a stockholder. No proxy shall be
voted after three (3) years from its date of creation unless the proxy
provides for a longer period.
SECTION 11. JOINT OWNERS OF STOCK. If shares or other securities
having voting power stand of record in the names of two (2) or more persons,
whether fiduciaries, members of a partnership, joint tenants, tenants in
common, tenants by the entirety, or otherwise, or if two (2)
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or more persons have the same fiduciary relationship respecting the same
shares, unless the Secretary is given written notice to the contrary and is
furnished with a copy of the instrument or order appointing them or creating
the relationship wherein it is so provided, their acts with respect to voting
shall have the following effect: (a) if only one (1) votes, his act binds
all; (b) if more than one (1) votes, the act of the majority so voting binds
all; (c) if more than one (1) votes, but the vote is evenly split on any
particular matter, each faction may vote the securities in question
proportionally, or may apply to the Delaware Court of Chancery for relief as
provided in the Delaware General Corporation Law, Section 217(b). If the
instrument filed with the Secretary shows that any such tenancy is held in
unequal interests, a majority or even-split for the purpose of subsection (c)
shall be a majority or even-split in interest.
SECTION 12. LIST OF STOCKHOLDERS. The Secretary shall prepare and
make, at least ten (10) days before every meeting of stockholders, a complete
list of the stockholders entitled to vote at said meeting, arranged in
alphabetical order, showing the address of each stockholder and the number of
shares registered in the name of each stockholder. Such list shall be open
to the examination of any stockholder, for any purpose germane to the
meeting, during ordinary business hours, for a period of at least ten (10)
days prior to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of the
meeting, or, if not specified, at the place where the meeting is to be held.
The list shall be produced and kept at the time and place of meeting during
the whole time thereof and may be inspected by any stockholder who is
present.
SECTION 13. ACTION WITHOUT MEETING. No action shall be taken by
the stockholders except at an annual or special meeting of stockholders
called in accordance with these Bylaws, and no action shall be taken by the
stockholders by written consent.
SECTION 14. ORGANIZATION.
(a) At every meeting of stockholders, the Chairman of the
Board of Directors, or, if a Chairman has not been appointed or is absent,
the President, or, if the President is absent, a chairman of the meeting
chosen by a majority in interest of the stockholders entitled to vote,
present in person or by proxy, shall act as chairman. The Secretary, or, in
his absence, an Assistant Secretary directed to do so by the President, shall
act as secretary of the meeting.
(b) The Board of Directors of the corporation shall be
entitled to make such rules or regulations for the conduct of meetings of
stockholders as it shall deem necessary, appropriate or convenient. Subject
to such rules and regulations of the Board of Directors, if any, the chairman
of the meeting shall have the right and authority to prescribe such rules,
regulations and procedures and to do all such acts as, in the judgment of
such chairman, are necessary, appropriate or convenient for the proper
conduct of the meeting, including, without limitation, establishing an agenda
or order of business for the meeting, rules and procedures for maintaining
order at the meeting and the safety of those present, limitations on
participation in such meeting to stockholders of record of the corporation
and their duly authorized and constituted proxies and such other persons as
the chairman shall permit, restrictions on entry to the meeting after the
time fixed for the commencement thereof, limitations on the time allotted to
questions or comments by participants and regulation of the opening and
closing of the polls for balloting on matters which are to be voted on by
ballot. Unless and to the extent determined by
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the Board of Directors or the chairman of the meeting, meetings of
stockholders shall not be required to be held in accordance with rules of
parliamentary procedure.
ARTICLE IV
DIRECTORS
SECTION 15. NUMBER AND TERM OF OFFICE. The authorized number of
directors of the corporation shall be fixed in accordance with the
Certificate of Incorporation. Directors need not be stockholders unless so
required by the Certificate of Incorporation. If for any cause, the
directors shall not have been elected at an annual meeting, they may be
elected as soon thereafter as convenient at a special meeting of the
stockholders called for that purpose in the manner provided in these Bylaws.
SECTION 16. POWERS. The powers of the corporation shall be
exercised, its business conducted and its property controlled by the Board of
Directors, except as may be otherwise provided by statute or by the
Certificate of Incorporation.
SECTION 17. BOARD OF DIRECTORS. Subject to the rights of the
holders of any series of Preferred Stock to elect additional directors under
specified circumstances, directors shall be elected at each annual meeting of
stockholders for a term of one year. Each director shall serve until his
successor is duly elected and qualified or until his death, resignation or
removal. No decrease in the number of directors constituting the Board of
Directors shall shorten the term of any incumbent director.
SECTION 18. VACANCIES. Unless otherwise provided in the
Certificate of Incorporation, any vacancies on the Board of Directors
resulting from death, resignation, disqualification, removal or other causes
shall be filled by either (i) the affirmative vote of the holders of a
majority of the voting power of the then-outstanding shares of voting stock
of the corporation entitled to vote generally in the election of Directors
(the "Voting Stock") voting together as a single class; or (ii) by the
affirmative vote of a majority of the remaining directors then in office,
even though less than a quorum of the Board of Directors. Newly created
directorships resulting from any increase in the number of directors shall,
unless the Board of Directors determines by resolution that any such newly
created directorship shall be filled by the stockholders, be filled only by
the affirmative vote of the directors then in office, even though less than a
quorum of the Board of Directors. Any director elected in accordance with
the preceding sentence shall hold office for the remainder of the full term
of the class of directors in which the new directorship was created or the
vacancy occurred and until such director's successor shall have been elected
and qualified. A vacancy in the Board of Directors shall be deemed to exist
under this Bylaw in the case of the death, removal or resignation of any
Director, or if the stockholders fail at any meeting of stockholders at which
Directors are to be elected (including any meeting referred to in Section 22
below) to elect the number of Directors then constituting the whole Board of
Directors.
SECTION 19. RESIGNATION. Any director may resign at any time by
delivering his written resignation to the Secretary, such resignation to
specify whether it will be effective at a particular time, upon receipt by
the Secretary or at the pleasure of the Board of Directors. If no
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such specification is made, it shall be deemed effective at the pleasure of
the Board of Directors. When one or more directors shall resign from the
Board of Directors, effective at a future date, a majority of the directors
then in office, including those who have so resigned, shall have power to
fill such vacancy or vacancies, the vote thereon to take effect when such
resignation or resignations shall become effective, and each director so
chosen shall hold office for the unexpired portion of the term of the
director whose place shall be vacated and until his successor shall have been
duly elected and qualified.
SECTION 20. REMOVAL. Subject to any limitations imposed by law or
the Certificate of Incorporation, the Board of Directors, or any individual
director, may be removed from office at any time (i) with cause by the
affirmative vote of the holders of at least a majority of the then
outstanding shares of Voting Stock; or (ii) without cause by an affirmative
vote of the holders of at least sixty-six and two-thirds percent (66-2/3%) of
such outstanding shares.
SECTION 21. MEETINGS.
(a) ANNUAL MEETINGS. The annual meeting of the Board of
Directors shall be held immediately before or after the annual meeting of
stockholders and at the place where such meeting is held. No notice of an
annual meeting of the Board of Directors shall be necessary and such meeting
shall be held for the purpose of electing officers and transacting such other
business as may lawfully come before it.
(b) REGULAR MEETINGS. Unless otherwise restricted by the
Certificate of Incorporation, regular meetings of the Board of Directors may
be held at any time or date and at any place within or without the State of
Delaware which has been designated by the Board of Directors and publicized
among all directors. No formal notice shall be required for regular meetings
of the Board or Directors.
(c) SPECIAL MEETINGS. Unless otherwise restricted by the
Certificate of Incorporation, special meetings of the Board of Directors may
be held at any time and place within or without the State of Delaware
whenever called by the Chairman of the Board, the President or any two of the
directors.
(d) TELEPHONE MEETINGS. Any member of the Board of
Directors, or of any committee thereof, may participate in a meeting by means
of conference telephone or similar communications equipment by means of which
all persons participating in the meeting can hear each other, and
participation in a meeting by such means shall constitute presence in person
at such meeting.
(e) NOTICE OF MEETINGS. Notice of the time and place of
all special meetings of the Board of Directors shall be orally or in writing,
by telephone, including a voice messaging system or other system or
technology designed to record and communicate messages, facsimile, telegraph
or telex, or by electronic mail or other electronic means, during normal
business hours, at least twenty-four (24) hours before the date and time of
the meeting, or sent in writing to each director by first class mail, charges
prepaid, at least three (3) days before the date of the meeting. Notice of
any meeting may be waived in writing at any time before or after the meeting
and will be waived by any director by attendance thereat, except when the
director attends the meeting for
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the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened.
(f) WAIVER OF NOTICE. The transaction of all business at
any meeting of the Board of Directors, or any committee thereof, however
called or noticed, or wherever held, shall be as valid as though had at a
meeting duly held after regular call and notice, if a quorum be present and
if, either before or after the meeting, each of the directors not present
shall sign a written waiver of notice. All such waivers shall be filed with
the corporate records or made a part of the minutes of the meeting.
SECTION 22. QUORUM AND VOTING.
(a) Unless the Certificate of Incorporation requires a
greater number and except with respect to indemnification questions arising
under Section 43 hereof, for which a quorum shall be one-third of the exact
number of directors fixed from time to time in accordance with the
Certificate of Incorporation, a quorum of the Board of Directors shall
consist of a majority of the exact number of directors fixed from time to
time by the Board of Directors in accordance with the Certificate of
Incorporation; provided, however, at any meeting whether a quorum be present
or otherwise, a majority of the directors present may adjourn from time to
time until the time fixed for the next regular meeting of the Board of
Directors, without notice other than by announcement at the meeting.
(b) At each meeting of the Board of Directors at which a
quorum is present, all questions and business shall be determined by the
affirmative vote of a majority of the directors present, unless a different
vote be required by law, the Certificate of Incorporation or these Bylaws.
SECTION 23. ACTION WITHOUT MEETING. Unless otherwise restricted by
the Certificate of Incorporation or these Bylaws, any action required or
permitted to be taken at any meeting of the Board of Directors or of any
committee thereof may be taken without a meeting, if all members of the Board
of Directors or committee, as the case may be, consent thereto in writing,
and such writing or writings are filed with the minutes of proceedings of the
Board of Directors or committee.
SECTION 24. FEES AND COMPENSATION. Directors shall be entitled to
such compensation for their services as may be approved by the Board of
Directors, including, if so approved, by resolution of the Board of
Directors, a fixed sum and expenses of attendance, if any, for attendance at
each regular or special meeting of the Board of Directors and at any meeting
of a committee of the Board of Directors. Nothing herein contained shall be
construed to preclude any director from serving the corporation in any other
capacity as an officer, agent, employee, or otherwise and receiving
compensation therefor.
SECTION 25. COMMITTEES.
(a) EXECUTIVE COMMITTEE. The Board of Directors may
appoint an Executive Committee to consist of one (1) or more members of the
Board of Directors. The Executive Committee, to the extent permitted by law
and provided in the resolution of the Board of Directors shall have and may
exercise all the powers and authority of the Board of Directors in
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the management of the business and affairs of the corporation, and may
authorize the seal of the corporation to be affixed to all papers which may
require it; but no such committee shall have the power or authority in
reference to (i) approving or adopting, or recommending to the stockholders,
any action or matter expressly required by the Delaware General Corporation
Law to be submitted to stockholders for approval, or (ii) adopting, amending
or repealing any bylaw of the corporation.
(b) OTHER COMMITTEES. The Board of Directors may, from
time to time, appoint such other committees as may be permitted by law. Such
other committees appointed by the Board of Directors shall consist of one (1)
or more members of the Board of Directors and shall have such powers and
perform such duties as may be prescribed by the resolution or resolutions
creating such committees, but in no event shall any such committee have the
powers denied to the Executive Committee in these Bylaws.
(c) TERM. Each member of a committee of the Board of
Directors shall serve a term on the committee coexistent with such member's
term on the Board of Directors. The Board of Directors, subject to any
requirements of any outstanding series of preferred Stock and the provisions
of subsections (a) or (b) of this Bylaw, may at any time increase or decrease
the number of members of a committee or terminate the existence of a
committee. The membership of a committee member shall terminate on the date
of his death or voluntary resignation from the committee or from the Board of
Directors. The Board of Directors may at any time for any reason remove any
individual committee member and the Board of Directors may fill any committee
vacancy created by death, resignation, removal or increase in the number of
members of the committee. The Board of Directors may designate one or more
directors as alternate members of any committee, who may replace any absent
or disqualified member at any meeting of the committee, and, in addition, in
the absence or disqualification of any member of a committee, the member or
members thereof present at any meeting and not disqualified from voting,
whether or not he or they constitute a quorum, may unanimously appoint
another member of the Board of Directors to act at the meeting in the place
of any such absent or disqualified member.
(d) MEETINGS. Unless the Board of Directors shall
otherwise provide, regular meetings of the Executive Committee or any other
committee appointed pursuant to this Section 24 shall be held at such times
and places as are determined by the Board of Directors, or by any such
committee, and when notice thereof has been given to each member of such
committee, no further notice of such regular meetings need be given
thereafter. Special meetings of any such committee may be held at any place
which has been determined from time to time by such committee, and may be
called by any director who is a member of such committee, upon written notice
to the members of such committee of the time and place of such special
meeting given in the manner provided for the giving of written notice to
members of the Board of Directors of the time and place of special meetings
of the Board of Directors. Notice of any special meeting of any committee
may be waived in writing at any time before or after the meeting and will be
waived by any director by attendance thereat, except when the director
attends such special meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business because the
meeting is not lawfully called or convened. A majority of the authorized
number of members of any such committee shall constitute a quorum for the
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transaction of business, and the act of a majority of those present at any
meeting at which a quorum is present shall be the act of such committee.
SECTION 26. ORGANIZATION. At every meeting of the directors, the
Chairman of the Board of Directors, or, if a Chairman has not been appointed
or is absent, the President (if a director), or if the President is absent,
the most senior Vice President (if a director), or, in the absence of any
such person, a chairman of the meeting chosen by a majority of the directors
present, shall preside over the meeting. The Secretary, or in his absence,
any Assistant Secretary directed to do so by the President, shall act as
secretary of the meeting.
ARTICLE V
OFFICERS
SECTION 27. OFFICERS DESIGNATED. The officers of the corporation
shall include, if and when designated by the Board of Directors, the Chairman
of the Board of Directors, the Chief Executive Officer, the President, one or
more Vice Presidents, the Secretary, the Chief Financial Officer, the
Treasurer and the Controller, all of whom shall be elected at the annual
organizational meeting of the Board of Directors. The order of the seniority
of the Vice Presidents shall be in the order of their nomination, unless
otherwise determined by the Board of Directors. The Board of Directors may
also appoint one or more Assistant Secretaries, Assistant Treasurers,
Assistant Controllers and such other officers and agents with such powers and
duties as it shall deem necessary. The Board of Directors may assign such
additional titles to one or more of the officers as it shall deem
appropriate. Any one person may hold any number of offices of the
corporation at any one time unless specifically prohibited therefrom by law.
The salaries and other compensation of the officers of the corporation shall
be fixed by or in the manner designated by the Board of Directors.
SECTION 28. TENURE AND DUTIES OF OFFICERS.
(a) GENERAL. All officers shall hold office at the
pleasure of the Board of Directors and until their successors shall have been
duly elected and qualified, unless sooner removed. Any officer elected or
appointed by the Board of Directors may be removed at any time by the Board
of Directors. If the office of any officer becomes vacant for any reason, the
vacancy may be filled by the Board of Directors.
(b) DUTIES OF CHAIRMAN OF THE BOARD OF DIRECTORS. The
Chairman of the Board of Directors, when present, shall preside at all
meetings of the stockholders and the Board of Directors. The Chairman of the
Board of Directors shall perform other duties commonly incident to his office
and shall also perform such other duties and have such other powers as the
Board of Directors shall designate from time to time. If there is no
President, then the Chairman of the Board of Directors shall also serve as
the Chief Executive Officer of the corporation and shall have the powers and
duties prescribed in paragraph (c) of this Section 28.
(c) DUTIES OF PRESIDENT. The President shall preside at
all meetings of the stockholders and at all meetings of the Board of
Directors, unless the Chairman of the Board of Directors has been appointed
and is present. Unless some other officer has been elected Chief
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Executive Officer of the corporation, the President shall be the chief
executive officer of the corporation and shall, subject to the control of the
Board of Directors, have general supervision, direction and control of the
business and officers of the corporation. The President shall perform other
duties commonly incident to his office and shall also perform such other
duties and have such other powers as the Board of Directors shall designate
from time to time.
(d) DUTIES OF VICE PRESIDENTS. The Vice Presidents may
assume and perform the duties of the President in the absence or disability
of the President or whenever the office of President is vacant. The Vice
Presidents shall perform other duties commonly incident to their office and
shall also perform such other duties and have such other powers as the Board
of Directors or the President shall designate from time to time.
(e) DUTIES OF SECRETARY. The Secretary shall attend all
meetings of the stockholders and of the Board of Directors and shall record
all acts and proceedings thereof in the minute book of the corporation. The
Secretary shall give notice in conformity with these Bylaws of all meetings
of the stockholders and of all meetings of the Board of Directors and any
committee thereof requiring notice. The Secretary shall perform all other
duties given him in these Bylaws and other duties commonly incident to his
office and shall also perform such other duties and have such other powers as
the Board of Directors shall designate from time to time. The President may
direct any Assistant Secretary to assume and perform the duties of the
Secretary in the absence or disability of the Secretary, and each Assistant
Secretary shall perform other duties commonly incident to his office and
shall also perform such other duties and have such other powers as the Board
of Directors or the President shall designate from time to time.
(f) DUTIES OF CHIEF FINANCIAL OFFICER. The Chief Financial
Officer shall keep or cause to be kept the books of account of the
corporation in a thorough and proper manner and shall render statements of
the financial affairs of the corporation in such form and as often as
required by the Board of Directors or the President. The Chief Financial
Officer, subject to the order of the Board of Directors, shall have the
custody of all funds and securities of the corporation. The Chief Financial
Officer shall perform other duties commonly incident to his office and shall
also perform such other duties and have such other powers as the Board of
Directors or the President shall designate from time to time. The President
may direct the Treasurer or any Assistant Treasurer, or the Controller or any
Assistant Controller to assume and perform the duties of the Chief Financial
Officer in the absence or disability of the Chief Financial Officer, and each
Treasurer and Assistant Treasurer and each Controller and Assistant
Controller shall perform other duties commonly incident to his office and
shall also perform such other duties and have such other powers as the Board
of Directors or the President shall designate from time to time.
SECTION 29. DELEGATION OF AUTHORITY. The Board of Directors may
from time to time delegate the powers or duties of any officer to any other
officer or agent, notwithstanding any provision hereof.
SECTION 30. RESIGNATIONS. Any officer may resign at any time by
giving written notice to the Board of Directors or to the President or to the
Secretary. Any such resignation shall be effective when received by the
person or persons to whom such notice is given, unless a later time is
specified therein, in which event the resignation shall become effective at
such later
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time. Unless otherwise specified in such notice, the acceptance of any such
resignation shall not be necessary to make it effective. Any resignation
shall be without prejudice to the rights, if any, of the corporation under
any contract with the resigning officer.
SECTION 31. REMOVAL. Any officer may be removed from office at any
time, either with or without cause, by the affirmative vote of a majority of
the directors in office at the time, or by the unanimous written consent of
the directors in office at the time, or by any committee or superior officers
upon whom such power of removal may have been conferred by the Board of
Directors.
ARTICLE VI
EXECUTION OF CORPORATE INSTRUMENTS AND
VOTING OF SECURITIES OWNED BY THE CORPORATION
SECTION 32. EXECUTION OF CORPORATE INSTRUMENTS. The Board of
Directors may, in its discretion, determine the method and designate the
signatory officer or officers, or other person or persons, to execute on
behalf of the corporation any corporate instrument or document, or to sign on
behalf of the corporation the corporate name without limitation, or to enter
into contracts on behalf of the corporation, except where otherwise provided
by law or these Bylaws, and such execution or signature shall be binding upon
the corporation.
All checks and drafts drawn on banks or other depositaries on funds to
the credit of the corporation or in special accounts of the corporation shall
be signed by such person or persons as the Board of Directors shall authorize
so to do.
Unless authorized or ratified by the Board of Directors or within the
agency power of an officer, no officer, agent or employee shall have any
power or authority to bind the corporation by any contract or engagement or
to pledge its credit or to render it liable for any purpose or for any amount.
SECTION 33. VOTING OF SECURITIES OWNED BY THE CORPORATION. All
stock and other securities of other corporations owned or held by the
corporation for itself, or for other parties in any capacity, shall be voted,
and all proxies with respect thereto shall be executed, by the person
authorized so to do by resolution of the Board of Directors, or, in the
absence of such authorization, by the Chairman of the Board of Directors, the
Chief Executive Officer, the President, or any Vice President.
ARTICLE VII
SHARES OF STOCK
SECTION 34. FORM AND EXECUTION OF CERTIFICATES. Certificates for
the shares of stock of the corporation shall be in such form as is consistent
with the Certificate of Incorporation and applicable law. Every holder of
stock in the corporation shall be entitled to have a certificate signed by or
in the name of the corporation by the Chairman of the Board of Directors, or
the President or any Vice President and by the Treasurer or Assistant
Treasurer or the Secretary or Assistant Secretary, certifying the number of
shares owned by him in the corporation. Any and
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all of the signatures on the certificate may be facsimiles. In case any
officer, transfer agent, or registrar who has signed or whose facsimile
signature has been placed upon a certificate shall have ceased to be such
officer, transfer agent, or registrar before such certificate is issued, it
may be issued with the same effect as if he were such officer, transfer
agent, or registrar at the date of issue. Each certificate shall state upon
the face or back thereof, in full or in summary, all the powers,
designations, preferences, and rights, and the limitations or restrictions of
the shares authorized to be issued or shall, except as otherwise required by
law, set forth on the face or back a statement that the corporation will
furnish without charge to each stockholder who so requests the powers,
designations, preferences and relative, participating, optional, or other
special rights of each class of stock or series thereof and the
qualifications, limitations or restrictions of such preferences and/or
rights. Within a reasonable time after the issuance or transfer of
uncertificated stock, the corporation shall send to the registered owner
thereof a written notice containing the information required to be set forth
or stated on certificates pursuant to this section or otherwise required by
law or with respect to this section a statement that the corporation will
furnish without charge to each stockholder who so requests the powers,
designations, preferences and relative participating, optional or othe
special rights of each class of stock or series thereof and the
qualifications, limitations or restrictions of such preferences and/or
rights. Except as otherwise expressly provided by law, the rights and
obligations of the holders of certificates representing stock of the same
class and series shall be identical.
SECTION 35. LOST CERTIFICATES. A new certificate or certificates
shall be issued in place of any certificate or certificates theretofore
issued by the corporation alleged to have been lost, stolen, or destroyed,
upon the making of an affidavit of that fact by the person claiming the
certificate of stock to be lost, stolen, or destroyed. The corporation may
require, as a condition precedent to the issuance of a new certificate or
certificates, the owner of such lost, stolen, or destroyed certificate or
certificates, or his legal representative, to agree to indemnify the
corporation in such manner as it shall require or to give the corporation a
surety bond in such form and amount as it may direct as indemnity against any
claim that may be made against the corporation with respect to the
certificate alleged to have been lost, stolen, or destroyed.
SECTION 36. TRANSFERS.
(a) Transfers of record of shares of stock of the
corporation shall be made only upon its books by the holders thereof, in
person or by attorney duly authorized, and upon the surrender of a properly
endorsed certificate or certificates for a like number of shares.
(b) The corporation shall have power to enter into and
perform any agreement with any number of stockholders of any one or more
classes of stock of the corporation to restrict the transfer of shares of
stock of the corporation of any one or more classes owned by such
stockholders in any manner not prohibited by the Delaware General Corporation
Law.
SECTION 37. FIXING RECORD DATES.
(a) In order that the corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders
or any adjournment thereof, the Board of Directors may fix, in advance, a
record date, which record date shall not precede the date upon which the
resolution fixing the record date is adopted by the Board of Directors, and
which
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record date shall, subject to applicable law, not be more than sixty (60) nor
less than ten (10) days before the date of such meeting. If no record date
is fixed by the Board of Directors, the record date for determining
stockholders entitled to notice of or to vote at a meeting of stockholders
shall be at the close of business on the day next preceding the day on which
notice is given, or if notice is waived, at the close of business on the day
next preceding the day on which the meeting is held. A determination of
stockholders of record entitled to notice of or to vote at a meeting of
stockholders shall apply to any adjournment of the meeting; provided,
however, that the Board of Directors may fix a new record date for the
adjourned meeting.
(b) In order that the corporation may determine the
stockholders entitled to receive payment of any dividend or other
distribution or allotment of any rights or the stockholders entitled to
exercise any rights in respect of any change, conversion or exchange of
stock, or for the purpose of any other lawful action, the Board of Directors
may fix, in advance, a record date, which record date shall not precede the
date upon which the resolution fixing the record date is adopted, and which
record date shall be not more than sixty (60) days prior to such action. If
no record date is fixed, the record date for determining stockholders for any
such purpose shall be at the close of business on the day on which the Board
of Directors adopts the resolution relating thereto.
SECTION 38. REGISTERED STOCKHOLDERS. The corporation shall be
entitled to recognize the exclusive right of a person registered on its books
as the owner of shares to receive dividends, and to vote as such owner, and
shall not be bound to recognize any equitable or other claim to or interest
in such share or shares on the part of any other person whether or not it
shall have express or other notice thereof, except as otherwise provided by
the laws of Delaware.
ARTICLE VIII
OTHER SECURITIES OF THE CORPORATION
SECTION 39. EXECUTION OF OTHER SECURITIES. All bonds, debentures
and other corporate securities of the corporation, other than stock
certificates (covered in Section 34), may be signed by the Chairman of the
Board of Directors, the President or any Vice President, or such other person
as may be authorized by the Board of Directors, and the corporate seal
impressed thereon or a facsimile of such seal imprinted thereon and attested
by the signature of the Secretary or an Assistant Secretary, or the Chief
Financial Officer or Treasurer or an Assistant Treasurer; provided, however,
that where any such bond, debenture or other corporate security shall be
authenticated by the manual signature, or where permissible facsimile
signature, of a trustee under an indenture pursuant to which such bond,
debenture or other corporate security shall be issued, the signatures of the
persons signing and attesting the corporate seal on such bond, debenture or
other corporate security may be the imprinted facsimile of the signatures of
such persons. Interest coupons appertaining to any such bond, debenture or
other corporate security, authenticated by a trustee as aforesaid, shall be
signed by the Treasurer or an Assistant Treasurer of the corporation or such
other person as may be authorized by the Board of Directors, or bear
imprinted thereon the facsimile signature of such person. In case any
officer who shall have signed or attested any bond, debenture or other
corporate security, or whose facsimile signature shall appear thereon or on
any such interest coupon, shall have ceased to be such officer before the
bond, debenture or other corporate security so signed or attested shall
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have been delivered, such bond, debenture or other corporate security
nevertheless may be adopted by the corporation and issued and delivered as
though the person who signed the same or whose facsimile signature shall have
been used thereon had not ceased to be such officer of the corporation.
ARTICLE IX
DIVIDENDS
SECTION 40. DECLARATION OF DIVIDENDS. Dividends upon the capital
stock of the corporation, subject to the provisions of the Certificate of
Incorporation and applicable law, if any, may be declared by the Board of
Directors pursuant to law at any regular or special meeting. Dividends may
be paid in cash, in property, or in shares of the capital stock, subject to
the provisions of the Certificate of Incorporation and applicable law.
SECTION 41. DIVIDEND RESERVE. Before payment of any dividend,
there may be set aside out of any funds of the corporation available for
dividends such sum or sums as the Board of Directors from time to time, in
their absolute discretion, think proper as a reserve or reserves to meet
contingencies, or for equalizing dividends, or for repairing or maintaining
any property of the corporation, or for such other purpose as the Board of
Directors shall think conducive to the interests of the corporation, and the
Board of Directors may modify or abolish any such reserve in the manner in
which it was created.
ARTICLE X
FISCAL YEAR
SECTION 42. FISCAL YEAR. The fiscal year of the corporation shall
be fixed by resolution of the Board of Directors.
ARTICLE XI
INDEMNIFICATION
SECTION 43. INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND
OTHER AGENTS.
(a) DIRECTORS AND EXECUTIVE OFFICERS. The corporation
shall indemnify its directors and executive officers (for the purposes of
this Article XI, "executive officers" shall have the meaning defined in Rule
3b-7 promulgated under the 1934 Act) to the fullest extent not prohibited by
the Delaware General Corporation Law or any other applicable law; provided,
however, that the corporation may modify the extent of such indemnification
by individual contracts with its directors and executive officers; and,
provided, further, that the corporation shall not be required to indemnify
any director or executive officer in connection with any proceeding (or part
thereof) initiated by such person unless (i) such indemnification is
expressly required to be made by law, (ii) the proceeding was authorized by
the Board of Directors of the corporation, (iii) such indemnification is
provided by the corporation, in its sole discretion, pursuant to the powers
vested in the corporation under the Delaware General Corporation Law or
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any other applicable law or (iv) such indemnification id required to be made
under subsection (d).
(b) OTHER OFFICERS, EMPLOYEES AND OTHER AGENTS. The
corporation shall have power to indemnify its other officers, employees and
other agents as set forth in the Delaware General Corporation Law or any
other applicable law.
(c) EXPENSES. The corporation shall advance to any person
who was or is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative, by reason of the fact that he is or was a
director or executive officer, of the corporation, or is or was serving at
the request of the corporation as a director or executive officer of another
corporation, partnership, joint venture, trust or other enterprise, prior to
the final disposition of the proceeding, promptly following request therefor,
all expenses incurred by any director or executive officer in connection with
such proceeding upon receipt of an undertaking by or on behalf of such person
to repay said amounts if it should be determined ultimately that such person
is not entitled to be indemnified under this Bylaw or otherwise.
Notwithstanding the foregoing, unless otherwise determined pursuant to
paragraph (d) of this Bylaw, no advance shall be made by the corporation to
an executive officer of the corporation (except by reason of the fact that
such executive officer is or was a director of the corporation in which event
this paragraph shall not apply) in any action, suit or proceeding, whether
civil, criminal, administrative or investigative, if a determination is
reasonably and promptly made (i) by the Board of Directors by a majority vote
of a quorum consisting of directors who were not parties to the proceeding,
or (ii) if such quorum is not obtainable, or, even if obtainable, a quorum of
disinterested directors so directs, by independent legal counsel in a written
opinion, that the facts known to the decision-making party at the time such
determination is made demonstrate clearly and convincingly that such person
acted in bad faith or in a manner that such person did not believe to be in
or not opposed to the best interests of the corporation.
(d) ENFORCEMENT. Without the necessity of entering into an
express contract, all rights to indemnification and advances to directors and
executive officers under this Bylaw shall be deemed to be contractual rights
and be effective to the same extent and as if provided for in a contract
between the corporation and the director or executive officer. Any right to
indemnification or advances granted by this Bylaw to a director or executive
officer shall be enforceable by or on behalf of the person holding such right
in any court of competent jurisdiction if (i) the claim for indemnification
or advances is denied, in whole or in part, or (ii) no disposition of such
claim is made within ninety (90) days of request therefor. The claimant in
such enforcement action, if successful in whole or in part, shall be entitled
to be paid also the expense of prosecuting his claim. In connection with any
claim for indemnification, the corporation shall be entitled to raise as a
defense to any such action that the claimant has not met the standards of
conduct that make it permissible under the Delaware General Corporation Law
or any other applicable law for the corporation to indemnify the claimant for
the amount claimed. In connection with any claim by an executive officer of
the corporation (except in any action, suit or proceeding, whether civil,
criminal, administrative or investigative, by reason of the fact that such
executive officer is or was a director of the corporation) for advances, the
corporation shall be entitled to raise a defense as to any such action clear
and convincing evidence that such
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person acted in bad faith or in a manner that such person did not believe to
be in or not opposed to the best interests of the corporation, or with
respect to any criminal action or proceeding that such person acted without
reasonable cause to believe that his conduct was lawful. Neither the failure
of the corporation (including its Board of Directors, independent legal
counsel or its stockholders) to have made a determination prior to the
commencement of such action that indemnification of the claimant is proper in
the circumstances because he has met the applicable standard of conduct set
forth in the Delaware General Corporation Law or any other applicable law,
nor an actual determination by the corporation (including its Board of
Directors, independent legal counsel or its stockholders) that the claimant
has not met such applicable standard of conduct, shall be a defense to the
action or create a presumption that claimant has not met the applicable
standard of conduct. In any suit brought by a director or executive officer
to enforce a right to indemnification or to an advancement of expenses
hereunder, the burden of proving that the director or executive officer is
not entitled to be indemnified, or to such advancement of expenses, under
this Article XI or otherwise shall be on the corporation.
(e) NON-EXCLUSIVITY OF RIGHTS. The rights conferred on any
person by this Bylaw shall not be exclusive of any other right which such
person may have or hereafter acquire under any applicable statute, provision
of the Certificate of Incorporation, Bylaws, agreement, vote of stockholders
or disinterested directors or otherwise, both as to action in his official
capacity and as to action in another capacity while holding office. The
corporation is specifically authorized to enter into individual contracts
with any or all of its directors, officers, employees or agents respecting
indemnification and advances, to the fullest extent not prohibited by the
Delaware General Corporation Law or any other applicable law.
(f) SURVIVAL OF RIGHTS. The rights conferred on any person
by this Bylaw shall continue as to a person who has ceased to be a director,
officer, employee or other agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
(g) INSURANCE. To the fullest extent permitted by the
Delaware General Corporation Law or any other applicable law, the
corporation, upon approval by the Board of Directors, may purchase insurance
on behalf of any person required or permitted to be indemnified pursuant to
this Bylaw.
(h) AMENDMENTS. Any repeal or modification of this Bylaw
shall only be prospective and shall not affect the rights under this Bylaw in
effect at the time of the alleged occurrence of any action or omission to act
that is the cause of any proceeding against any agent of the corporation.
(i) SAVING CLAUSE. If this Bylaw or any portion hereof
shall be invalidated on any ground by any court of competent jurisdiction,
then the corporation shall nevertheless indemnify each director and executive
officer to the full extent not prohibited by any applicable portion of this
Bylaw that shall not have been invalidated, or by any other applicable law.
If this Section 43 shall be invalid due to the application of the
indemnification provisions of another jurisdiction, then the corporation
shall indemnify each director and executive officer to the full extent under
any other applicable law.
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(j) CERTAIN DEFINITIONS. For the purposes of this Bylaw,
the following definitions shall apply:
(i) The term "proceeding" shall be broadly
construed and shall include, without limitation, the investigation,
preparation, prosecution, defense, settlement, arbitration and appeal of, and
the giving of testimony in, any threatened, pending or completed action, suit
or proceeding, whether civil, criminal, administrative or investigative.
(ii) The term "expenses" shall be broadly construed
and shall include, without limitation, court costs, attorneys' fees, witness
fees, fines, amounts paid in settlement or judgment and any other costs and
expenses of any nature or kind incurred in connection with any proceeding.
(iii) The term the "corporation" shall include, in
addition to the resulting corporation, any constituent corporation (including
any constituent of a constituent) absorbed in a consolidation or merger
which, if its separate existence had continued, would have had power and
authority to indemnify its directors, officers, and employees or agents, so
that any person who is or was a director, officer, employee or agent of such
constituent corporation, or is or was serving at the request of such
constituent corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, shall
stand in the same position under the provisions of this Bylaw with respect to
the resulting or surviving corporation as he would have with respect to such
constituent corporation if its separate existence had continued.
(iv) References to a "director," "executive
officer," "officer," "employee," or "agent" of the corporation shall include,
without limitation, situations where such person is serving at the request of
the corporation as, respectively, a director, executive officer, officer,
employee, trustee or agent of another corporation, partnership, joint
venture, trust or other enterprise.
(v) References to "other enterprises" shall include
employee benefit plans; references to "fines" shall include any excise taxes
assessed on a person with respect to an employee benefit plan; and references
to "serving at the request of the corporation" shall include any service as a
director, officer, employee or agent of the corporation which imposes duties
on, or involves services by, such director, officer, employee, or agent with
respect to an employee benefit plan, its participants, or beneficiaries; and
a person who acted in good faith and in a manner he reasonably believed to be
in the interest of the participants and beneficiaries of an employee benefit
plan shall be deemed to have acted in a manner "not opposed to the best
interests of the corporation" as referred to in this Bylaw.
ARTICLE XII
NOTICES
SECTION 44. NOTICES.
(a) NOTICE TO STOCKHOLDERS. Whenever, under any provisions
of these Bylaws, notice is required to be given to any stockholder, it shall
be given in writing, timely and
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duly deposited in the United States mail, postage prepaid, and addressed to
his last known post office address as shown by the stock record of the
corporation or its transfer agent.
(b) NOTICE TO DIRECTORS. Any notice required to be given
to any director may be given by the method stated in subsection (a), or by
overnight delivery service, facsimile, telex or telegram, except that such
notice other than one which is delivered personally shall be sent to such
address as such director shall have filed in writing with the Secretary, or,
in the absence of such filing, to the last known post office address of such
director.
(c) AFFIDAVIT OF MAILING. An affidavit of mailing,
executed by a duly authorized and competent employee of the corporation or
its transfer agent appointed with respect to the class of stock affected,
specifying the name and address or the names and addresses of the stockholder
or stockholders, or director or directors, to whom any such notice or notices
was or were given, and the time and method of giving the same, shall in the
absence of fraud, be prima facie evidence of the facts therein contained.
(d) TIME NOTICES DEEMED GIVEN. All notices given by mail
or by overnight delivery service, as above provided, shall be deemed to have
been given as at the time of mailing, and all notices given by facsimile,
telex or telegram shall be deemed to have been given as of the sending time
recorded at time of transmission.
(e) METHODS OF NOTICE. It shall not be necessary that the
same method of giving notice be employed in respect of all directors, but one
permissible method may be employed in respect of any one or more, and any
other permissible method or methods may be employed in respect of any other
or others.
(f) FAILURE TO RECEIVE NOTICE. The period or limitation of
time within which any stockholder may exercise any option or right, or enjoy
any privilege or benefit, or be required to act, or within which any director
may exercise any power or right, or enjoy any privilege, pursuant to any
notice sent him in the manner above provided, shall not be affected or
extended in any manner by the failure of such stockholder or such director to
receive such notice.
(g) NOTICE TO PERSON WITH WHOM COMMUNICATION IS UNLAWFUL.
Whenever notice is required to be given, under any provision of law or of the
Certificate of Incorporation or Bylaws of the corporation, to any person with
whom communication is unlawful, the giving of such notice to such person
shall not be required and there shall be no duty to apply to any governmental
authority or agency for a license or permit to give such notice to such
person. Any action or meeting which shall be taken or held without notice to
any such person with whom communication is unlawful shall have the same force
and effect as if such notice had been duly given. In the event that the
action taken by the corporation is such as to require the filing of a
certificate under any provision of the Delaware General Corporation Law, the
certificate shall state, if such is the fact and if notice is required, that
notice was given to all persons entitled to receive notice except such
persons with whom communication is unlawful.
(h) NOTICE TO PERSON WITH UNDELIVERABLE ADDRESS. Whenever
notice is required to be given, under any provision of law or the Certificate
of Incorporation or Bylaws of the corporation, to any stockholder to whom (i)
notice of two consecutive annual meetings, and
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all notices of meetings or of the taking of action by written consent without
a meeting to such person during the period between such two consecutive
annual meetings, or (ii) all, and at least two, payments (if sent by first
class mail) of dividends or interest on securities during a twelve-month
period, have been mailed addressed to such person at his address as shown on
the records of the corporation and have been returned undeliverable, the
giving of such notice to such person shall not be required. Any action or
meeting which shall be taken or held without notice to such person shall have
the same force and effect as if such notice had been duly given. If any such
person shall deliver to the corporation a written notice setting forth his
then current address, the requirement that notice be given to such person
shall be reinstated. In the event that the action taken by the corporation
is such as to require the filing of a certificate under any provision of the
Delaware General Corporation Law, the certificate need not state that notice
was not given to persons to whom notice was not required to be given pursuant
to this paragraph.
ARTICLE XIII
AMENDMENTS
SECTION 45. AMENDMENTS. Subject to paragraph (h) of Section 43 of
the Bylaws, the Bylaws may be altered or amended or new Bylaws adopted by the
affirmative vote of at least sixty-six and two-thirds percent (66-2/3%) of
the voting power of all of the then-outstanding shares of the voting stock of
the corporation entitled to vote. The Board of Directors shall also have the
power to adopt, amend, or repeal the Bylaws.
ARTICLE XIV
LOANS TO OFFICERS
SECTION 46. LOANS TO OFFICERS. The corporation may lend money to,
or guarantee any obligation of, or otherwise assist any officer or other
employee of the corporation or of its subsidiaries, including any officer or
employee who is a director of the corporation or its subsidiaries, whenever,
in the judgment of the Board of Directors, such loan, guarantee or assistance
may reasonably be expected to benefit the corporation. The loan, guarantee
or other assistance may be with or without interest and may be unsecured, or
secured in such manner as the Board of Directors shall approve, including,
without limitation, a pledge of shares of stock of the corporation. Nothing
in these Bylaws shall be deemed to deny, limit or restrict the powers of
guaranty or warranty of the corporation at common law or under any statute.
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Exhibit 10.7
GILEAD SCIENCES, INC.
EMPLOYEE STOCK PURCHASE PLAN
ADOPTED NOVEMBER 15, 1991
AMENDED MAY 25, 1994
AMENDED AND RESTATED JANUARY 22, 1998
APPROVED BY STOCKHOLDERS MAY 27, 1998
AMENDED MARCH 30, 1999
TERMINATION DATE: JANUARY 21, 2008
1. PURPOSE.
(a) The purpose of the Employee Stock Purchase Plan ("the Plan")
is to provide a means by which employees of GILEAD SCIENCES, INC., a Delaware
corporation (the "Company"), and its Affiliates, as defined in subparagraph
1(c), which are designated as provided in subparagraph 2(b), may be given an
opportunity to purchase stock of the Company.
(b) Plan initially was adopted on November 15, 1991 and
subsequently amended on May 25, 1994 (the "Initial Plan"). The Initial Plan
hereby is amended and restated in its entirety effective as of January 22,
1998. The terms of the Initial Plan (other than the aggregate number of
shares issuable thereunder) shall remain in effect and apply to all options
granted pursuant to the Initial Plan.
(c) 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 (the "Code").
(d) The Company, by means of the Plan, seeks to retain the
services of its employees, to secure and retain the services of new
employees, and to provide incentives for such persons to exert maximum
efforts for the success of the Company.
(e) The Company intends that the rights to purchase stock of the
Company granted under the Plan be considered options issued under an
"employee stock purchase plan" as that term is defined in Section 423(b) of
the Code.
2. ADMINISTRATION.
(a) The Plan shall be administered by the Board of Directors (the
"Board") of the Company unless and until the Board delegates administration
to a Committee, as provided in subparagraph 2(c). Whether or not the Board
has delegated administration, the Board shall have
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the final power to determine all questions of policy and expediency that may
arise in the administration of the Plan.
(b) The Board shall have the power, subject to, and within the
limitations of, the express provisions of the Plan:
(i) To determine when and how rights to purchase stock of
the Company shall be granted and the provisions of each offering of such
rights (which need not be identical).
(ii) To designate from time to time which Affiliates of the
Company shall be eligible to participate in the Plan.
(iii) To construe and interpret the Plan and rights 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, in a manner and to the extent
it shall deem necessary or expedient to make the Plan fully effective.
(iv) To amend the Plan as provided in paragraph 13.
(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.
(c) 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.
Subject to the provisions of paragraph 12 relating to adjustments
upon changes in stock, the stock that may be sold pursuant to rights granted
under the Plan shall not exceed in the aggregate one million five hundred
eighty thousand (1,580,000) shares of the Company's $.001 par value common
stock (the "Common Stock"). If any right granted under the Plan shall for
any reason terminate without having been exercised, the Common Stock not
purchased under such right shall again become available for the Plan. The
stock subject to the Plan may be unissued shares or reacquired shares, bought
on the market or otherwise.
4. GRANT OF RIGHTS; OFFERING.
The Board or the Committee may from time to time grant or provide
for the grant of rights to purchase Common Stock of the Company under the
Plan to eligible employees (an "Offering") on a date or dates (the "Offering
Date(s)") selected by the Board or the Committee.
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Each Offering shall be in such form and shall contain such terms and
conditions as the Board or the Committee shall deem appropriate. If an
employee has more than one right outstanding under the Plan, unless he or she
otherwise indicates in agreements or notices delivered hereunder: (1) each
agreement or notice delivered by that employee will be deemed to apply to all
of his or her rights under the Plan, and (2) a right with a lower exercise
price (or an earlier-granted right, if two rights have identical exercise
prices), will be exercised to the fullest possible extent before a right with
a higher exercise price (or a later-granted right, if two rights have
identical exercise prices) will be exercised. The provisions of separate
Offerings need not be identical, but each Offering shall include (through
incorporation of the provisions of this Plan by reference in the Offering or
otherwise) the substance of the provisions contained in paragraphs 5 through
8, inclusive.
5. ELIGIBILITY.
(a) Rights may be granted only to employees of the Company or, as
the Board or the Committee may designate as provided in subparagraph 2(b), to
employees of any Affiliate of the Company. Except as provided in
subparagraph 5(b), an employee of the Company or any Affiliate shall not be
eligible to be granted rights under the Plan, unless, on the Offering Date,
such employee has been in the employ of the Company or any Affiliate for such
continuous period preceding such grant as the Board or the Committee may
require, but in no event shall the required period of continuous employment
be equal to or greater than two (2) years. In addition, unless otherwise
determined by the Board or the Committee and set forth in the terms of the
applicable Offering, no employee of the Company or any Affiliate shall be
eligible to be granted rights under the Plan, unless, on the Offering Date,
such employee's customary employment with the Company or such Affiliate is at
least twenty (20) hours per week and at least five (5) months per calendar
year.
(b) The Board or the Committee may provide that, each person who,
during the course of an Offering, first becomes an eligible employee of the
Company or designated Affiliate will, on a date or dates specified in the
Offering which coincides with the day on which such person becomes an
eligible employee or occurs thereafter, receive a right under that Offering,
which right shall thereafter be deemed to be a part of that Offering. Such
right shall have the same characteristics as any rights originally granted
under that Offering, as described herein, except that:
(i) the date on which such right is granted shall be the
"Offering Date" of such right for all purposes, including determination of
the exercise price of such right;
(ii) the Purchase Period (as defined below) for such right
shall begin on its Offering Date and end coincident with the end of such
Offering; and
(iii) the Board or the Committee may provide that if such
person first becomes an eligible employee within a specified period of time
before the end of the Purchase Period (as defined below) for such Offering,
he or she will not receive any right under that Offering.
3.
<PAGE>
(c) No employee shall be eligible for the grant of any rights
under the Plan if, immediately after any such rights are granted, such
employee owns stock possessing five percent (5%) or more of the total
combined voting power or value of all classes of stock of the Company or of
any Affiliate. For purposes of this subparagraph 5(c), the rules of Section
424(d) of the Code shall apply in determining the stock ownership of any
employee, and stock which such employee may purchase under all outstanding
rights and options shall be treated as stock owned by such employee.
(d) An eligible employee may be granted rights under the Plan only
if such rights, together with any other rights granted under "employee stock
purchase plans" of the Company and any Affiliates, as specified by Section
423(b)(8) of the Code, do not permit such employee's rights to purchase stock
of the Company or any Affiliate to accrue at a rate which exceeds twenty-five
thousand dollars ($25,000) of fair market value of such stock (determined at
the time such rights are granted) for each calendar year in which such rights
are outstanding at any time.
(e) Officers of the Company and any designated Affiliate shall be
eligible to participate in Offerings under the Plan, provided, however, that
the Board may provide in an Offering that certain employees who are highly
compensated employees within the meaning of Section 423(b)(4)(D) of the Code
shall not be eligible to participate.
6. RIGHTS; PURCHASE PRICE.
(a) On each Offering Date, each eligible employee, pursuant to an
Offering made under the Plan, shall be granted the right to purchase the
number of shares of Common Stock of the Company purchasable with up to
fifteen percent (15%) (or such lower percentage as the Board determines for a
particular Offering) of such employee's Earnings (as defined in Section 7(a))
during the period which begins on the Offering Date (or such later date as
the Board determines for a particular Offering) and ends on the date stated
in the Offering, which date shall be no more than twenty-seven (27) months
after the Offering Date (the "Purchase Period"). In connection with each
Offering made under this Plan, the Board or the Committee shall specify a
maximum number of shares which may be purchased by any employee as well as a
maximum aggregate number of shares which may be purchased by all eligible
employees pursuant to such Offering. In addition, in connection with each
Offering which contains more than one Exercise Date (as defined in the
Offering), the Board or the Committee may specify a maximum aggregate number
of shares which may be purchased by all eligible employees on any given
Exercise Date under the Offering. If the aggregate purchase of shares upon
exercise of rights granted under the Offering would exceed any such maximum
aggregate number, the Board or the Committee shall make a pro rata allocation
of the shares available in as nearly a uniform manner as shall be practicable
and as it shall deem to be equitable.
(b) In connection with each Offering made under the Plan, the
Board or the Committee may specify a maximum number of shares that may be
purchased by any employee as well as a maximum aggregate number of shares
that may be purchased by all eligible employees pursuant to such Offering.
In addition, in connection with each Offering that contains more than one
Purchase Date, the Board or the Committee may specify a maximum aggregate
4.
<PAGE>
number of shares which may be purchased by all eligible employees on any
given Purchase Date under the Offering. If the aggregate purchase of shares
upon exercise of rights granted under the Offering would exceed any such
maximum aggregate number, the Board or the Committee shall make a pro rata
allocation of the shares available in as nearly a uniform manner as shall be
practicable and as it shall deem to be equitable.
(c) The purchase price of stock acquired pursuant to rights
granted under the Plan shall be not less than the lesser of:
(i) an amount equal to eighty-five percent (85%) of the fair
market value of the stock on the Offering Date; or
(ii) an amount equal to eighty-five percent (85%) of the fair
market value of the stock on the Exercise Date.
7. PARTICIPATION; WITHDRAWAL; TERMINATION.
(a) An eligible employee may become a participant in an Offering
by delivering a participation agreement to the Company within the time
specified in the Offering, in such form as the Company provides. Each such
agreement shall authorize payroll deductions of up to fifteen percent (15%)
(or such lower percentage as the Board determines for a particular Offering)
of such employee's Earnings during the Purchase Period. "Earnings" is
defined as an employee's total compensation, including all salary, wages and
other remuneration paid to an employee (including amounts elected to be
deferred by the employee, that would otherwise have been paid, under any cash
or deferred arrangement established by the Company), overtime pay,
commissions, bonuses, profit sharing, any special payments for extraordinary
services, provided, however, that the Board in its sole discretion may limit
the above definition from time to time with respect to each Offering. The
payroll deductions made for each participant shall be credited to an account
for such participant under the Plan and shall be deposited with the general
funds of the Company. A participant may reduce, increase or begin such
payroll deductions after the beginning of any Purchase Period only as
provided for in the Offering. A participant may make additional payments
into his or her account only if specifically provided for in the Offering and
only if the participant has not had the maximum amount withheld during the
Purchase Period.
(b) At any time during a Purchase Period a participant may
terminate his or her payroll deductions under the Plan and withdraw from the
Offering by delivering to the Company a notice of withdrawal in such form as
the Company provides. Such withdrawal may be elected at any time prior to
the end of the Purchase Period. Upon such withdrawal from the Offering by a
participant, the Company shall distribute to such participant all of his or
her accumulated payroll deductions (reduced to the extent, if any, such
deductions have been used to acquire stock for the participant) under the
Offering, without interest unless the terms of the Offering specifically so
provide, and such participant's interest in that Offering shall be
automatically terminated. A participant's withdrawal from an Offering will
have no effect upon such participant's eligibility to participate in any
other Offerings under the Plan but such participant will be required to
deliver a new participation agreement in order to participate in subsequent
Offerings under the Plan.
5.
<PAGE>
(c) Rights granted pursuant to any Offering under the Plan shall
terminate immediately upon cessation of any participating employee's
employment with the Company or an Affiliate, for any reason, and the Company
shall distribute to such terminated employee all of his or her accumulated
payroll deductions (reduced to the extent, if any, such deductions have been
used to acquire stock for the terminated employee), under the Offering,
without interest unless the terms of the Offering specifically so provide.
(d) Rights granted under the Plan shall not be transferable by a
participant otherwise than by will or the laws of descent and distribution,
or by a beneficiary designation as provided in paragraph 14 and, otherwise
during his or her lifetime, shall be exercisable only by the person to whom
such rights are granted.
8. EXERCISE.
(a) On each exercise date, as defined in the relevant Offering (an
"Exercise Date"), each participant's accumulated payroll deductions (without
any increase for interest unless the terms of the Offering specifically so
provide) will be applied to the purchase of whole shares of stock of the
Company, up to the maximum number of shares permitted pursuant to the terms
of the Plan and the applicable Offering, at the purchase price specified in
the Offering. No fractional shares shall be issued upon the exercise of
rights granted under the Plan. The amount, if any, of accumulated payroll
deductions remaining in each participant's account after the purchase of
shares which is less than the amount required to purchase one share of stock
on the final Exercise Date of an Offering shall be held in each such
participant's account for the purchase of shares under the next Offering
under the Plan, unless such participant withdraws from such next Offering, as
provided in subparagraph 7(b), or is no longer eligible to be granted rights
under the Plan, as provided in paragraph 5, in which case such amount shall
be distributed to the participant after said final Exercise Date, without
interest unless the terms of the Offering specifically so provide. The
amount, if any, of accumulated payroll deductions remaining in any
participant's account after the purchase of shares which is equal to the
amount required to purchase whole shares of stock on the final Exercise Date
of an Offering shall be distributed in full to the participant after such
Exercise Date, without interest unless the terms of the Offering specifically
so provide.
(b) No rights granted under the Plan may be exercised to any
extent unless the Plan (including rights granted thereunder) is covered by an
effective registration statement pursuant to the Securities Act of 1933, as
amended (the "Securities Act"). If on an Exercise Date of any Offering
hereunder the Plan is not so registered, no rights granted under the Plan or
any Offering shall be exercised on said Exercise Date and all payroll
deductions accumulated during the purchase period (reduced to the extent, if
any, such deductions have been used to acquire stock) shall be distributed to
the participants, without interest unless the terms of the Offering
specifically so provide.
(c) Shares of stock of the Company that are purchased may be
registered in the name of the participant or jointly in the name of the
participant and his or her spouse as joint tenants with right of survivorship
or community property.
6.
<PAGE>
9. COVENANTS OF THE COMPANY.
(a) During the terms of the rights granted under the Plan, the
Company shall keep available at all times the number of shares of stock
required to satisfy such rights.
(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 rights
granted under the Plan. 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 rights unless and until
such authority is obtained.
10. USE OF PROCEEDS FROM STOCK.
Proceeds from the sale of stock pursuant to rights granted under
the Plan shall constitute general funds of the Company.
11. RIGHTS AS A STOCKHOLDER.
A participant shall not be deemed to be the holder of, or to have
any of the rights of a holder with respect to, any shares subject to rights
granted under the Plan unless and until certificates representing such shares
shall have been issued.
12. ADJUSTMENTS UPON CHANGES IN STOCK.
(a) If any change is made in the stock subject to the Plan, or
subject to any rights 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 rights 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 rights.
(b) In the event of: (1) a dissolution or liquidation of the
Company; (2) a merger or consolidation in which the Company is not the
surviving corporation; (3) 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 (4) any other capital reorganization in which more than fifty
percent (50%) of the shares of the Company entitled to vote are exchanged,
then, as determined by the Board in its sole discretion (i) any surviving
corporation may assume outstanding rights or substitute similar rights for
those under the Plan, (ii) such rights may continue in full force and effect,
or (iii) participants' accumulated payroll deductions may be used to purchase
Common Stock immediately prior to the transaction described above and the
participants' rights under the ongoing Offering terminated.
7.
<PAGE>
13. AMENDMENT OF THE PLAN.
(a) The Board at any time, and from time to time, may amend the
Plan. However, except as provided in paragraph 12 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:
(i) Increase the number of shares reserved for rights under
the Plan;
(ii) Modify the provisions as to eligibility for
participation in the Plan (to the extent such modification requires
stockholder approval in order for the Plan to obtain employee stock purchase
plan treatment under Section 423 of the Code or to comply with the
requirements of Rule 16b-3 promulgated under the Exchange Act of 1934, as
amended ( the "Exchange Act")); or
(iii) Modify the Plan in any other way if such modification
requires stockholder approval in order for the Plan to obtain employee stock
purchase plan treatment under Section 423 of the Code or to comply with the
requirements of Rule 16b-3 promulgated under the Exchange Act or any Nasdaq
or securities exchange listing requirements.
The Board may, in its sole discretion, submit any other amendment to the Plan
for stockholder approval. 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 employee stock purchase plans and/or to bring the Plan
and/or rights granted under it into compliance therewith.
(b) Rights and obligations under any rights granted before
amendment of the Plan shall not be altered or impaired by any amendment of
the Plan, except with the consent of the person to whom such rights were
granted or except as necessary to comply with any laws or governmental
regulations or to ensure that the Plan and/or rights granted under the Plan
comply with the requirements of Section 423 of the Code.
14. DESIGNATION OF BENEFICIARY.
(a) A participant may file a written designation of a beneficiary
who is to receive any shares and cash, if any, from the participant's account
under the Plan in the event of such participant's death subsequent to the end
of an Offering but prior to delivery to the participant of such shares and
cash. In addition, a participant may file a written designation of a
beneficiary who is to receive any cash from the participant's account under
the Plan in the event of such participant's death during an Offering.
(b) The participant may change such designation of beneficiary at
any time by written notice. In the event of the death of a participant and
in the absence of a beneficiary validly designated under the Plan who is
living at the time of such participant's death, the Company shall deliver
such shares and/or cash to the executor or administrator of the estate of
8.
<PAGE>
the participant, or if no such executor or administrator has been appointed
(to the knowledge of the Company), the Company, in its sole discretion, may
deliver such shares and/or cash to the spouse or to any one or more
dependents or relatives of the participant, or if no spouse, dependent or
relative is known to the Company, then to such other person as the Company
may designate.
15. 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 (10) years from the
date the Plan is adopted by the Board or approved by the stockholders of the
Company, whichever is earlier. No rights may be granted under the Plan while
the Plan is suspended or after it is terminated.
(b) Rights and obligations under any rights granted while the Plan
is in effect shall not be impaired by suspension or termination of the Plan,
except as expressly provided in the Plan or with the consent of the person to
whom such rights were granted, or except as necessary to comply with any laws
or governmental regulation or to ensure that the Plan and/or rights granted
under the Plan comply with the requirements of Section 423 of the Code.
16. EFFECTIVE DATE OF PLAN.
The Plan shall become effective as determined by the Board, but no
rights granted under the Plan shall be exercised unless and until the
stockholders of the Company have approved the Plan.
9.
<PAGE>
Exhibit 10.8
GILEAD SCIENCES, INC.
1991 STOCK OPTION PLAN
ADOPTED NOVEMBER 15, 1991
AMENDED APRIL 8, 1992
AMENDED APRIL 21, 1993
AMENDED OCTOBER 17, 1995
AMENDED AND RESTATED JANUARY 22, 1998
AMENDED MARCH 30, 1999
TERMINATION DATE: OCTOBER 31, 2001
1. PURPOSES.
(a) The Plan initially was adopted on November 15, 1991 and amended
through October 17, 1995 (the "Initial Plan"). The Initial Plan hereby is
amended and restated in its entirety effective as of January 22, 1998. The
terms of the Plan (excluding the amended provision relating to the exercise
price of Nonstatutory Stock Options) shall apply to all options granted
pursuant to the Initial Plan.
(b) The purpose of the Plan is to provide a means by which selected
Employees and Directors of, and Consultants to, the Company and its
Affiliates may be given an opportunity to purchase stock of the Company.
(c) The Company, by means of the Plan, seeks to retain the services of
persons who are now Employees of or Consultants to the Company, to secure and
retain the services of new Employees and Consultants, and to provide
incentives for such persons to exert maximum efforts for the success of the
Company.
(d) The Company intends that the Options issued under the Plan shall,
in the discretion of the Board or any Committee to which responsibility for
administration of the Plan has been delegated pursuant to subsection 3(c), be
either Incentive Stock Options or Nonstatutory Stock Options. All Options
shall be separately designated Incentive Stock Options or Nonstatutory Stock
Options at the time of grant, and in such form as issued pursuant to Section
6, and a separate certificate or certificates will be issued for shares
purchased on exercise of each type of Option.
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.
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(c) "CODE" means the Internal Revenue Code of 1986, as amended.
(d) "COMMITTEE" means a Committee appointed by the Board in accordance
with subsection 3(c) of the Plan.
(e) "COMPANY" means Gilead Sciences, Inc., a Delaware corporation.
(f) "CONSULTANT" means any person, including an advisor, engaged by the
Company or an Affiliate to render services and who is compensated for such
services, provided that the term "Consultant" shall not include Directors who
are paid only a director's fee by the Company or who are not otherwise
compensated by the Company for their services as Directors. The term
"Consultant" shall include a member of the Board of Directors of an Affiliate.
(g) "CONTINUOUS SERVICE" (formerly designated as "CONTINUOUS STATUS AS
AN EMPLOYEE OR CONSULTANT") means that the Optionee's service with the
Company or its Affiliates is not interrupted or terminated. The Optionee's
Continuous Service shall not be deemed to have terminated merely because of a
change in the capacity in which the Optionee renders service to the Company
or its Affiliates or a change in the entity for which the Optionee renders
such service, provided that there is no interruption or termination of the
Optionee's Continuous Service. For example, a change in status from an
Employee of the Company to a Consultant or Director of the Company or a
member of the Board of Directors 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 the Board or the chief executive officer of the
Company, including sick leave, military leave, or any other personal leave.
(h) "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 shareholders under the Exchange
Act, as determined for purposes of Section 162(m) of the Code.
(i) "DIRECTOR" means a member of the Board.
(j) "DISABILITY" means total and permanent disability as defined in
Section 22(e)(3) of the Code.
(k) "EMPLOYEE" means any person, including Officers and Directors,
employed by the Company or any Affiliate of the Company. Neither service as
a Director nor payment of a director's fee by the Company shall be sufficient
to constitute "employment" by the Company.
(l) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
(m) "FAIR MARKET VALUE" means, as of any date, the value of the common
stock of the Company determined as follows:
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(i) If the common stock is listed on any established stock
exchange or a national market system, including without limitation the
National Market System of the National Association of Securities Dealers,
Inc. Automated Quotation ("NASDAQ") System, 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 system or exchange
(or the exchange with the greatest volume of trading in 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) If the common stock is quoted on the NASDAQ System (but not
on the National Market System thereof) or is regularly quoted by a recognized
securities dealer but selling prices are not reported, the Fair Market Value
of a share of common stock shall be the mean between the high bid and high
asked prices for 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;
(iii) In the absence of an established market for the common stock,
the Fair Market Value shall be determined in good faith by the Board.
(n) "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.
(o) "NON-EMPLOYEE DIRECTOR" means a Director who either (i) is not a
current Employee or Officer of the Company or its parent or subsidiary, does
not receive compensation (directly or indirectly) from the Company or its
parent or 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), 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.
(p) "NONSTATUTORY STOCK OPTION" means an Option not intended to qualify
as an Incentive Stock Option.
(q) "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.
(r) "OPTION" means a stock option granted pursuant to the Plan.
(s) "OPTION AGREEMENT" means a written agreement between the Company
and an Optionee evidencing the terms and conditions of an individual Option
grant. The Option Agreement is subject to the terms and conditions of the
Plan.
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(t) "OPTIONED STOCK" means the common stock of the Company subject to
an Option.
(u) "OPTIONEE" means a 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
the 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) "PLAN" means this 1991 Stock Option Plan.
(x) "RULE 16b-3" means Rule 16b-3 of the Exchange Act or any successor
to Rule 16b-3, as in effect when discretion is being exercised with respect
to the Plan.
3. ADMINISTRATION.
(a) The Board shall administer the Plan unless and until the Board
delegates administration to a Committee, as provided in subsection 3(c).
(b) 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 Options; when and how the Option shall be
granted; whether the Option will be an Incentive Stock Option or a
Nonstatutory Stock Option; the provisions of each Option granted (which need
not be identical), including the time or times such Option may be exercised
in whole or in part; and the number of shares for which an Option shall be
granted to each such person.
(ii) To construe and interpret the Plan and Options 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 Option 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 as provided in Section 11.
(iv) 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.
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(c) The Board may delegate administration of the Plan to a Committee or
Committees of one or more members of the Board. In the discretion of the
Board, a Committee may consist solely of two or more Outside Directors, in
accordance with Code Section 162(m), or solely of two or more Non-Employee
Directors, in accordance with Rule 16b-3 of the Exchange Act. 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 (and references in this Plan to the Board shall
thereafter be to the Committee), 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. Within the scope of this
authority, the Board or the Committee may delegate to a committee of one or
more members of the Board the authority to grant Options to eligible persons
who (1) are not then subject to Section 16 of the Exchange Act and/or (2) are
either (i) not then Covered Employees and are not expected to be Covered
Employees at the time of recognition of income resulting from such Option, or
(ii) not persons with respect to whom the Company wishes to comply with
Section 162(m) of the Code.
4. SHARES SUBJECT TO THE PLAN.
(a) Subject to the provisions of Section 10 relating to adjustments
upon changes in stock, the stock that may be sold pursuant to Options shall
not exceed in the aggregate Ten Million (10,000,000) shares of the Company's
common stock. If any Option shall for any reason expire or otherwise
terminate, in whole or in part, without having been exercised in full, the
stock not purchased under such Option shall revert to again become available
for issuance under the Plan.
(b) The stock subject to the Plan may be unissued shares or reacquired
shares, bought on the market or otherwise.
5. ELIGIBILITY.
(a) Incentive Stock Options may be granted only to Employees.
Nonstatutory Stock Options may be granted to Employees, Directors and
Consultants.
(b) No person shall be eligible for the grant of an Incentive Stock
Option if, at the time of grant, such person 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 unless the exercise price of such
Option is at least one hundred ten percent (110%) of the Fair Market Value of
such 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) Subject to the provisions of Section 10 relating to adjustments
upon changes in stock, no person shall be eligible to be granted Options
covering more than Five Hundred Thousand (500,000) shares of the Company's
common stock in any calendar year.
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6. OPTION PROVISIONS.
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:
(a) TERM. No Option shall be exercisable after the expiration of ten
(10) years from the date it was granted.
(b) PRICE.
(i) EXERCISE PRICE. The exercise price of each Incentive Stock
Option and each Nonstatutory Stock Option shall be not less than one hundred
percent (100%) of the fair market value of the stock subject to the Option on
the date the Option is granted.
(ii) NO AUTHORITY TO REPRICE. Without the consent of the
stockholders of the Company, the Board shall have no authority to effect (a)
the repricing of any outstanding Options under the Plan and/or (b) the
cancellation of any outstanding Options under the Plan and the grant in
substitution therefor of new Options under the Plan covering the same or
different numbers of shares of Common Stock.
(c) CONSIDERATION. The purchase price of 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 or the Committee, at the time of the grant of
the Option, (A) by delivery to the Company of other common stock of the
Company, (B) according to a deferred payment arrangement, except that payment
of the common stock's "par value" (as defined in the Delaware General
Corporation Law) shall not be made by deferred payment or other arrangement
(which may include, without limiting the generality of the foregoing, the use
of other common stock of the Company) with the person to whom the Option is
granted or to whom the Option is transferred pursuant to subsection 6(d), or
(C) in any other form of legal consideration that may be acceptable to the
Board.
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.
(d) TRANSFERABILITY. 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 person to whom the Option is
granted only by such person. A Nonstatutory Stock Option but not an Incentive
Stock Option, may be transferred to the extent provided in the Option
Agreement; provided that if the Option Agreement does not expressly permit
the transfer of a Nonstatutory Stock Option, the Nonstatutory Stock Option
shall not be transferable except by will, 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. The person to whom the Option
is granted may, by
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<PAGE>
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) VESTING. The total number of shares of stock subject to an Option
may, but need not, be allotted in periodic installments (which may, but need
not, be equal). The Option Agreement may provide that from time to time
during each of such installment periods, the Option may become exercisable
("vest") with respect to some or all of the shares allotted to that period,
and may be exercised with respect to some or all of the shares allotted to
such period and/or any prior period as to which the Option became vested but
was not fully exercised. During the remainder of the term of the Option (if
its term extends beyond the end of the installment periods), the option may
be exercised from time to time with respect to any shares then remaining
subject to the Option. 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
provisions of this subsection 6(e) are subject to any Option provisions
governing the minimum number of shares as to which an Option may be
exercised.
(f) SECURITIES LAW COMPLIANCE. The Company may require any Optionee,
or any person to whom an Option is transferred under subsection 6(d), as a
condition of exercising any such Option, (1) to give written assurances
satisfactory to the Company as to the Optionee'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 Option; and (2) 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. The Company may
require the Optionee to provide such other representations, written
assurances, or information which the Company shall determine is necessary,
desirable or appropriate to comply with applicable securities and other laws
as a condition of granting an Option to such Optionee or permitting the
Optionee to exercise such Option. 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 stock.
(g) TERMINATION OF EMPLOYMENT OR CONSULTING RELATIONSHIP. In the event
an Optionee's Continuous Service terminates (other than upon the Optionee's
death or Disability), the Optionee may exercise his or her Option, but only
within such period of time as is determined by the Board, and only to the
extent that the Optionee was entitled to exercise it at
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<PAGE>
the date of termination (but in no event later than the expiration of the
term of such Option as set forth in the Option Agreement). In the case of an
Incentive Stock Option, the Board shall determine such period of time (in no
event to exceed ninety (90) days from the date of termination) when the
Option is granted. If, at the date of termination, the Optionee is not
entitled to exercise his or her entire Option, the shares covered by the
unexercisable portion of the Option shall revert to the Plan. If, after
termination, the Optionee does not exercise his or her Option within the time
specified in the Option Agreement, the Option shall terminate, and the shares
covered by such Option shall revert to the Plan.
(h) DISABILITY OF OPTIONEE. In the event an Optionee's Continuous
Service terminates as a result of the Optionee's Disability, the Optionee may
exercise his or her Option, but only within twelve (12) months from the date
of such termination (or such shorter period specified in the Option
Agreement), and only to the extent that the Optionee was entitled to exercise
it at the date of such termination (but in no event later than the expiration
of the term of such Option as set forth in the Option Agreement). If, at the
date of termination, the Optionee is not entitled to exercise his or her
entire Option, the shares covered by the unexercisable portion of the Option
shall revert to the Plan. If, after termination, the Optionee does not
exercise his or her Option within the time specified herein, the Option shall
terminate, and the shares covered by such Option shall revert to the Plan.
(i) DEATH OF OPTIONEE. In the event of the death of an Optionee, the
Option may be exercised, at any time within twelve (12) months following the
date of death (or such shorter period specified in the Option Agreement) (but
in no event later than the expiration of the term of such Option as set forth
in the Option Agreement), by the Optionee's estate or by a person who
acquired the right to exercise the Option by bequest or inheritance, but only
to the extent the Optionee was entitled to exercise the Option at the date of
death. If, at the time of death, the Optionee was not entitled to exercise
his or her entire Option, the shares covered by the unexercisable portion of
the Option shall revert to the Plan. If, after death, the Optionee's estate
or a person who acquired the right to exercise the Option by bequest or
inheritance does not exercise the Option within the time specified herein,
the Option shall terminate, and the shares covered by such Option shall
revert to the Plan.
(j) EARLY EXERCISE. The Option may, but need not, include a provision
whereby the Optionee may elect at any time while an Employee or Consultant to
exercise the Option as to any part or all of the shares subject to the Option
prior to the full vesting of the Option. Any unvested shares so purchased
may be subject to a repurchase right in favor of the Company or to any other
restriction the Board determines to be appropriate.
(k) WITHHOLDING. To the extent provided by the terms of an Option
Agreement, the Optionee may satisfy any federal, state or local tax
withholding obligation relating to the exercise of such Option by any of the
following means or by a combination of such means: (1) tendering a cash
payment; (2) authorizing the Company to withhold shares from the shares of
the common stock otherwise issuable to the Optionee as a result of the
exercise of the Option; or (3) delivering to the Company owned and
unencumbered shares of the common stock of the Company.
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<PAGE>
7. COVENANTS OF THE COMPANY.
(a) During the terms of the Options, 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; provided,
however, that this undertaking shall not require the Company to register
under the Securities Act either the Plan, any Option 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 unless and until such authority is obtained.
8. USE OF PROCEEDS FROM STOCK.
Proceeds from the sale of stock pursuant to Options shall constitute
general funds of the Company.
9. MISCELLANEOUS.
(a) The Board shall have the power to accelerate the time at which an
Option may first be exercised or the time during which an Option or any part
thereof will vest pursuant to subsection 6(e), notwithstanding the provisions
in the Option stating the time at which it may first be exercised or the time
during which it will vest.
(b) Neither an Optionee nor any person to whom an Option is transferred
under subsection 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.
(c) Nothing in the Plan or any instrument executed or Option granted
pursuant thereto shall confer upon any Employee, Consultant or Optionee any
right to continue in the employ of the Company or any Affiliate (or to
continue acting as a Consultant) or shall affect the right of the Company or
any Affiliate to terminate the employment or relationship as a Consultant of
any Employee, Consultant or Optionee with or without cause.
(d) To the extent that the aggregate Fair Market Value (determined at
the time of grant) of stock with respect to which Incentive Stock Options are
exercisable for the first time by any Optionee 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.
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<PAGE>
10. ADJUSTMENTS UPON CHANGES IN STOCK.
(a) If any change is made in the stock subject to the Plan, or subject
to any Option (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 will be appropriately
adjusted in the class(es) and maximum number of shares subject to the Plan
pursuant to subsection 4(a) and the maximum number of shares subject to award
to any person during any calendar year period pursuant to subsection 5(d),
and the outstanding Options will be appropriately adjusted in the class(es)
and number of shares and price per share of stock subject to such outstanding
Options.
(b) In the event of: (1) a dissolution or liquidation of the Company;
(2) a merger or consolidation in which the Company is not the surviving
corporation; (3) 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 (4)
any other capital reorganization in which more than fifty percent (50%) of
the shares of the Company entitled to vote are exchanged, then, at the sole
discretion of the Board and to the extent permitted by applicable law: (i)
any surviving corporation shall assume any Options outstanding under the Plan
or shall substitute similar Options for those outstanding under the Plan,
(ii) the time during which such Options may be exercised shall be accelerated
and the Options terminated if not exercised prior to such event, or (iii)
such Options shall continue in full force and effect.
(c) Notwithstanding any other provisions of this Plan to the contrary,
if an event occurs as specified in subsection 10(b) (a "Change in Control")
and if within one (1) month before or thirteen (13) months after the date of
such Change in Control the Continuous Service of an Optionee terminates due
to an involuntary termination (not including death or Disability) without
Cause (as such term is defined below) or a voluntary termination by the
Optionee due to a Constructive Termination (as such term is defined below),
then the vesting and exercisability of all Options held by such Optionee
shall be accelerated, or any reacquisition or repurchase rights held by the
Company with respect to an option shall lapse, as follows. With respect to
those Options held by an Optionee at the time of such termination, one
hundred percent (100%) of the unvested shares covered by such Options shall
vest and become exercisable (or reacquisition or repurchase rights held by
the Company shall lapse with respect to one hundred percent (100%) of the
shares still subject to such rights, as appropriate) as of the date of such
termination. Notwithstanding the foregoing, however, if such potential
acceleration of the vesting and exercisability of Options (or lapse of
reacquisition or repurchase rights held by the Company with respect to
Options) would cause a contemplated Change in Control transaction that would
otherwise be eligible to be accounted for as a "pooling-of-interests"
transaction to become ineligible for such accounting treatment under
generally accepted accounting principles as determined by the Company's
independent public accountants (the "Accountants") prior to the Change of
Control, such acceleration shall not occur.
For the purposes of this subsection 10(c) only, "Cause" means (i)
conviction of, a guilty plea with respect to, or a plea of NOLO CONTENDERE to
a charge that an Optionee has committed a
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<PAGE>
felony under the laws of the United States or of any state or a crime
involving moral turpitude, including, but not limited to, fraud, theft,
embezzlement or any crime that results in or is intended to result in
personal enrichment at the expense of the Company or an Affiliate; (ii)
material breach of any agreement entered into between the Optionee and the
Company or an Affiliate that impairs the Company's or the Affiliate's
interest therein; (iii) willful misconduct, significant failure of the
Optionee to perform the Optionee's duties, or gross neglect by the Optionee
of the Optionee's duties; or (iv) engagement in any activity that constitutes
a material conflict of interest with the Company or any Affiliate.
For purposes of this subsection 10(c) only, "Constructive Termination"
means the occurrence of any of the following events or conditions: (i) (A) a
change in the Optionee's status, title, position or responsibilities
(including reporting responsibilities) which represents an adverse change
from the Optionee's status, title, position or responsibilities as in effect
at any time within ninety (90) days preceding the date of a Change in Control
or at any time thereafter; (B) the assignment to the Optionee of any duties
or responsibilities which are inconsistent with the Optionee's status, title,
position or responsibilities as in effect at any time within ninety (90) days
preceding the date of a Change in Control or at any time thereafter; or (C)
any removal of the Optionee from or failure to reappoint or reelect the
Optionee to any of such offices or positions, except in connection with the
termination of the Optionee's Continuous Service for Cause, as a result of
the Optionee's Disability or death or by the Optionee other than as a result
of Constructive Termination; (ii) a reduction in the Optionee's annual base
compensation or any failure to pay the Optionee any compensation or benefits
to which the Optionee is entitled within five (5) days of the date due;
(iii) the Company's requiring the Optionee to relocate to any place outside a
fifty (50) mile radius of the Optionee's current work site, except for
reasonably required travel on the business of the Company or its Affiliates
which is not materially greater than such travel requirements prior to the
Change in Control; (iv) the failure by the Company to (A) continue in effect
(without reduction in benefit level and/or reward opportunities) any material
compensation or employee benefit plan in which the Optionee was participating
at any time within ninety (90) days preceding the date of a Change in Control
or at any time thereafter, unless such plan is replaced with a plan that
provides substantially equivalent compensation or benefits to the Optionee,
or (B) provide the Optionee with compensation and benefits, in the aggregate,
at least equal (in terms of benefit levels and/or reward opportunities) to
those provided for under each other employee benefit plan, program and
practice in which the Optionee was participating at any time within ninety
(90) days preceding the date of a Change in Control or at any time
thereafter; (v) any material breach by the Company of any provision of an
agreement between the Company and the Optionee, whether pursuant to this Plan
or otherwise, other than a breach which is cured by the Company within
fifteen (15) days following notice by the Optionee of such breach; or (vi)
the failure of the Company to obtain an agreement, satisfactory to the
Optionee, from any successors and assigns to assume and agree to perform the
obligations created under this Plan.
(d) In the event that the acceleration of the vesting and
exercisability of the Options or lapse of reacquisition or repurchase rights
held by the Company with respect to Options provided for in subsection 10(c)
and benefits otherwise payable to an Optionee (i) constitute "parachute
payments" within the meaning of Section 280G (as it may be amended or
replaced)
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<PAGE>
of the Code, and (ii) but for this subsection 10(d) would be subject to the
excise tax imposed by Section 4999 (as it may be amended or replaced) of the
Code (the "Excise Tax"), then such Optionee's benefits hereunder shall be
delivered to such lesser extent which would result in no portion of such
benefits being subject to the Excise Tax; PROVIDED, HOWEVER, that the
benefits hereunder shall be reduced only to the extent necessary after all
cash amounts otherwise payable to such Optionee and which constitute
"parachute payments" have been returned. Unless the Company and such
Optionee otherwise agree in writing, any determination required under this
subsection 10(d) shall be made in writing in good faith by the Accountants.
For purposes of making the calculations required by this subsection 10(d),
the Accountants may make reasonable assumptions and approximations concerning
applicable taxes and may rely on reasonable, good faith interpretations
concerning the application of the Code. The Company and such Optionees shall
furnish to the Accountants such information and documents as the Accountants
may reasonably request in order to make a determination under this subsection
10(d). The Company shall bear all costs the Accountants may reasonably incur
in connection with any calculations contemplated by this subsection 10(d).
11. AMENDMENT OF THE PLAN.
(a) 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 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:
(i) Increase the number of shares reserved for options under the
Plan;
(ii) Effect (a) the repricing of any outstanding Options under the
Plan and/or (b) the cancellation of any outstanding Options under the Plan
and the grant in substitution therefor of new Options under the Plan covering
the same or different numbers of shares of Common Stock;
(iii) Modify the requirements as to eligibility for participation
in the Plan (to the extent such modification requires stockholder approval in
order for the Plan to satisfy the requirements of Section 422 of the Code);
or
(iv) Modify the Plan in any other way if such modification
requires stockholder approval in order for the Plan to satisfy the
requirements of Section 422 of the Code or to comply with the requirements of
Rule 16b-3 or any Nasdaq or securities exchange listing requirements.
(b) 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 promulgated thereunder regarding the exclusion of
performance-based compensation from the limit on corporate deductibility of
compensation paid to certain executive officers.
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<PAGE>
(c) It is expressly contemplated that the Board may amend the Plan in
any respect the Board deems necessary or advisable to provide Optionees 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) Rights and obligations under any Option granted before amendment of
the Plan shall not be altered or impaired by any amendment of the Plan unless
(i) the Company requests the consent of the person to whom the Option was
granted and (ii) such person consents in writing.
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 on October 31, 2001. 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.
13. EFFECTIVE DATE OF PLAN.
The Plan shall become effective as determined by the Board, but no
Options granted under the Plan shall be exercised unless and until the
stockholders of the Company have approved the Plan.
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<PAGE>
Exhibit 10.47
*** TEXT OMITTED AND FILED SEPARATELY
CONFIDENTIAL TREATMENT REQUESTED
UNDER 17 C.F.R. SECTIONS 200.80(b)(4),
200.83 AND 240.24b-2
PATENT RIGHTS PURCHASE AGREEMENT
This Patent Rights Purchase Agreement (this "Agreement") is
made and entered into as of December 18, 1998 (the "Effective Date") between
Isis Pharmaceuticals, Inc. ("Isis"), and Gilead Sciences, Inc. ("Gilead").
1. DEFINITIONS.
1.1 "Cationic Lipid" means those compounds
described in United States Patent Nos. 5,777,153 and 5,705,693; United States
Patent Application Serial No. 08/672,206; and European Patent Application No.
97931462.2, to the extent such compounds are not Codeblocker Compounds.
1.2 "Codeblocker Compound" means an oligonucleotide
that binds directly to DNA or RNA within a cell on a selective basis
determined by the nucleotide sequence of the target DNA or RNA and exerts its
biological activity predominantly through binding to DNA or RNA to inhibit
the transcription or replication of the target DNA or RNA or binding to RNA
to inhibit the translation, processing, packaging or regulatory activity of
the target RNA. A Codeblocker Compound may also have a mechanism of action
or biological activity other than one conferred through direct binding to RNA
or DNA provided that (i) the compound originally was designed to bind a
target DNA or RNA and (ii) the final compound or any compounds used to derive
the final compound were not identified using selective purification and
polymerase amplification in any fashion. An oligonucleotide, is any oligomer
or polymer made up [***] An oligonucleotide includes RNA or DNA fragments,
and may be composed of naturally occurring or non-naturally occurring bases,
sugars or intersugar linkages. An oligonucleotide may have the bases, sugars
or intersugar linkages partially or completely absent. Oligonucleotides may
be made such that adjacent nucleoside or nucleoside fragments are linked
together by phosphate groups or modified or non-naturally occurring
internucleoside linkages to form the internucleoside backbone of the
oligomer, whether or not such linkages retain a phosphorous atom in the
linkage.
1.3 "Oligonucleotide Delivery System" means any
carrier, targeting entity, excipient, formulation, device, prodrug, covalent
or noncovalent conjugate, encapsulating vesicle, microcapsule, micro- or
nanosphere, emulsion, or microemulsion, lipid, liposome, virosome, or
artificial vial envelope which was developed by Gilead on or prior to the
Effective Date, and which (i) enhances the cellular penetration or
circulating half-life of a Codeblocker Compound, (ii) selectively delivers a
Codeblocker compound to the intended target tissue, cell or subcellular
compartment, (iii) provides sustained release of a Codeblocker Compound from
a depot formulation, or (iv) otherwise favorably alters the absorption,
distribution, metabolism or excretion of a Codeblocker Compound so as to
enhance its pharmacological activity of clinical value. "Oligonucleotide
Delivery System" includes cationic lipids.
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[***]=CONFIDENTIAL TREATMENT REQUESTED
1.
<PAGE>
1.4 "Patent Rights" means the patents and patent
applications listed in Exhibit A attached hereto.
2. ASSIGNMENTS AND LICENSES.
2.1 Gilead hereby sells and assigns to Isis all of
Gilead's right, title and interest in Patent Rights, subject to the rights of
Glaxo Wellcome Inc. ("Glaxo") under the Collaborative Research Agreement
between Glaxo and Gilead dated March 25, 1996 (the "Glaxo Agreement"),
provided however, that the assignment of U.S. Patent Number 5,256,775 shall
be subject to the condition precedent that Gilead settle the interference
involving this patent on conditions of Gilead's choosing (including conceding
priority). Gilead hereby grants Isis an exclusive, royalty-free, worldwide,
assignable license (with the right to grant sublicenses) to U.S. Patent
Number 5,256,775 beginning on the Effective Date and continuing until such
time that Gilead settles the interference and the assignment to Isis becomes
effective.
2.2 Gilead hereby assigns and delegates to Isis
(and Isis accepts and agrees to perform) all of Gilead's rights and
obligations under the License Agreement between Glen Research Corporation
("Glen Research") and Gilead dated January 1, 1994 and amended on November
19, 1996. A copy of the written consent to such assignment and delegation
signed by Glen Research is attached hereto as Exhibit B. In the event that
Isis, by reason of this Agreement, is required to indemnify Glen Research
under Section 8.1 (b) of the Glen Research License Agreement, Gilead will
indemnify Isis up to a maximum amount equal to one hundred percent (100%) of
total royalties received by Gilead from Glen Research; thereafter, Gilead
will not have any indemnity obligations to Isis related to such Agreement.
Gilead will continue to honor its obligations to Glen Research for activities
preceding the Effective Date of this Agreement.
2.3 Subject to the rights of Glen Research above,
Isis hereby grants to Gilead an exclusive, perpetual, irrevocable,
royalty-free, worldwide, assignable license (with the right to grant
sublicenses) to directly or indirectly make, have made, use, import, export
or sell compounds and other subject matter falling within the scope of Patent
Rights which are [***]
2.4 Gilead hereby grants to Isis a nonexclusive,
perpetual, royalty-free, worldwide, assignable license (with the right to
grant sublicenses) to compounds and other subject matter which are within the
scope of Patent Rights, solely for use as intermediates in the manufacture of
Codeblocker Compounds or oligomers [***]
2.5 Isis hereby grants to Gilead a non-exclusive,
non-sublicensable, non-assignable, perpetual, irrevocable, royalty-free,
worldwide license under Patent Rights to make and use Codeblocker Compounds
and Oligonucleotide Delivery Systems for internal research purposes, but not
for any commercial purpose.
2.6 Isis will not have any obligations to Gilead
relating to Codeblocker Compounds or this Agreement to the extent arising
prior to the Effective Date.
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[***]=CONFIDENTIAL TREATMENT REQUESTED
2.
<PAGE>
2.7 Each party hereby agrees to execute such
documents and to take such other actions as shall be necessary or appropriate
to effectuate the assignments and licenses set forth in this Section 2.
3. REPRESENTATIONS AND WARRANTIES BY GILEAD.
Gilead makes the following representations and warranties to Isis, each of
which will survive the Effective Date:
3.1 To the best of Gilead's knowledge, the Patent
Rights include all of the patents and patent applications owned or controlled
by Gilead on or prior to the Effective Date that cover Codeblocker Compounds
and Oligonucleotide Delivery Systems, their manufacture or use. There are no
other US or unpublished foreign filings owned or controlled by Gilead filed
prior to the Effective Date which claim Codeblocker Compounds or
Oligonucleotide Delivery Systems other than as set forth in Exhibit A, nor
does Gilead have any present intention to make such filings. If Gilead
becomes aware of any patents or patent applications that (i) are owned or
controlled by Gilead, (ii) claim inventions made prior to the Effective Date,
(iii) cover Codeblocker Compounds or Oligonucleotide Delivery Systems, and
(iv) are not included in Exhibit A, Gilead will promptly notify Isis in
writing and execute appropriate documents to transfer such patents and patent
applications to Isis.
3.2 Gilead represents and Isis acknowledges that
(i) the Glaxo Agreement remains in effect and Gilead and Glaxo have ongoing
rights and obligations thereunder, modified to the extent specifically set
forth in this Agreement and (ii) this Agreement is not an assignment of
Gilead's rights or obligations under the Glaxo Agreement and that Isis
assumes no rights or obligations to Glaxo under this Agreement. Gilead
represents that the Research Term and all rights, obligations and funding
relating thereto under the Glaxo Agreement have been terminated. Gilead will
not enter into any future amendments to the Glaxo Agreement which in any way
affect the rights of Isis hereunder.
3.3 The Glaxo Agreement and the license to Glen
Research referenced in Section 2.2 above are the only licenses and Gilead is
not aware of any other third party rights of any kind affecting the Patent
Rights. Except with respect to U.S. Patent Number 5,256,775, which is subject
to an interference proceeding, the Patent Rights are not the subject of any
pending interference, cancellation or other protest proceeding not otherwise
known to Isis, or otherwise subject to rights or obligations to any third
party other than Glaxo and Glen Research. The complete terms and conditions
of such rights and obligations relating to Glaxo and Glen Research have been
disclosed to Isis.
3.4 There are no Collaboration Compounds (as
defined in Section 1.7 of the Glaxo Agreement) and none were developed during
the Research Term under the Glaxo Agreement. Gilead does not owe any
royalties to Glaxo or any third party under the Glaxo Agreement nor does
Gilead have any known or pending claims against Glaxo arising out of the
Glaxo Agreement. To the best of Gilead's knowledge, (i) Glaxo does not owe
any royalties to Gilead or any third party under the Glaxo Agreement, (ii)
nor does Glaxo have any known or pending claims against Gilead arising out of
the Glaxo Agreement.
3.
<PAGE>
4. TECHNOLOGY TRANSFER.
4.1 Gilead and Isis will cooperate in the filing
and execution of any and all documents necessary to effectuate the assignment
to Isis of the Patent Rights, including the filing of assignments or other
transfer of title covenants with the U.S. Patent and Trademark Office and
foreign patent offices as applicable to the Patent Rights. Within thirty
(30) days from the Effective Date, Gilead will notify all attorneys handling
the prosecution of the Patent Rights to contact the Isis Patent Department to
provide an immediate status update on the Patent Rights and to prepare the
documents necessary to transfer the Patent Rights to Isis. The cost of
recording assignments of the Patent Rights will be borne by Isis. Within
forty-five (45) days from the Effective Date, Gilead and its counsel will use
their reasonable best efforts to transfer all files and supporting documents
relating to the Patent Rights to Isis, including but not limited to, all
initial invention disclosure documents, all documents sent to the U.S. Patent
and Trademark Office regarding inventions and claims, all draft patent
applications, all filing or prosecution documents submitted to the patent
offices, and all file wrappers. Conception notebooks and all other documents
in the possession or under the control of Gilead or its counsel relating to
conception and/or reduction to practice, such as scientist notebooks shall be
obtained in accord with Gilead's ordinary document retention and made
available to Isis upon Isis' reasonable request. All documents to be
provided to Isis hereunder are to be sent by expedited delivery service.
4.2 Gilead will make appropriate scientific staff
available to Isis for a scientific tutorial on the subject matter of this
Agreement, such tutorial not to exceed more than [***] from Gilead's staff
and not to obligate Gilead to disclose any third party confidential
information.
5. PATENT MAINTENANCE AND PROSECUTION RESPONSIBILITIES.
5.1 On and after the Effective Date, Isis will take
responsibility for any action or proceeding involving Patent Rights. The
cost of recording the assignment of Patent Rights shall be borne solely by
Isis. If Isis elects not to take such responsibility involving Patent
Right(s) in a particular country then Isis will timely notify Gilead and
Glaxo 30 days before the time future action is due, and thereafter Gilead or
Glaxo shall undertake such responsibility. If Gilead or Glaxo elects to do
so, Isis will grant any necessary authority to Gilead. Gilead will determine
whether Gilead or Glaxo shall take such responsibility at their expense.
Isis assumes no obligation to Glaxo as a result of its agreement with Gilead
in this Section 5.1.
5.2 NOTICE OF INFRINGEMENT. Isis shall promptly
notify Gilead in writing of any infringement of any assigned Patent Right(s)
of which it becomes aware.
5.3 ENFORCEMENT OF PATENTS. Except as otherwise
set forth in this Section, Isis may, but shall not be required to, prosecute
any alleged infringement or threatened infringement of any assigned Patent
Right(s) of which it is aware or which is brought to its attention. Isis
shall act in its own name and at its own expense. If Isis has failed to
prosecute under the first sentence of this paragraph with respect to alleged
or threatened infringement
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<PAGE>
relating to any Patent Right(s) (i) two months after it has been notified in
writing of such alleged infringement, or (ii) one month before the time
limit, if any, set forth in the appropriate laws and regulations for the
filing of such actions, whichever comes first, Gilead (or at its election
Glaxo) may, but shall not be required to, prosecute any such alleged
infringement or threatened infringement of a Patent within the Patent Rights.
In any such event, Gilead or Glaxo shall be free to act in its own name and
at its own expense. Notwithstanding the foregoing and as between the
parties, Gilead shall have the sole and exclusive right of enforcement with
respect to any alleged or threatened infringement of any right within the
scope of the license granted in Section 2.3 of this Agreement. Isis shall
cooperate fully with Gilead or Glaxo in any action by Gilead or Glaxo,
respectively, under this paragraph, including if required in order to bring
such an action, the furnishing of a power of attorney.
6. INDEMNITY AND WARRANTY.
6.1 INDEMNITY BY ISIS. Isis will indemnify, save,
defend and hold Gilead and its agents, directors and employees harmless from
and against any and all suits, claims, actions, demands, liabilities,
expenses and/or loss, including reasonable legal expense and attorneys fees,
resulting from activities under this agreement by Isis.
6.2 INDEMNITY BY GILEAD. Gilead will indemnify,
save, defend and hold Isis and its agents, directors and employees harmless
from and against any and all suits, claims, actions, demands, liabilities,
expenses and/or loss, including reasonable legal expense and attorney fees,
resulting from (i) Gilead's, Gilead's sublicensee's or Gilead's assignee's
activities under the licenses provided for in Sections 2.3 and 2.5; (ii)
Gilead's contractual obligations to third parties including Glaxo and Glen
Research, except to the extent resulting from Isis' activities under this
Agreement; or (iii) Gilead's exercise of the Patent Rights prior to the
Effective Date.
6.3 WARRANTY. Gilead warrants that it has
sufficient right and title to enter into and to perform its obligations under
this Agreement. EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT, THE PARTIES
DISCLAIM ALL WARRANTIES OF ANY NATURE, EXPRESS OR IMPLIED, INCLUDING WITHOUT
LIMITATION WARRANTIES OF VALIDITY, MERCHANTABILITY, NONINFRINGEMENT, AND
FITNESS FOR A PARTICULAR PURPOSE.
7. CONFIDENTIALITY. Confidential Information under the
terms of this Agreement is all information relating to the Patent Rights
sold, assigned or licensed to Isis under Section 2.1 and the Technology
Transfer to Isis by Gilead under Section 4.1. Gilead agrees to treat the
Confidential Information as confidential and to protect and maintain the
confidentiality thereof. Gilead will use at least the same standard of care
as it uses to protect its own Confidential Information to ensure that its
employees, agents, and consultants do not disclose or make any unauthorized
use of such Confidential Information. Gilead will promptly notify Isis upon
discovery of any unauthorized use or disclosure of the Confidential
Information. Confidential Information will not include any information which
is generally available to the public, is otherwise part of the public domain
other than through any act or omission of Gilead in breach of this Agreement,
or which is required to be disclosed by law or contract entered into
5.
<PAGE>
prior to this Agreement (provided that Isis shall have notice thereof in
advance so that it can act to protect its interests should it decide to do
so).
8. CONSIDERATION. Isis shall pay Gilead the following
noncontingent, non-refundable cash payments as consideration for the
assignments provided for in this Agreement: $2,000,000 on the Effective Date,
$1,000,000 on the first anniversary of the Effective Date, $1,000,000 on the
second anniversary of the Effective Date, and $2,000,000 on the third
anniversary of the Effective Date, for total payments of $6,000,000. In the
event that Isis defaults on any of these payments, after thirty (30) days
notice and an opportunity to cure, then ownership of all Patent Rights will
automatically revert to Gilead and Isis will take all actions reasonably
requested by Gilead for such purposes, including, without limitation, signing
and delivering any applicable assignments and other documents. Isis shall be
entitled to no damages exceeding the consideration set forth in this Section
8 for any uncured claim against Gilead respecting Gilead's performance or
representations hereunder.
9. NOTICES. Notices under this Agreement shall be
sufficient only if personally delivered, delivered by a major commercial
rapid delivery courier service, facsimile or mailed by certified or
registered mail, return receipt requested, to a party at its addresses set
forth as follows:
If to Isis: Isis Pharmaceuticals, Inc.
2292 Faraday Avenue
Carlsbad, CA 92008
Attn: Executive Vice President, CFO
Facsimile: (760) 431-9448
If to Gilead: Gilead Sciences, Inc.
333 Lakeside Drive
Foster City, CA 94404
Attn: Vice President, Intellectual Property
Facsimile: (650) 577-6622
If to Glaxo: Glaxo Wellcome, Inc.
Five Moore Drive
Research Triangle Park, NC 27709
Attn: Company Secretary
Facsimile: (919) 483-0265
10. MISCELLANEOUS. If any provision of this Agreement
shall be adjudged by any court of competent jurisdiction to be unenforceable
or invalid, that provision shall be limited or eliminated to the minimum
extent necessary to continue to effect the intent of the parties, and this
Agreement shall otherwise remain in full force and effect and enforceable.
Any waivers or amendments shall be effective only if made in writing and
signed by a representative of the respective parties authorized to bind the
parties. This Agreement shall be governed by the laws of the State of
Delaware, excluding conflicts-of-law principles. This Agreement is the
complete and exclusive statement of the mutual understanding of the parties
and supersedes and cancels all previous written and oral agreements and
communications relating to the subject matter of this
6.
<PAGE>
Agreement, excluding the Confidential Disclosure Agreement between the
parties dated July 29, 1998.
7.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first indicated above.
ISIS PHARMACEUTICALS, INC. GILEAD SCIENCES, INC.
By: /s/ B. Lynne Parshall By: /s/ Mark L. Perry
------------------------------ ------------------------------
Printed: B. Lynne Parshall Printed: Mark L. Perry
-------------------------- --------------------------
Title: Executive Vice President, CFO Title: Sr. Vice President, Chief
Financial Officer and General Counsel
Address: 2292 Faraday Avenue
Carlsbad, CA 92008 Address: 333 Lakeside Drive
Foster City, CA 94404
8.
<PAGE>
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EXHIBIT B
December 16, 1998
VIA FACSIMILE AND COURIER
Hugh Mackie, Ph.D.
Glen Research Corporation
22825 Davis Drive
Sterling, VA 20164
RE: ASSIGNMENT OF LICENSE AGREEMENT
Dear Hugh:
As we discussed today by phone, Gilead has negotiated a Patent Rights
Purchase Agreement with Isis Pharmaceuticals, Inc. ("Isis"), a
biopharmaceutical company based in Carlsbad, California, pursuant to which
Gilead will assign all of its antisense patent rights to Isis. As part of
this Agreement, Gilead will be assigning to Isis the License Agreement
between Gilead and Glen Research Corporation dated January 1, 1994, as
amended November 19, 1996 (the "License Agreement"). The purpose of this
letter is to obtain the formal consent of Glen Research Corporation to the
proposed assignment of the License Agreement to Isis, as required by Section
16 of the License Agreement. Please indicate your consent to the assignment
by executing and dating this letter in the space indicated below and
returning it to my attention via facsimile at (650) 577-5488. When you
receive the original copy of the letter please execute and date it (using the
same date) and return it to me by courier.
We would be happy to discuss the proposed assignment in more detail with you,
or put you in touch with appropriate people at Isis. Please give me a call at
(650) 573-4772, or John Milligan at (650) 573-4756, if you have any
questions. Thank you for your prompt response to this matter.
Very truly yours,
/s/ Jeffrey W. Bird
Jeffrey W. Bird, M.D., Ph.D.
Senior Vice President, Business Operations
ACCEPTED AND AGREED TO:
Glen Research Corporation
By /s/ Hugh Mackie
Name: Hugh Mackie
Title: President
Date: December 17, 1998
