<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 16, 1996
REGISTRATION NO. 333-05209
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
AVIRON
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
CALIFORNIA 2836 77-0306986
(State or other (Primary Standard Industrial (I.R.S. Employer
jurisdiction of Classification Code Number) Identification No.)
incorporation or
organization)
</TABLE>
------------------------
297 NORTH BERNARDO AVENUE
MOUNTAIN VIEW, CALIFORNIA 94043
(415) 919-6500
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
------------------------
J. LEIGHTON READ, M.D.
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
AVIRON
297 NORTH BERNARDO AVENUE
MOUNTAIN VIEW, CALIFORNIA 94043
(415) 919-6500
(Name, address and telephone number of agent for service)
------------------------
COPIES TO:
<TABLE>
<S> <C>
ALAN C. MENDELSON, ESQ. ALAN K. AUSTIN, ESQ.
ROBERT J. BRIGHAM, ESQ. ELIZABETH R. FLINT, ESQ.
Cooley Godward Castro Huddleson & Tatum ELIZABETH M. KURR, ESQ.
Five Palo Alto Square Wilson, Sonsini, Goodrich & Rosati
3000 El Camino Real 650 Page Mill Road
Palo Alto, California 94306 Palo Alto, California 94304
</TABLE>
------------------------
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
------------------------
If any of the Securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the Prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
AVIRON
CROSS-REFERENCE SHEET
PURSUANT TO ITEM 501(b) OF REGULATION S-K
SHOWING LOCATION IN PROSPECTUS OF INFORMATION
REQUIRED BY ITEMS OF FORM S-1
<TABLE>
<CAPTION>
ITEM NUMBER AND HEADING
IN FORM S-1 REGISTRATION STATEMENT LOCATION IN PROSPECTUS
- ------------------------------------------------------------- --------------------------------------------------------
<C> <S> <C>
1. Forepart of the Registration Statement and Outside
Front Cover Page of Prospectus................... Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages of
Prospectus....................................... Inside Front Cover Page
3. Summary Information; Risk Factors; and Ratio of
Earnings to Fixed Charges........................ Inside Front Cover Page; Summary; Risk Factors
4. Use of Proceeds................................... Use of Proceeds
5. Determination of Offering Price................... Outside Front Cover Page; Underwriting
6. Dilution.......................................... Dilution
7. Selling Security Holders.......................... Not Applicable
8. Plan of Distribution.............................. Outside Front Cover Page; Underwriting
9. Description of Securities to be Registered........ Summary; Capitalization; Description of Capital Stock
10. Interests of Named Experts and Counsel............ Legal Matters; Experts
11. Information with Respect to the Registrant........ Outside Front and Inside Front Cover Pages; Summary;
Risk Factors; Dividend Policy; Capitalization; Selected
Financial Data; Management's Discussion and Analysis of
Financial Condition and Results of Operations;
Business; Management; Certain Transactions; Principal
Stockholders; Description of Capital Stock; Shares
Eligible for Future Sale; Financial Statements
12. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities...................................... Not Applicable
</TABLE>
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
SUBJECT TO COMPLETION, DATED JULY 16, 1996
[LOGO]
3,000,000 SHARES
COMMON STOCK
All of the 3,000,000 shares of Common Stock offered hereby are being issued
and sold by Aviron (the "Company"). Prior to this offering there has been no
public market for the Common Stock of the Company. It is currently estimated
that the initial public offering price of the Common Stock will be between
$11.00 and $13.00 per share. See "Underwriting" for a discussion of the factors
considered in determining the initial public offering price.
Concurrent with this offering, the Company intends to sell 333,333 shares of
its Common Stock to Sang-A Pharm. Co., Ltd. ("Sang-A") in a private placement at
the initial public offering price pursuant to an agreement entered into in May
1995, with the number of shares to be sold to Sang-A (the "Sang-A Shares")
subject to adjustment under certain conditions. See "Business -- Collaborative
Agreements" and "Underwriting."
----------------
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 7.
---------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS COMPANY (1)
<S> <C> <C> <C>
Per Share.......................................... $ $ $
Total (2).......................................... $ $ $
</TABLE>
(1) Before deducting expenses payable by the Company estimated at $600,000.
(2) The Company has granted the Underwriters a 30-day option to purchase up to
an additional 450,000 shares of Common Stock, solely to cover
over-allotments, if any. See "Underwriting." If such option is exercised in
full, the total Price to Public, Underwriting Discounts and Commissions and
Proceeds to Company will be $ , $ and $ , respectively.
----------------
The Common Stock is offered by the Underwriters as stated herein, subject to
receipt and acceptance by them and subject to their right to reject any order in
whole or in part. It is expected that delivery of such shares will be made
through the offices of Robertson, Stephens & Company LLC ("Robertson, Stephens &
Company"), San Francisco, California on or about , 1996.
ROBERTSON, STEPHENS & COMPANY
BEAR, STEARNS & CO. INC.
HAMBRECHT & QUIST
The date of this Prospectus is , 1996
<PAGE>
AVIRON USES BOTH ITS RATIONAL VACCINE DESIGN TECHNOLOGY AND
CLASSICAL METHODS OF LIVE VACCINE DISCOVERY
RATIONAL VACCINE DESIGN TECHNOLOGY
[Virus particle containing genetic
information; three segments are highlighted
to correspond with methods of modifying the
virus' genetic information.]
DELETE VIRULENCE ADD GENETIC INFORMATION
PROTEINS Insert genes to enhance
Remove genes for viral components the virus'
thought to be important in disease stimulation of the
mechanism immune system
[Virus particle containing genetic [Virus particle
information; one segment of genetic containing genetic
information being removed.] information; one
segment of genetic
information being
added.]
DOWN-REGULATE
REPLICATION
Alter genetic information used
by the virus in controlling its replication
["Tree" structure comprised of 15 dots
symbolizing virus replication; second
structure comprised of 3 dots symbolizing
virus' reduced ability to replicate.]
VACCINE CANDIDATES
SPECIES SELECTION FOREIGN CELL ADAPTION TO PHYSICAL
Strains originate from PASSAGE CONDITIONS
non-human species Human virus mutates as it Human virus mutates as it
is propagated in cells is propagated in cells
from non-human species under unusual conditions,
e.g., cold temperature
[Graphic of a chicken and [Graphic of cells (3) [Petri dishes (2), each
a cow.] sequentially connected by with a corresponding
arrows.] graphic representation of
a thermometer. One
thermometer shows a higher
temperature than the
other.]
CLASSICAL METHODS
----------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
----------------
"Aviron" is a trademark of the Company. Certain other trademarks of the
Company and other companies are used in this Prospectus.
<PAGE>
AVIRON'S PROPOSED NASAL SPRAY
VACCINE FOR INFLUENZA
Genes from Genes from cold
naturally-occurring adapted master
influenza viruses as influenza virus strain
selected by public
health authorities
[Silhouette of human [Virus particle with box [Virus particle with box
head with lines coming around 2 of 8 segments around 6 of 8 segments
from nasal area leading of genetic information. of genetic information.]
to virus particle to the ------------------------
right.] Dashed lines connecting
to second virus particle
with box around 6 of 8
segments.]
[Virus particle
containing 8 segments of
genetic information; six
segments of the same
color, two segments of
different colors.]
AVIRON'S INFLUENZA VACCINE
COMBINES GENES FROM
NATURALLY OCCURRING VIRUSES
WITH GENES FROM THE COLD
ADAPTED MASTER STRAIN
[Photograph of a human hand holding a device
which is used to administer a vaccine in an
aerosol spray (to the upper respitory
tract-not shown). A spray effect is shown
which serves as the backdrop for an image of
a virus particle to the upper right.]
THE POTENTIAL IMPACT OF INFLUENZA IN THE COMMUNITY
[Photo of five young [Photo of one child from [Photo of woman from
children playing with previous picture in bed previous picture now in
blocks in a pre-school at home with mother at an office setting with 5
setting. Lines bedside. Child is ill, other adults. Lines
symbolically show how a and is shown with symbolically show how the
virus spreads from one thermometer in mouth, virus might spread to
child to the next.] mother touching forehead, others in the room.]
tissues and medication
bottle by bedside. Mother
is on the telephone.
Lines symbolically show
virus spreading from
child to mother.]
AGE GROUP: Children 1-18
ESTIMATED INFLUENZA ATTACK RATE: 36 per 100
BURDEN OF ILLNESS: illness, doctor visits, middle ear
infections, school absenteeism,
parents' lost work
ESTIMATED UNITED STATES POPULATION: 69 million
AVIRON PRODUCT STATUS: Phase I/II studies conducted
<PAGE>
THE COMPANY'S COLD ADAPTED NASAL SPRAY VACCINE IS AN INVESTIGATIONAL BIOLOGIC
AND HAS NOT BEEN APPROVED FOR SALE IN ANY COUNTRY. THE COMPANY DOES NOT
ANTICIPATE APPLYING FOR REGULATORY APPROVAL TO MARKET THIS PROPOSED VACCINE FOR
SEVERAL YEARS, IF EVER, AND WILL BE REQUIRED TO SUCCESSFULLY COMPLETE CLINICAL
TRIALS TO DEMONSTRATE ITS SAFETY AND EFFICACY PRIOR TO FILING FOR REGULATORY
APPROVAL. SEE "RISK FACTORS."
IMMUNE RESPONSE TO INFLUENZA VACCINES
[Silhouette of human head and torso [Silhouette of human head and torso
within which is visible the within which is visible the
circulatory system (red). The figure circulatory system (red) and the
is receiving an injection in the upper respiratory tract (blue). The
upper arm by syringe. The injected figure is receiving an aerosol spray
vaccine forms a small pool of liquid directed into the nasal passages and
at the site of injection.] upper respiratory tract by nasal
spray administration.]
INJECTABLE INACTIVATED NASAL SPRAY
VACCINE VACCINE
- Strongly stimulates - Stimulates mucosal
circulating antibodies immunity in
respiratory tract
- Stimulates cell-mediated
immunity
- Stimulates circulating
antibodies
[Photo of man from previous picture [The elderly woman from the previous
(presumably infected with the virus) picture is shown ill in bed in a
visiting with his elderly mother in hospital setting. Some medical
her home. He is kneeling beside a equipment is visible to the left; a
chair in which she is sitting and he healthcare worker or nurse is at her
is presenting her with a gift. A bedside. She appears awake and
line symbolically shows the virus alert.]
being passed between them.]
Adults 19-65 Elderly over 65
16 per 100 10 per 100
illness, doctor visits, lost illness, doctor visits,
work hospitalization, death
159 million 32 million
Phase II studies conducted Clinical trials planned for
co-administration with
injectable inactivated vaccine
<PAGE>
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION AND REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR THE SOLICITATION OF AN
OFFER TO BUY, ANY SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH IT
RELATES OR AN OFFER TO, OR SOLICITATION OF, ANY PERSON IN ANY JURISDICTION IN
WHICH SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL OR TO ANY PERSON TO WHOM IT
IS UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY OFFER OR SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE
HEREOF.
UNTIL , 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING
IN THE DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY
REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS
WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
-------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary................................................................... 4
Risk Factors.............................................................. 7
Use Of Proceeds........................................................... 19
Dividend Policy........................................................... 19
Capitalization............................................................ 20
Dilution.................................................................. 21
Selected Financial Data................................................... 22
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 23
Business.................................................................. 27
Management................................................................ 52
Certain Transactions...................................................... 59
Principal Stockholders.................................................... 61
Description Of Capital Stock.............................................. 64
Shares Eligible For Future Sale........................................... 67
Underwriting.............................................................. 69
Legal Matters............................................................. 70
Experts................................................................... 70
Additional Information.................................................... 70
Index to Financial Statements............................................. F-1
</TABLE>
3
<PAGE>
SUMMARY
THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS WHICH INVOLVE RISKS AND
UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE
ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS,
INCLUDING THOSE SET FORTH UNDER "RISK FACTORS" AND ELSEWHERE IN THIS PROSPECTUS.
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY AND SHOULD BE READ IN
CONJUNCTION WITH THE MORE DETAILED INFORMATION, INCLUDING "RISK FACTORS" AND THE
FINANCIAL STATEMENTS AND NOTES THERETO, APPEARING ELSEWHERE IN THIS PROSPECTUS.
THE COMPANY
Aviron is a biopharmaceutical company whose strategy is to focus on
prevention of disease. The Company's goal is to become a leader in the
discovery, development, manufacture and marketing of live virus vaccines which
are sufficiently cost effective to justify their use in immunization programs
targeting the general population. Live virus vaccines, such as those for
smallpox, polio, measles, mumps and rubella, have had a long record of success
in preventing, and in some cases eliminating, disease. The Company currently is
analyzing data from Phase I and Phase II clinical trials in children and adults
of its live cold adapted intranasal vaccine for influenza. The Company has
recently in-licensed a live intranasal vaccine for Parainfluenza Virus Type 3
("PIV-3") which has been tested by others in Phase I/II clinical trials. The
Company also is developing a subunit vaccine for Epstein-Barr Virus ("EBV"). In
addition, Aviron is using its proprietary "Rational Vaccine Design" technology
to discover new live virus vaccines. Rational Vaccine Design involves the
deletion or modification of virulence proteins, changes to the virus' genetic
control signals to slow down its replication, or addition of information to
enhance the virus' stimulation of the immune system. The Company is applying
this technology to develop candidates for the prevention of influenza in elderly
persons and diseases caused by Cytomegalovirus ("CMV"), Herpes Simplex Virus
Type 2 ("HSV-2") and Respiratory Syncytial Virus ("RSV").
Aviron's age-specific influenza programs address three distinct population
groups: children, adults and the elderly. Influenza affects 20 to 50 million
Americans each year resulting in approximately 20,000 deaths annually, primarily
in the elderly, despite the availability of an injectable inactivated vaccine
that has been reported to be 60% to 80% effective. The United States Food and
Drug Administration (the "FDA") estimates that approximately 75 million doses of
influenza vaccine were manufactured for use in the United States in 1995.
Experts suggest that, although over half of Americans at high risk for
complications from influenza receive the annual influenza vaccine, relatively
few of the 70 million children under the age of 18 are vaccinated.
To address the need for more convenient influenza prophylaxis, the Company
has in-licensed the rights to a cold adapted influenza vaccine from the
University of Michigan and the National Institute of Allergy and Infectious
Disease (the "NIAID"), a division of the National Institutes of Health (the
"NIH"). Formulations of this vaccine were tested in over 7,000 persons prior to
Aviron's acquisition of the vaccine, and subsequently have been studied in
clinical trials conducted by the Company involving over 700 children and adults.
The cold adapted influenza vaccine elicits an immune response similar to that of
the natural infection by stimulating mucosal immunity in the nose, cellular
components of the immune system and circulating antibodies. Aviron intends to
develop the cold adapted influenza vaccine for widespread annual use in children
and adults, and for co-administration with the injectable inactivated vaccine
for improved protection in the elderly. In addition, Aviron is developing a
genetically engineered influenza vaccine that is intended to be a better immune
stimulus in the elderly than either the cold adapted vaccine or the inactivated
vaccine alone, and therefore more suitable for use as a single-dose vaccine in
this population.
Aviron also is conducting research and development on additional vaccine
targets, including:
PARAINFLUENZA VIRUS TYPE 3. PIV-3 is a common respiratory virus of
childhood which causes croup, cough, fever and pneumonia. Over 80% of
children have been infected by age four, many having experienced several
cases of PIV-3 infection. The Company has in-licensed the rights to a bovine
PIV-3 ("bPIV-3") vaccine from the NIH which has been tested in over 100
infants and adults. Aviron intends to develop the bPIV-3 vaccine for use in
preventing childhood PIV-3 illness.
4
<PAGE>
EPSTEIN-BARR VIRUS. EBV infects most people at some point in their
lifetime. Half or more of the approximately 10% of students who first become
infected with the virus in high school and college develop infectious
mononucleosis. EBV also has been shown to be a contributing factor in the
development of certain types of cancer and lymphoma. The Company is
conducting preclinical evaluation of a subunit EBV vaccine candidate in
conjunction with SmithKline Beecham Biologicals S.A. ("SmithKline Beecham").
CYTOMEGALOVIRUS. Most people also become infected with CMV at some time
in their lives, but the resulting disease is typically serious only for
those with impaired immune systems or for babies of women infected in the
first trimester of pregnancy. The Company is developing and evaluating its
engineered vaccine candidates in preclinical models to create a prophylactic
vaccine.
HERPES SIMPLEX VIRUS TYPE 2. Genital herpes is an incurable disease
characterized by recurrent, often painful genital sores, with over 700,000
new cases estimated in the United States each year. The Company currently is
developing and evaluating vaccine candidates in preclinical models to create
a prophylactic vaccine.
RESPIRATORY SYNCYTIAL VIRUS. RSV is the major cause of lower
respiratory tract illness in the very young, responsible for over 90,000
hospitalizations and more than 4,000 deaths per year in the United States.
Aviron is using its proprietary technology to create candidate vaccines to
prevent RSV disease.
Aviron intends to enter into selected collaborative agreements to gain
access to complementary technologies, capabilities and financial support for its
programs. In addition to acquiring rights from third parties to augment its
Rational Vaccine Design technology and the cold adapted influenza vaccine
technology, the Company has entered into a collaborative agreement with
SmithKline Beecham covering worldwide rights to its EBV vaccine, and a
collaboration with Sang-A involving certain marketing and manufacturing rights
to its products in Korea.
The Company was incorporated in California in April 1992 as Vector
Pharmaceuticals, Inc., changed its name to Aviron in February 1993, and intends
to reincorporate in Delaware in July 1996. The Company's executive offices are
located at 297 North Bernardo Avenue, Mountain View, California 94043, and its
telephone number is (415) 919-6500.
5
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock Offered by the Company.............................. 3,000,000 shares
Common Stock Outstanding After the Offering...................... 12,285,990 shares (1)
Use of Proceeds.................................................. For research and development, including
preclinical testing and clinical trials;
capital expenditures; and working capital
and general corporate purposes. See "Use
of Proceeds."
Proposed Nasdaq National Market Symbol........................... AVIR
</TABLE>
SUMMARY FINANCIAL DATA
(in thousands, except per share data)
<TABLE>
<CAPTION>
FOR THE PERIOD FROM
APRIL 15, 1992 THREE MONTHS ENDED
(DATE OF INCEPTION) YEAR ENDED DECEMBER 31, MARCH 31,
TO ------------------------------------ ------------------------
DECEMBER 31, 1992 1993 1994 1995 1995 1996
--------------------- ----------- ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenues.......................... $ -- $ -- $ -- $ 1,707 $ -- $ 188
Operating expenses:
Research and development.............. 320 2,073 4,216 10,220 3,088 3,044
General and administrative............ 470 1,874 2,493 3,252 701 1,063
----- ----------- ----------- ---------- ----------- -----------
Total operating expenses............ 790 3,947 6,709 13,472 3,789 4,107
----- ----------- ----------- ---------- ----------- -----------
Loss from operations.................... (790) (3,947) (6,709) (11,765) (3,789) (3,919)
Interest income, net of interest
expense................................ 37 175 207 362 32 183
----- ----------- ----------- ---------- ----------- -----------
Net loss................................ $ (753) $ (3,772) $ (6,502) $ (11,403) $ (3,757) $ (3,736)
----- ----------- ----------- ---------- ----------- -----------
----- ----------- ----------- ---------- ----------- -----------
Pro forma net loss per share (2)........ $ (1.24) $ (0.41)
---------- -----------
---------- -----------
Shares used in computing pro forma net
loss per share (2)..................... 9,183 9,223
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1996
-------------------------
ACTUAL AS ADJUSTED(3)
--------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments................................... $ 14,494 $ 51,374
Working capital..................................................................... 12,804 49,684
Total assets........................................................................ 17,275 54,155
Accumulated deficit................................................................. (26,192) (26,192)
Total stockholders' equity.......................................................... 14,167 51,047
</TABLE>
- ------------------------
(1) Includes the estimated 333,333 shares intended to be sold to Sang-A in a
private placement concurrent with this offering. Excludes (i) 643,480 shares
of Common Stock issuable upon exercise of options outstanding as of June 1,
1996, at a weighted average exercise price of approximately $1.22 per share,
(ii) an aggregate of 1,556,520 shares reserved for future grants or
purchases pursuant to the Company's 1996 Equity Incentive Plan, Employee
Stock Purchase Plan and Non-Employee Director Stock Option Plan, (iii)
118,395 shares issuable upon exercise of warrants outstanding as of June 1,
1996 at a weighted average exercise price of $6.65 per share, and (iv)
warrants to purchase 29,750 shares which become exercisable at the close of
the offering at 125% of the initial public offering price.
(2) See Note 1 of Notes to Financial Statements for an explanation of the method
used to determine the number of shares used to compute pro forma per share
amounts.
(3) As adjusted to give effect to the sale of 3,000,000 shares of Common Stock
at an assumed initial public offering price of $12.00 per share and the
estimated 333,333 shares intended to be sold to Sang-A in a private
placement concurrent with this offering, and the application of the net
proceeds therefrom. See "Use of Proceeds" and "Capitalization."
UNLESS OTHERWISE INDICATED, ALL INFORMATION IN THIS PROSPECTUS REFLECTS A
ONE-FOR-FIVE REVERSE SPLIT OF THE COMPANY'S COMMON STOCK EFFECTED IN MAY 1996
AND ASSUMES (I) REINCORPORATION OF THE COMPANY IN DELAWARE PRIOR TO THE
OFFERING, (II) THE CONVERSION OF ALL OUTSTANDING SHARES OF ITS PREFERRED STOCK
INTO SHARES OF COMMON STOCK UPON THE CLOSING OF THIS OFFERING AT A RATE OF ONE
SHARE OF COMMON STOCK FOR FIVE SHARES OF PREFERRED STOCK, AND (III) NO EXERCISE
OF THE UNDERWRITERS' OVER-ALLOTMENT OPTION.
6
<PAGE>
RISK FACTORS
This Prospectus contains forward-looking statements which involve risks and
uncertainties. The Company's actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain factors,
including those set forth in the following risk factors and elsewhere in this
Prospectus.
The following risk factors should be considered carefully in evaluating the
Company and its business before purchasing shares of the Common Stock offered
hereby.
UNCERTAINTIES RELATED TO CLINICAL TRIALS
Before obtaining required regulatory approvals for the commercial sale of
any of its products under development, the Company must demonstrate through
preclinical testing and clinical trials that each product is safe and effective
for use in each target indication. The results from preclinical testing and
early clinical trials may not be predictive of results obtained in later
clinical trials and large-scale testing. Companies in the pharmaceutical,
biopharmaceutical and biotechnology industries have suffered significant
setbacks in various stages of clinical trials, even in advanced clinical trials
after promising results had been obtained in earlier trials. The Company's
vaccines are intended for use primarily in healthy individuals. To obtain
regulatory approval, the Company must demonstrate safety and efficacy in healthy
people which likely will require a lengthier process and involve a larger number
of trials and patients than would be customary for clinical trials of
therapeutics for disease management. There can be no assurance that the
Company's clinical trials will demonstrate sufficient safety and efficacy to
obtain the requisite regulatory approvals or will result in marketable products.
The Company recently completed a Phase II challenge study of its cold adapted
influenza vaccine in adults. Preliminary analysis of the results indicated a
very low level of illness in both the placebo and treated groups, and the
Company believes that this study is unlikely to show statistically significant
efficacy in preventing influenza. Regardless of the results of this study, the
Company intends to discuss with the FDA its plans to proceed directly to Phase
III clinical trials in adults and does not intend to conduct other challenge
studies. However, no assurance can be given that the FDA will approve the
Company's protocol for Phase III clinical trials, that the Company will commence
clinical trials as planned, or that the FDA will not require additional Phase II
clinical trial data prior to commencing Phase III clinical trials. In addition,
the Company's clinical trial data to date suggest that a repeat or booster dose
may be required in young children due to their lack of previous exposure to
influenza viruses. If the Company's cold adapted influenza vaccine is not shown
to be safe and effective in Aviron's clinical trials, the resulting delays in
developing this and other vaccine candidates and conducting related preclinical
testing and clinical trials, as well as the need for additional financing, would
have a material adverse effect on the Company's business, financial condition
and results of operations.
The Company's cold adapted influenza vaccine is based on technology licensed
from the NIH and the University of Michigan. Wyeth-Ayerst Laboratories
("Wyeth-Ayerst"), a division of American Home Products Corporation, licensed
certain rights to the vaccine in 1991 and was developing it for sale in
collaboration with the NIH until relinquishing its rights in 1993. In addition,
Kaketsuken, a Japanese research foundation ("Kaketsuken"), licensed certain
rights to the vaccine in 1993 and was developing it for sale in Japan until
relinquishing such rights in 1996. Formulations of the vaccine have been the
subject of a number of clinical trials performed by Wyeth-Ayerst, the NIAID of
the NIH and Kaketsuken. The Company has reviewed the data from these trials and
believes that it can submit such data in partial support of its application for
regulatory approval from the FDA. The Company did not participate in these
trials and cannot be confident in the accuracy of the data collected. Although a
large proportion of this data was positive, a number of trials included results
that were not. Very few of the trials involved a trivalent vaccine delivered
through nasal spray. The Company will need to perform additional trials of its
vaccine candidate to support its application to the FDA. There can be no
assurance that the data from these third-party trials is accurate, that the
Company will be able to obtain favorable results from its own trials, or that
the Company can complete these trials on a timely basis, or at all. See
"Business -- Influenza Clinical Trials."
The rate of completion of the Company's clinical trials may be delayed by
many factors. For example, delays may be encountered in enrolling a sufficient
number of patients fitting the appropriate trial profile, preparing the modified
vaccine strain for certain influenza seasons, or in manufacturing clinical trial
materials. The
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Company's late-stage clinical trials of its cold adapted influenza vaccine must
be conducted during the influenza season and must be commenced early enough in
the approximately five-month season so that subjects may be vaccinated well in
advance of a challenge by the wild-type virus. Additionally, there is a risk
that there will not be enough natural influenza in the community in a given
influenza season to achieve statistically significant results from clinical
trials. As a result, if the Company is unable to commence its clinical trials on
a timely basis, it will be required to wait until the next influenza season,
which will not occur for another year in that country. There can be no assurance
that delays in, or termination of, clinical trials will not occur. Any delays
in, or termination of, the Company's clinical trial efforts would have a
material adverse effect on the Company's business, financial condition and
results of operations.
There can be no assurance that Aviron will be permitted by regulatory
authorities to undertake additional clinical trials for its cold adapted
influenza vaccine or initiate clinical trials for its other programs or, if any
such trials are conducted, that any of the Company's product candidates will
prove to be safe and effective or will receive regulatory approvals. See
"Business -- Vaccine Products Under Development."
UNCERTAINTIES RELATED TO EARLY STAGE OF DEVELOPMENT; TECHNOLOGICAL UNCERTAINTY
Aviron commenced its operations in April 1992 and until recently was a
development stage company. All of the Company's product candidates are in the
research or development stage. With the exception of two in-licensed product
candidates, none of the Company's proposed products has yet been approved for
clinical trials. To date, the Company has had no revenue from product sales and
all of its resources have been dedicated to the development of vaccines. There
can be no assurance that product revenues will be realized on a timely basis, if
ever.
The development of safe and effective vaccines for the prevention of viral
diseases such as influenza, herpes simplex and other target diseases is highly
uncertain and subject to numerous risks. Potential products that appear to be
promising at early stages of development may not reach the market for a number
of reasons. Potential products may be found ineffective or cause harmful side
effects during preclinical testing or clinical trials, fail to receive necessary
regulatory approvals, be difficult to manufacture on a large scale, be
uneconomical, fail to achieve market acceptance or be precluded from
commercialization by proprietary rights of third parties. Aviron has not yet
requested or received the regulatory approvals that are required to market its
products. Aviron does not expect that any of its proposed products will be ready
for commercialization for the next several years, if at all. To achieve
profitability, the Company, alone or with others, must successfully identify,
develop, test, manufacture and market its products. There can be no assurance
that Aviron will succeed in the development and marketing of any product. Any
potential product will require significant additional investment, development,
preclinical testing and clinical trials prior to potential regulatory approval
and commercialization.
The Company's cold adapted influenza vaccine involves a complex development
process. If the Company were to successfully develop an influenza vaccine, its
composition would require annual modification. Influenza viruses have a high
mutation rate and the surface antigens of influenza viruses that induce
protective immunity are variable from year to year. Each spring, the FDA and the
United States Centers for Disease Control and Prevention (the "CDC") select
circulating influenza strains that will be included in the following season's
influenza vaccines. As a result, manufacturers of vaccines must modify their
influenza vaccines each year to include the selected strains in a form that
meets FDA guidelines within an approximately six-month period in order to make
it available before the influenza season. On one occasion in the past, the
Company experienced difficulty in preparing modified vaccine strains in time to
conduct clinical trials during the influenza season. Even if the Company is able
to develop an influenza vaccine for a particular year, it must also establish a
dependable process by which the vaccine may be modified and manufactured on a
timely basis to include additional strains each year. If the Company were unable
to develop an influenza vaccine for a particular year that meets FDA and CDC
guidelines and establish a manufacturing process for the vaccine, its business,
financial condition and results of operations would be materially adversely
affected. No assurance can be given that delays in preparing vaccines for use in
clinical trials or commercial sales will not be encountered. In addition, there
can be no assurance that the Company's development efforts will be successful,
that required
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regulatory approvals, including those with respect to Investigational New Drug
("IND") applications, will be obtained or that any products, if introduced, will
be successfully marketed. See "Business -- Vaccine Products Under Development."
NEED FOR FUTURE FUNDING; UNCERTAINTY OF ACCESS TO CAPITAL
The Company's operations to date have consumed substantial and increasing
amounts of cash. The negative cash flow from operations is expected to continue
and to accelerate in the foreseeable future. The development of the Company's
technology and proposed products will require a commitment of substantial funds
to conduct the costly and time-consuming research, preclinical testing and
clinical trials necessary to develop and optimize such technology and proposed
products, to establish manufacturing and marketing capabilities and to bring any
such products to market. The Company's future capital requirements will depend
upon many factors, including continued scientific progress in the research and
development of the Company's technology and vaccine programs, the size and
complexity of these programs, the ability of the Company to establish and
maintain collaborative arrangements, progress with preclinical testing and
clinical trials, the time and costs involved in obtaining regulatory approvals,
the cost involved in preparing, filing, prosecuting, maintaining and enforcing
patent claims or trade secrets, and product commercialization activities.
The Company anticipates that the proceeds of this offering and the sale of
the Sang-A Shares, together with the interest thereon, and revenues from
existing collaborations, cash, cash equivalents and short-term investments will
enable it to maintain its current and planned operations at least through 1997.
The Company is actively seeking additional collaborative agreements with
corporate partners and may seek additional funding through public or private
equity or debt financing. There can be no assurance that any additional
collaborative agreements will be entered into or that additional financing will
be available on acceptable terms, if at all. If additional funds are raised by
issuing equity securities, further dilution to stockholders may result. If
adequate funds are not available, the Company may be required to delay, reduce
the scope of, or eliminate one or more of its research or development programs
or to obtain funds through collaborative arrangements with others that may
require the Company to relinquish rights to certain of its technologies, product
candidates or products that the Company would otherwise seek to develop or
commercialize itself. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources."
LITIGATION WITH CHIRON CORPORATION
On July 1, 1996, Chiron Corporation ("Chiron") filed a complaint against the
Company in San Mateo County, California, Superior Court, alleging that certain
of Aviron's patent applications relating to its EBV program are based on Chiron
proprietary information which was improperly conveyed to Aviron by a former
Chiron employee, and that the Company has engaged in unfair competition. The
complaint seeks unspecified monetary damages and seeks to impose a constructive
trust, for Chiron's benefit, over the affected patent applications, an exclusive
assignment by the Company to Chiron of such patent applications and an
injunction against the Company from disclosing, using or applying such alleged
proprietary information. Aviron believes that the allegations in the Chiron
complaint are without merit and intends to vigorously defend itself against such
action. Aviron does not utilize the alleged Chiron proprietary information in
any of its potential products currently under development. Even if Chiron were
to prevail in this action, the Company believes that it is uncertain that a
court would grant a constructive trust over the specified patent applications,
which include many claims (including certain rights the Company licensed to
SmithKline Beecham) not relating to the alleged Chiron proprietary technology.
Were a court to grant a constructive trust over such patent applications, it
could adversely impact the Company's agreement with SmithKline Beecham. There
can be no assurance that Chiron will not ultimately prevail in this action or
that it will not obtain the remedies it is seeking. In addition, the Company
expects that the legal costs incurred in defending itself against this action
could be substantial.
LACK OF MANUFACTURING EXPERIENCE; RELIANCE ON CONTRACT MANUFACTURERS
The Company currently does not have the facilities to manufacture products
for large-scale clinical trials or in commercial quantities and has no
experience in commercial-scale manufacturing. To manufacture its products for
large-scale clinical trials or on a commercial scale, the Company will have to
build or gain access to a large-
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scale manufacturing facility which will require a significant amount of funds.
The Company currently is evaluating the costs and benefits of developing
internal manufacturing capabilities or contracting with third-party
manufacturers. The production of the Company's cold adapted influenza vaccine is
subject to the availability of a large number of pathogen-free hen eggs, for
which there are currently a limited number of suppliers. Contamination or
disruption of this source of supply would adversely affect the ability to
manufacture the Company's cold adapted influenza vaccine. In addition, to make
the vaccine available for clinical trials or commercial sales before the
influenza season, the Company must successfully modify the vaccine within a six-
month period to include selected strains for a particular year in time for
manufacturing and distribution. The Company currently is considering whether to
construct manufacturing facilities capable of producing both pilot-
scale and commercial quantities of its potential vaccine products and is
presently building a pilot manufacturing facility. This scale-up process will
require the Company to develop advanced manufacturing techniques and rigorous
process controls. Furthermore, the Company will be required to register its
facility with the FDA and with the California Department of Health Services and
will be subject to state and federal inspections confirming the Company's
compliance with current Good Manufacturing Practices ("cGMP") regulations
established by the FDA. No assurance can be given as to the ability of the
Company to produce commercial quantities of its potential products in compliance
with applicable regulations or at an acceptable cost, if at all.
The Company is alternatively considering the use of contract manufacturers
for the commercial production of its potential products. The Company currently
relies on Evans Medical Limited, a subsidiary of Medeva plc ("Evans"), for the
manufacture of its influenza vaccine for clinical trials. The Company is aware
of only a limited number of manufacturers which it believes have the ability and
capacity to manufacture its potential products, including the cold adapted
influenza vaccine, in a timely manner. There can be no assurance that the
Company would be able to contract with any of these manufacturers for the
manufacture of its products on acceptable terms, if at all. If the Company
enters into an agreement with a third-party manufacturer, it will be required to
relinquish control of the manufacturing process, which might adversely affect
the Company's results of operations. Furthermore, a third-party manufacturer
also will be required to manufacture the Company's products in compliance with
state and federal regulations. Failure of any such third-party manufacturer to
comply with state and federal regulations and to deliver the required quantities
on a timely basis and at commercially reasonable prices would materially
adversely affect the Company's business, financial condition and results of
operations. No assurance can be given that the Company, alone or with a third
party, will be able to make the transition to commercial-scale production of its
potential products successfully, if at all, or that if successful, the Company
will be able to maintain such production. See "Business -- Manufacturing" and
"-- Government Regulation."
UNCERTAINTY OF FUTURE PROFITABILITY; ACCUMULATED DEFICIT
The Company has experienced significant and increasing operating losses
since its inception in April 1992. As of March 31, 1996, the Company had an
accumulated deficit of approximately $26.2 million. Aviron has not received any
product revenue to date and does not expect to generate revenues from the sale
of products for several years, if at all. The Company expects to incur
significant and increasing operating losses over at least the next several years
as the Company's research and development efforts and preclinical testing and
clinical trial activities expand. The Company's ability to achieve profitability
depends in part upon its ability, alone or with others, to complete development
of its proposed products, to obtain required regulatory approvals and to
successfully manufacture and market such products. To the extent that the
Company is unable to obtain third-party funding for expenses, the Company
expects that its increased expenses will result in increased losses from
operations. There can be no assurance that Aviron will obtain required
regulatory approvals or successfully identify, develop, test, manufacture and
market any product candidates, or that the Company will ever achieve product
revenues or profitability. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
UNCERTAINTY OF PROTECTION OF PATENTS AND PROPRIETARY RIGHTS; DEPENDENCE ON TRADE
SECRETS
The Company's success will depend in part on its ability to maintain its
technology licenses, maintain trade secrets, obtain patents and operate without
infringing the proprietary rights of others, both in the United States and in
other countries. Since patent applications in the United States are maintained
in secrecy until patents
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issue and since publication of discoveries in the scientific or patent
literature often lag behind actual discoveries, the Company cannot be certain
that it was the first to make the inventions covered by each of its pending
patent applications or that it was the first to file patent applications for
such inventions. The patent positions of biotechnology and pharmaceutical
companies can be highly uncertain and involve complex legal and factual
questions, and therefore the breadth of claims allowed in biotechnology and
pharmaceutical patents, or their enforceability, cannot be predicted. There can
be no assurance that any of the Company's patents or patent applications will
issue or, if issued, will not be challenged, invalidated or circumvented, or
that the rights granted thereunder will provide proprietary protection or
competitive advantages to the Company.
The commercial success of Aviron also will depend, in part, upon the
Company's not infringing patents issued to others. A number of pharmaceutical
companies, biotechnology companies, universities and research institutions have
filed patent applications or received patents in the areas of the Company's
programs. Some of these applications or patents may limit or preclude the
Company's applications, or conflict in certain respects with claims made under
the Company's applications.
The Company is aware of pending patent applications that have been filed by
others that may pertain to certain aspects of the Company's programs or its
issued or pending patent applications. If patents have been or are issued to
others containing preclusive or conflicting claims and such claims are
ultimately determined to be valid, the Company may be required to obtain
licenses to these patents or to develop or obtain alternative technology. No
assurance can be given that patents have not been issued, or will not be issued,
to third parties that contain preclusive or conflicting claims with respect to
the cold adapted influenza vaccine or any of the Company's other programs. The
Company's breach of an existing license or failure to obtain a license to
technology required to commercialize its products may have a material adverse
effect on the Company's business, financial condition and results of operations.
Litigation, which could result in substantial costs to the Company, may also be
necessary to enforce any patents issued to the Company or to determine the scope
and validity of third-party proprietary rights. If competitors of the Company
prepare and file patent applications in the United States that claim technology
also claimed by the Company, the Company may have to participate in interference
proceedings declared by the United States Patent and Trademark Office to
determine priority of invention, which could result in substantial cost to the
Company, even if the eventual outcome is favorable to the Company. An adverse
outcome could subject the Company to significant liabilities to third parties
and require the Company to license disputed rights from third parties or to
cease using such technology.
The Company has no issued patents on the technology related to its cold
adapted influenza vaccine. The Company's rights to this technology are based on
an exclusive license of materials and know-how from the University of Michigan,
which owns the master strains from which the vaccine is derived, and on an
exclusive license of know-how and clinical trial data from the NIH. The
exclusive license from Michigan is for all countries of the world except Japan
and is in the process of being extended to Japan for no additional
consideration. There can be no assurance that a third party will not reproduce
the Company's cold adapted influenza vaccine or that a third party will not
develop another live-virus influenza vaccine which might be comparable to
Aviron's in terms of safety and effectiveness.
The Company also relies on trade secrets to protect its technology,
especially where patent protection is not believed to be appropriate or
obtainable. Certain of the Company's licensors also rely on trade secrets to
protect technology which has been licensed to Aviron, and as a result, the
Company is dependent on the efforts of such licensors to protect such trade
secrets. For example, the University of Michigan relies, in part, on trade
secrets to protect the master strains of the cold adapted influenza virus used
by the Company. Aviron protects its proprietary technology and processes, in
part, by confidentiality agreements with its employees, consultants,
collaborators and certain contractors. 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 or those of its licensors
will not otherwise become known or be independently discovered by competitors.
To the extent that Aviron or its consultants or research collaborators use
intellectual property owned by others in their work for the Company, disputes
may also arise as to the rights in related or resulting know-how and inventions.
On July 1, 1996, Chiron filed a complaint against the Company in San Mateo
County, California, Superior Court, alleging that certain of Aviron's patent
applications relating to its EBV program are based on Chiron proprietary
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information which was improperly conveyed to Aviron by a former Chiron employee,
and that the Company has engaged in unfair competition. See "-- Litigation with
Chiron Corporation," "Business -- Patents and Proprietary Rights" and "-- Legal
Proceedings."
GOVERNMENT REGULATION; NO ASSURANCE OF REGULATORY APPROVALS
The production and marketing of the Company's products and its ongoing
research and development activities are subject to extensive regulation by
numerous government authorities in the United States and other countries. Prior
to marketing in the United States, any product developed by the Company must
undergo rigorous preclinical testing and clinical trials and an extensive
regulatory approval process implemented by the FDA under the Food, Drug and
Cosmetic Act. Satisfaction of such regulatory requirements, which includes
demonstrating that the product is both safe and effective, typically takes
several years or more depending upon the type, complexity and novelty of the
product and requires the expenditure of substantial resources. This process may
be more demanding for vaccines intended for use in healthy people compared to
therapeutics used for treatment of people with diseases. Preclinical studies
must be conducted in compliance with the FDA's Good Laboratory Practice ("GLP")
regulations. Clinical testing must meet requirements for Institutional Review
Board ("IRB") oversight and informed consent, as well as FDA prior review,
oversight and good clinical practice requirements. The Company has limited
experience in conducting and managing the clinical trials necessary to obtain
regulatory approval. Furthermore, the Company or the FDA may suspend clinical
trials at any time if it believes that the subjects participating in such trials
are being exposed to unacceptable health risks.
Before receiving FDA approval to market a product, the Company will have to
demonstrate that the product is safe and effective and represents an improved
form of health management compared to existing approaches. Data obtained from
preclinical testing and clinical trials are susceptible to varying
interpretations which could delay, limit or prevent regulatory approvals. In
addition, delays or rejections may be encountered based upon additional
government regulation from future legislation or administrative action or
changes in FDA policy during the period of product development, clinical trials
and FDA regulatory review. Similar delays may also be encountered in foreign
countries. There can be no assurance that even after such time and expenditures,
regulatory approval will be obtained for any products developed by the Company.
If regulatory approval of a product is granted, such approval will be limited to
those specific segments of the population for which the product is effective, as
demonstrated through clinical trials. Furthermore, approval may entail ongoing
requirements for post-marketing studies. Even if such regulatory approval is
obtained, a marketed product, its manufacturer and its manufacturing facilities
are subject to continual review and periodic inspections. The regulatory
standards for manufacturing are currently being applied stringently by the FDA.
Discovery of previously unknown problems with a product, manufacturer or
facility may result in restrictions on such product or manufacturer, including
costly recalls or even withdrawal of the product from the market. There can be
no assurance that any product developed by the Company alone or in conjunction
with others will prove to be safe and efficacious in clinical trials and will
meet all of the applicable regulatory requirements needed to receive marketing
approval.
Outside the United States, the Company's ability to market a product is
contingent upon receiving marketing authorization from the appropriate
regulatory authorities. The requirements governing the conduct of clinical
trials, marketing authorization, pricing and reimbursement vary widely from
country to country. At present, foreign marketing authorizations are applied for
at a national level, although within the European Union (the "EU"), procedures
are available to companies wishing to market a product in more than one EU
member state. If the regulatory authorities are satisfied that adequate evidence
of safety, quality and efficacy has been presented, a marketing authorization
will be granted. This foreign regulatory approval process includes all of the
risks associated with FDA approval set forth above. See "Business -- Government
Regulation."
INTENSE COMPETITION AND RISK OF TECHNOLOGICAL OBSOLESCENCE
The Company operates in a rapidly evolving field. Any product developed by
the Company would compete with existing and new drugs and vaccines being created
by pharmaceutical, biopharmaceutical and biotechnology companies. If the Company
were able to successfully develop its vaccines, it would be competing with
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larger companies that have already introduced vaccines and have significantly
greater marketing, manufacturing, financial and managerial resources. For
example, with respect to its cold adapted influenza vaccine, the Company will be
competing against larger companies such as Pasteur Merieux Connaught,
Wyeth-Ayerst, Parke-Davis Group ("Parke-Davis"), a subsidiary of Warner-Lambert
Company, and Evans. Each of these companies sell the injectable inactivated
influenza vaccine in the United States, have significantly greater financial
resources than Aviron and have established marketing and distribution channels
for such products. The Company is also aware of several companies that are
marketing or are in late-stage development of products to prevent CMV or HSV
disease, including Glaxo Wellcome plc ("Glaxo"), SmithKline Beecham and Chiron
Biocine Corporation. In addition, the Company is aware of the use in Russia of a
cold adapted influenza vaccine, research programs by some of the competitors
listed above, among others, to develop more effective influenza vaccines and a
cold adapted PIV-3 vaccine developed with NIH support which may be licensed to a
large vaccine company.
New developments are expected to continue in both the pharmaceutical and
biotechnology industries and in academia. Other companies may succeed in
developing products that are safer, more effective or less costly than any that
may be developed by the Company. Such companies may also be more effective than
the Company in the production and marketing of their products. Furthermore,
rapid technological development by competitors may result in the Company's
products becoming obsolete before the Company is able to recover its research,
development or commercialization expenses incurred in connection with any such
product. Many potential competitors have substantially greater financial,
technical and marketing resources than the Company. Some of these companies also
have considerable experience in preclinical testing, clinical trials and other
regulatory approval procedures. Moreover, certain academic institutions,
government agencies and other research organizations are conducting research in
areas in which the Company is working. These institutions are becoming
increasingly aware of the commercial value of their findings and are becoming
more active in seeking patent protection and licensing arrangements to collect
royalties for the use of technology that they have developed. These institutions
may also market competitive commercial products on their own or through joint
ventures.
Aviron believes that competition in the markets it is addressing will
continue to be intense. The vaccine industry is characterized by intense price
competition, and the Company anticipates that it will face this and other forms
of competition. There can be no assurance that pharmaceutical, biopharmaceutical
and biotechnology companies will not develop more effective products than those
of the Company or will not market and sell their products more effectively than
the Company, which would have a material adverse effect on the Company's
business, financial condition and results of operations. See "Business --
Competition."
DEPENDENCE ON COLLABORATIVE AGREEMENTS
The Company's strategy for the development, clinical trials, manufacturing
and commercialization of certain of its products includes maintaining and
entering into various collaborations with corporate partners, licensors,
licensees and others. There can be no assurance that the Company will be able to
maintain existing collaborative agreements, negotiate collaborative arrangements
in the future on acceptable terms, if at all, or that any such collaborative
arrangements will be successful. To the extent that the Company is not able to
maintain or establish such arrangements, the Company would be required to
undertake product development and commercialization activities at its own
expense, which would increase the Company's capital requirements or require the
Company to limit the scope of its development and commercialization activities.
In addition, the Company may encounter significant delays in introducing its
products into certain markets or find that the development, manufacture or sale
of its products in such markets is adversely affected by the absence of such
collaborative agreements.
In October 1995, the Company signed an agreement with SmithKline Beecham
defining a collaboration on the Company's EBV vaccine technology (the "SB
Agreement"). Under the terms of the SB Agreement, the Company granted SmithKline
Beecham an exclusive license to produce, use and sell non-live EBV vaccines
incorporating the Company's technology for prophylactic and therapeutic uses on
a worldwide basis, except in South and North Korea (together, "Korea").
SmithKline Beecham made an initial upfront payment to the Company and agreed to
make additional payments upon the achievement of certain product development
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milestones. No assurance can be given, however, that the Company will receive
any additional payments from SmithKline Beecham or that SmithKline Beecham will
not terminate its agreement with the Company. The SB Agreement may be terminated
by SmithKline Beecham with respect to any country at any time. In May 1995, the
Company entered into a Development and License Agreement with Sang-A. The
Company granted to Sang-A exclusive clinical development, manufacturing and
marketing rights in Korea for specified products developed by Aviron, including
vaccines for influenza (cold adapted and recombinant), EBV, CMV, HSV-2 and RSV.
Sang-A also will make payments to the Company upon the Company's meeting certain
regulatory milestones for each product in Korea and will pay a royalty to the
Company on net sales of such products in Korea. No assurance can be given,
however, that the Company will receive any payments from Sang-A or that Sang-A
will not terminate its agreement with the Company.
The Company cannot control the amount and timing of resources which its
collaborative partners devote to the Company's programs or potential products,
which may vary because of factors unrelated to the potential products. If any of
the Company's collaborative partners breach or terminate their agreements with
the Company or otherwise fail to conduct their collaborative activities in a
timely manner, the preclinical or clinical development or commercialization of
product candidates or research programs will be delayed, and the Company would
be required to devote additional resources to product development and
commercialization, or terminate certain development programs. These
relationships generally may be terminated at the discretion of the Company's
collaborative partners, in some cases with only limited notice to the Company.
The termination of collaborative arrangements could have a material adverse
effect on the Company's business, financial condition and results of operations.
There also can be no assurance that disputes will not arise in the future with
respect to the ownership of rights to any technology developed with third
parties. These and other possible disagreements between collaborators and the
Company could lead to delays in the collaborative research, development or
commercialization of certain product candidates, or could result in litigation
or arbitration, which would be time consuming and expensive, and would have a
material adverse effect on the Company's business, financial condition and
results of operations.
In addition, Aviron's collaborative partners may develop, either alone or
with others, products that compete with the development and marketing of the
Company's products. Competing products of the Company's collaborative partners
may result in their withdrawal of support with respect to all or a portion of
the Company's technology, which would have a material adverse effect on the
Company's business, financial condition and results of operations. See "Business
- -- Collaborative Agreements."
UNCERTAINTY OF MARKET ACCEPTANCE
Even if the requisite regulatory approvals are obtained for the Company's
potential products, uncertainty exists as to whether such products will be
accepted in United States or foreign markets. The Company believes, for example,
that widespread use of the Company's proposed vaccines in the United States is
unlikely without positive recommendations from the Advisory Committee on
Immunization Practices (the "ACIP") of the CDC, the American Academy of
Pediatrics or the American College of Physicians. There can be no assurance that
such authorities will recommend the use of the Company's proposed products. The
lack of such recommendations would have a material adverse effect on the
Company's business, financial condition and results of operations.
A number of additional factors may affect the rate and overall market
acceptance of Aviron's cold adapted influenza vaccine and any other products
which may be developed by the Company, including the rate of adoption of
Aviron's vaccines by health care practitioners, the rate of vaccine acceptance
by the target population, the timing of market entry relative to competitive
products, the availability of alternative technologies, the price of the
Company's products relative to alternative technologies, the availability of
third-party reimbursement and the extent of marketing efforts by the Company,
collaborative partners and third-party distributors or agents retained by the
Company. Side effects or unfavorable publicity concerning Aviron's products or
any product incorporating live virus vaccines could have an adverse effect on
the Company's ability to obtain physician, patient or third-party payor
acceptance and efforts to sell the Company's products. The Company's current
formulation of the cold adapted influenza vaccine for clinical trials requires
frozen storage, which may adversely affect market acceptance in certain foreign
countries where adequate refrigeration is not commonly
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available. There can be no assurance that physicians, patients or third-party
payors will accept new live virus vaccine products or any of the Company's
products as readily as other types of vaccines, or at all. See "Business --
Vaccine Products Under Development."
LACK OF MARKETING EXPERIENCE; DEPENDENCE ON THIRD PARTIES
The Company currently has no sales, marketing or distribution capability. To
market any products, Aviron must either obtain the assistance of a third party
with a suitable distribution system, develop a direct sales and marketing staff
of its own or combine the efforts of a third party with its own efforts. Other
than SmithKline Beecham and Sang-A, the Company to date has no agreements for
marketing or distributing its potential products.
The success and commercialization of the Company's products is dependent in
part upon the ability of the Company to maintain and enter into additional
collaborative agreements with corporate partners for the development, testing
and marketing of certain of its vaccines and upon the ability of these third
parties to perform their responsibilities. Although Aviron believes that parties
to any such arrangements would have an economic motivation to succeed in
performing their contractual responsibilities, the amount and timing of
resources devoted to these activities will not be within the control of the
Company. There can be no assurance that any such agreements or arrangements will
be available on terms acceptable to the Company, if at all, that such third
parties would perform their obligations as expected, or that any revenue would
be derived from such arrangements. If Aviron is not able to enter into such
agreements or arrangements, it could encounter delays in introducing its
products into the market or be forced to limit the scope of its
commercialization activities. If the Company were to market products directly,
significant additional expenditures, management resources and time would be
required to develop a sales and marketing staff within the Company. In addition,
the Company would also be competing with other companies that currently have
experienced and well-funded marketing and sales operations. There can be no
assurance that the Company will be able to establish its own sales and marketing
force or that any such force, if established, would be successful. See "Business
- -- Marketing and Sales" and "-- Collaborative Agreements."
VOLATILITY OF COMMON STOCK PRICE
The market prices for securities of pharmaceutical, biopharmaceutical and
biotechnology companies have historically been highly volatile. The market has
from time to time experienced significant price and volume fluctuations that are
unrelated to the operating performance of particular companies. In addition,
factors such as fluctuations in the Company's operating results, future sales of
Common Stock, announcements of technological innovations or new therapeutic
products by the Company or its competitors, announcements of collaborators,
clinical trial results, government regulation, developments in patent or other
proprietary rights, public concern as to the safety of drugs developed by the
Company or others, comments made by securities analysts and general market
conditions can have an adverse effect on the market price of the Common Stock.
In particular, the realization of any of the risks described in these "Risk
Factors" could have a significant and adverse impact on such market price.
RISK OF PRODUCT LIABILITY; UNCERTAINTY OF AVAILABILITY OF INSURANCE
The Company's business exposes it to potential product liability risks that
are inherent in the testing, manufacturing and marketing of vaccines. The
Company has obtained clinical trial liability insurance for its clinical trials,
but there can be no assurance that it will be able to maintain adequate
insurance for its clinical trials. The Company also intends to seek product
liability insurance in the future for products approved for marketing, if any.
However, no assurance can be given that the Company will be able to acquire or
maintain insurance or that insurance can be acquired or maintained at a
reasonable cost or in sufficient amounts to protect the Company. There can be no
assurance that insurance coverage and the resources of the Company would be
sufficient to satisfy any liability resulting from product liability claims. A
successful product liability claim or series of claims brought against the
Company could have a material adverse effect on its business, financial
condition and results of operations. The Company intends to seek inclusion of
certain of its products in the United States National Vaccine Injury
Compensation Program, a no-fault compensation program for claims
15
<PAGE>
against vaccine manufacturers, which administers a trust funded by excise taxes
on sales of certain recommended childhood vaccines. There can be no assurance
that this government program will continue or that the Company's proposed
vaccines will be included in the program.
UNCERTAINTY RELATED TO PHARMACEUTICAL PRICING AND REIMBURSEMENT
Political, economic and regulatory influences are subjecting the health care
industry in the United States to fundamental change. Recent initiatives to
reduce the federal deficit and to reform health care delivery are increasing
cost-containment efforts. The Company anticipates that Congress, state
legislatures and the private sector will continue to review and assess
alternative benefits, controls on health care spending through limitations on
the growth of private health insurance premiums and Medicare and Medicaid
spending, the creation of large insurance purchasing groups, price controls on
pharmaceuticals and other fundamental changes to the health care delivery
system. Any such proposed or actual changes could cause the Company or its
collaborative partners to limit or eliminate spending on development projects.
Legislative debate is expected to continue in the future, and market forces are
expected to demand reduced costs. Aviron cannot predict what impact the adoption
of any federal or state health care reform measures or future private sector
reforms may have on its business.
In both domestic and foreign markets, sales of the Company's proposed
vaccines will depend in part upon the availability of reimbursement from
third-party payors, such as government health administration authorities,
managed care providers, private health insurers and other organizations. In
addition, other third-party payors are increasingly challenging the price and
cost effectiveness of medical products and services. Significant uncertainty
exists as to the reimbursement status of newly approved health care products.
There can be no assurance that the Company's proposed products will be
considered cost effective or that adequate third-party reimbursement will be
available to enable Aviron to maintain price levels sufficient to realize an
appropriate return on its investment in product development. Legislation and
regulations affecting the pricing of pharmaceuticals may change before the
Company's proposed products are approved for marketing. Adoption of such
legislation could further limit reimbursement for medical products. If adequate
coverage and reimbursement levels are not provided by the government and
third-party payors for the Company's products, the market acceptance of these
products would be adversely affected, which would have a material adverse effect
on the Company's business, financial condition and results of operations.
NEED TO ATTRACT AND RETAIN KEY EMPLOYEES AND CONSULTANTS
The Company is highly dependent on the principal members of its scientific
and management staff. In addition, the Company relies on consultants and
advisors, including its scientific advisors, to assist the Company in
formulating its research and development strategy. Attracting and retaining
qualified personnel, consultants and advisors will be critical to the Company's
success. To pursue its product development and marketing plans, the Company will
be required to hire additional qualified scientific personnel to perform
research and development, as well as personnel with expertise in conducting
clinical trials, government regulation, manufacturing and marketing and sales.
Expansion in product development and marketing is also expected to require the
addition of management personnel and the development of additional expertise by
existing management personnel. The Company faces competition for qualified
individuals from numerous pharmaceutical, biopharmaceutical and biotechnology
companies, universities and other research institutions. There can be no
assurance that the Company will be able to attract and retain such individuals.
In addition, a portion of the Company's research and development is
conducted under sponsored research programs with several universities and
research institutions. The Company depends on the availability of a principal
investigator for each such program, and the Company cannot assure that these
individuals or their research staffs will be available to conduct research and
development for Aviron. The Company's academic collaborators are not employees
of the Company. As a result, the Company has limited control over their
activities and can expect that only limited amounts of their time will be
dedicated to Company activities. The Company's academic collaborators may have
relationships with other commercial entities, some of which could compete with
the Company. See "Business -- Scientific Advisory Board" and "Management."
16
<PAGE>
RISKS ASSOCIATED WITH HAZARDOUS MATERIALS
The Company's research and development involves the controlled use of
hazardous materials, chemicals, various radioactive substances and viruses.
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 any damages that result and any such liability
could exceed the resources of the Company. The Company may incur substantial
costs to comply with environmental regulations if the Company develops
manufacturing capacity.
DILUTION
The assumed initial public offering price is substantially higher than the
pro forma net tangible book value per share of the Company's Common Stock.
Investors purchasing shares of Common Stock in this offering and the Sang-A
Shares will therefore incur immediate, substantial dilution of approximately
$7.82 per share. In addition, investors purchasing shares of Common Stock in
this offering will incur additional dilution to the extent outstanding options
and warrants are exercised. See "Dilution."
NO PRIOR PUBLIC MARKET
Prior to this offering, there has been no public market for the Company's
Common Stock, and there can be no assurance that a regular trading market will
develop and continue after this offering or that the market price of the Common
Stock will not decline below the initial public offering price. The initial
public offering price will be determined through negotiations between the
Company and the Representatives of the Underwriters and may not be indicative of
the market price of the Common Stock following this offering. Among the factors
considered in such negotiations will be prevailing market conditions, certain
financial information of the Company, market valuations of other companies that
the Company and the Representatives of the Underwriters believe to be comparable
to the Company, estimates of the business potential of the Company, the present
state of the Company's development and other factors deemed relevant. See
"Underwriting."
POTENTIAL ADVERSE EFFECTS OF SHARES ELIGIBLE FOR FUTURE SALE
Sales of a substantial amount of Common Stock in the public market following
this offering could adversely affect the market price for the Company's Common
Stock. Upon completion of this offering and the sale of the Sang-A Shares, the
Company will have 12,285,990 shares of Common Stock outstanding. In addition to
the 3,000,000 shares of Common Stock offered hereby, approximately 149,329
shares will be available for sale in the public market upon the effective date
of the Registration Statement pursuant to subsection (k) of Rule 144 promulgated
under the Securities Act of 1933, as amended (the "Act"). Approximately 37,395
shares of Common Stock and 148,145 shares subject to exercisable warrants will
be available for sale in the public market pursuant to Rule 144 or Rule 701
under the Act beginning 90 days after the date of this Prospectus, subject in
certain cases to volume and manner of sale restrictions. In addition, 283,160
shares subject to vested options will be available for sale 90 days after the
date of this Prospectus pursuant to Rule 701. Beginning 180 days from the date
of this Prospectus, 5,279,881 shares of Common Stock outstanding and 33,726
shares subject to additional vested options will be available for sale, subject
in certain cases to volume limitations, upon the expiration of agreements not to
sell such outstanding shares or shares subject to such options. Robertson,
Stephens & Company may, in its sole discretion and at any time without notice,
release all or any portion of the shares subject to lock-up agreements.
Additional shares held by existing shareholders will become eligible for sale
from time to time in the future. After this offering, the holders of
approximately 8,433,659 shares of Common Stock and warrants to purchase
approximately 148,145 shares of Common Stock will be entitled to certain demand
and piggyback registration rights with respect to registration of such shares
under the Act. If such holders, by exercising their demand or piggyback
registration rights, cause a large number of securities to be registered and
sold in the public market, such sales could have an adverse effect on the market
price for the Company's Common Stock. If the Company were to include in a
Company-initiated registration shares held by such holders pursuant to the
exercise of their piggyback registration rights, such sales may have an adverse
effect on the Company's ability to raise needed capital. See "Shares Eligible
for Future Sale" and "Underwriting."
17
<PAGE>
ANTI-TAKEOVER EFFECTS OF DELAWARE LAW AND CERTAIN CHARTER PROVISIONS
The Company's Board of Directors has the authority to issue up to 5,000,000
shares of Preferred Stock and to determine the price, rights, preferences and
privileges of those shares without any further vote or action by the Company's
stockholders. The rights of the holders of Common Stock will be subject to, and
may be adversely affected by, the rights of the holders of any Preferred Stock
that may be issued in the future. While the Company has no present intention to
issue shares of Preferred Stock, such issuance, while providing desirable
flexibility in connection with possible acquisitions and other corporate
purposes, could have the effect of making it more difficult for a third party to
acquire a majority of the outstanding voting stock of the Company. In addition,
the Company is subject to the anti-takeover provisions of Section 203 of the
Delaware General Corporation Law, which prohibits the Company from engaging in a
"business combination" with an "interested stockholder" for a period of three
years after the date of the transaction in which the person became an interested
stockholder, unless the business combination is approved in a prescribed manner.
The application of Section 203 could have the effect of delaying or preventing a
change of control of the Company. The Company's Certificate of Incorporation
provides for staggered terms for the members of the Board of Directors. The
staggered Board of Directors and certain other provisions of the Company's
Certificate of Incorporation and Bylaws may have the effect of delaying or
preventing changes in control or management of the Company, which could
adversely affect the market price of the Company's Common Stock. See
"Description of Capital Stock -- Delaware Anti-Takeover Law and Certain Charter
Provisions."
18
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of shares of Common Stock
offered hereby are estimated to be $32.9 million ($37.9 million if the
Underwriters' over-allotment option is exercised in full) after deducting the
estimated underwriting discounts and commissions and offering expenses payable
by the Company. In addition, the net proceeds to the Company from the sale of
the Sang-A Shares are estimated to be $4.0 million.
The Company anticipates using approximately $24.0 million of the net
proceeds from this offering and from the sale of the Sang-A Shares for product
research and development, including preclinical testing and clinical trials and
approximately $8.0 million for capital expenditures. The balance of the net
proceeds will be used for working capital and general corporate purposes. The
amounts and timing of the expenditures for these purposes may vary significantly
depending on numerous factors, such as the status of the Company's research and
development efforts, the regulatory approval process, technological advances,
determinations as to commercial potential, the terms of collaborative agreements
entered into by the Company, the status of competitive products and the
possibility of the Company's construction of a commercial-scale manufacturing
facility for its potential products. In addition, the Company's research and
development expenditures will vary as projects are added, extended or terminated
and as a result of variations in funding from existing or future collaborative
agreements. The Company may also use a portion of such net proceeds to acquire
or invest in businesses, products and technologies that are complementary to
those of the Company, although no such acquisitions are planned or being
negotiated as of the date of this Prospectus, and no portion of the net proceeds
has been allocated for any specific acquisition.
The Company believes that its available cash, cash equivalents, short-term
investments and revenues from existing collaborations, together with the net
proceeds of this offering and from the sale of the Sang-A Shares, and the
interest thereon, will be sufficient to meet its capital requirements at least
through 1997. Pending application of the net proceeds as described above, the
Company intends to invest the net proceeds in short-term, interest-bearing,
investment-grade securities.
DIVIDEND POLICY
The Company has not declared or paid cash dividends on its Common Stock
since inception and does not intend to pay any cash dividends in the foreseeable
future. Future cash dividends, if any, will be determined by the Board of
Directors.
19
<PAGE>
CAPITALIZATION
The following table sets forth, as of March 31, 1996, (i) the pro forma
capitalization of the Company, giving effect to the conversion of all
outstanding shares of Preferred Stock of the Company into Common Stock, and (ii)
the pro forma capitalization as adjusted to reflect the receipt of the estimated
net proceeds from the sale of 3,000,000 shares of Common Stock offered by the
Company hereby at an assumed initial public offering price of $12.00 per share,
after deducting the estimated underwriting discounts and commissions and
offering expenses payable by the Company, and the estimated proceeds from the
sale of the Sang-A Shares:
<TABLE>
<CAPTION>
MARCH 31, 1996
------------------------
PRO FORMA AS ADJUSTED
----------- -----------
(in thousands)
<S> <C> <C>
Capital lease obligations, noncurrent.................. $ 545 $ 545
----------- -----------
Stockholders' equity:
Preferred Stock, $0.001 par value; 5,000,000 shares
authorized; none issued and outstanding............. -- --
Common Stock, $0.001 par value; 30,000,000 shares
authorized; 8,874,456 shares issued and outstanding
pro forma, and 12,207,789 shares issued and
outstanding as adjusted (1)......................... 9 12
Additional paid-in capital........................... 41,598 78,475
Notes receivable from stockholders................... (310) (310)
Deferred compensation................................ (938) (938)
Accumulated deficit.................................. (26,192) (26,192)
----------- -----------
Total stockholders' equity..................... 14,167 51,047
----------- -----------
Total capitalization......................... $ 14,712 $ 51,592
----------- -----------
----------- -----------
</TABLE>
- -------------------
(1) Excludes (i) 78,201 shares of Common Stock issued subsequent to March 31,
1996 upon exercise of stock options, (ii) 643,480 shares of Common Stock
issuable upon exercise of options outstanding as of June 1, 1996 at a
weighted average exercise price of approximately $1.22 per share, (iii) an
aggregate of 1,556,520 shares reserved for future grants or purchases
pursuant to the Company's 1996 Equity Incentive Plan, Employee Stock
Purchase Plan and Non-Employee Director Stock Option Plan, (iv) 118,395
shares issuable upon exercise of warrants outstanding as of June 1, 1996 at
a weighted average exercise price of $6.65 per share, and (v) warrants to
purchase 29,750 shares which become exercisable at the close of the offering
at 125% of the initial public offering price.
20
<PAGE>
DILUTION
The pro forma net tangible book value of the Company, as of March 31, 1996,
was $14,167,000 or $1.60 per share of Common Stock. Pro forma net tangible book
value per share is determined by dividing the pro forma net tangible book value
(pro forma tangible assets less total liabilities) of the Company by the number
of shares of Common Stock outstanding at that date, including shares of Common
Stock to be issued upon conversion of the Preferred Stock immediately prior to
the consummation of this offering. After giving effect to the receipt of the net
proceeds from the sale of the 3,000,000 shares of Common Stock offered by the
Company at an assumed initial public offering price of $12.00 per share and the
estimated proceeds from the sale of the Sang-A Shares, the pro forma net
tangible book value of the Company as of March 31, 1996 would have been
$51,047,000 or $4.18 per share. This represents an immediate increase in such
pro forma net tangible book value of $2.58 per share to existing stockholders
and an immediate dilution of $7.82 per share to new public investors and Sang-A.
The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price.................. $ 12.00
Pro forma net tangible book value before offering.... $ 1.60
Increase attributable to new investors............... 2.58
---------
Pro forma net tangible book value after offering....... 4.18
---------
Dilution to new investors.............................. $ 7.82
---------
---------
</TABLE>
The following table summarizes, on a pro forma basis, as of March 31, 1996,
the difference between the number of shares of Common Stock purchased from the
Company, the total consideration paid and the average price per share paid by
existing stockholders and by the new investors purchasing shares in this
offering and purchasing the Sang-A Shares at an assumed initial public offering
price of $12.00 per share and before deducting underwriting discounts and
estimated offering expenses:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
------------------------ ------------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
------------ ---------- ------------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Existing stockholders....................... 8,874,456 72.7% $ 41,454,000 50.9% $ 4.67
New investors............................... 3,333,333 27.3 40,000,000 49.1 12.00
------------ ----- ------------- -----
Total................................... 12,207,789 100.0% $ 81,454,000 100.0%
------------ ----- ------------- -----
------------ ----- ------------- -----
</TABLE>
The foregoing table excludes (i) 78,201 shares of Common Stock issued
subsequent to March 31, 1996 upon exercise of stock options, (ii) 643,480 shares
of Common Stock issuable upon exercise of options outstanding as of June 1,
1996, at a weighted average exercise price of approximately $1.22 per share,
(iii) an aggregate of 1,556,520 shares reserved for future grants or purchases
pursuant to the Company's 1996 Equity Incentive Plan, Employee Stock Purchase
Plan and Non-Employee Director Stock Option Plan, (iv) 118,395 shares issuable
upon exercise of warrants outstanding as of June 1, 1996 at a weighted average
exercise price of $6.65 per share, and (v) warrants to purchase 29,750 shares
which become exercisable at the close of the offering at 125% of the initial
public offering price.
21
<PAGE>
SELECTED FINANCIAL DATA
The selected financial data set forth below should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Financial Statements and Notes thereto included elsewhere in
this Prospectus. The statement of operations data for the years ended December
31, 1993, 1994 and 1995, and the balance sheet data at December 31, 1994 and
1995, are derived from the financial statements of the Company included
elsewhere in this Prospectus which have been audited by Ernst & Young LLP,
independent auditors, whose report is included elsewhere in this Prospectus. The
statement of operations data from inception (April 15, 1992) through December
31, 1992 and the balance sheet data as of December 31, 1992 and 1993, are
derived from audited financial statements not included herein. Financial data as
of March 31, 1996 and for the three-month periods ended March 31, 1995 and 1996,
is derived from unaudited financial statements included elsewhere herein, and,
in the opinion of management, includes all normal recurring adjustments that the
Company considers necessary for a fair presentation of its results of
operations. The results of operations for the interim periods are not
necessarily indicative of results to be expected for any future period. The
Company has not declared or paid cash dividends on its Common Stock since
inception and does not intend to pay any cash dividends in the foreseeable
future.
<TABLE>
<CAPTION>
FOR THE PERIOD FROM THREE MONTHS ENDED
APRIL 15, 1992 YEAR ENDED DECEMBER 31, MARCH 31,
(DATE OF INCEPTION) ------------------------------------ ------------------------
TO DECEMBER 31, 1992 1993 1994 1995 1995 1996
--------------------- ----------- ----------- ---------- ----------- -----------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Total revenues....................... $ -- $ -- $ -- $ 1,707 $ -- $ 188
Operating expenses:
Research and development........... 320 2,073 4,216 10,220 3,088 3,044
General and administrative......... 470 1,874 2,493 3,252 701 1,063
----- ----------- ----------- ---------- ----------- -----------
Total operating expenses......... 790 3,947 6,709 13,472 3,789 4,107
----- ----------- ----------- ---------- ----------- -----------
Loss from operations................. (790) (3,947) (6,709) (11,765) (3,789) (3,919)
----- ----------- ----------- ---------- ----------- -----------
Interest income, net of interest
expense............................. 37 175 207 362 32 183
----- ----------- ----------- ---------- ----------- -----------
Net loss............................. $ (753) $ (3,772) $ (6,502) $ (11,403) $ (3,757) $ (3,736)
----- ----------- ----------- ---------- ----------- -----------
----- ----------- ----------- ---------- ----------- -----------
Pro forma net loss per share (1)..... $ (1.24) $ (0.41)
---------- -----------
---------- -----------
Shares used in computing pro forma
net loss per share (1).............. 9,183 9,223
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
------------------------------------------------ ----------
1992 1993 1994 1995 1996
------------ ---------- ---------- ---------- ----------
(in thousands)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments.......... $ 1,492 $ 12,410 $ 6,449 $ 17,819 $ 14,494
Working capital............................................ 1,355 12,155 5,877 16,775 12,804
Total assets............................................... 1,901 13,206 7,789 19,878 17,275
Capital lease obligations, noncurrent...................... -- -- (750) (618) (545)
Deferred compensation (2).................................. -- -- -- 180 938
Accumulated deficit........................................ (753) (4,525) (11,060) (22,444) (26,192)
Total stockholders' equity................................. 1,722 12,893 6,362 17,537 14,167
</TABLE>
- --------------
(1) See Note 1 of Notes to Financial Statements for an explanation of the method
used to determine the number of shares used to compute pro forma per share
amounts.
(2) In May 1996, the Company recorded approximately $463,000 of deferred
compensation related to grants of employee stock options. See Note 7 of
Notes to Financial Statements.
22
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following Management's Discussion and Analysis of Financial Condition
and Results of Operations contains forward-looking statements which involve
risks and uncertainties. The Company's actual results could differ materially
from those anticipated in these forward-looking statements as a result of
certain factors, including those set forth under "Risk Factors" and elsewhere in
this Prospectus.
OVERVIEW
Since its inception in April 1992, Aviron has devoted substantially all of
its resources to its research and development programs. To date, Aviron has not
generated any revenues from the sale of products and does not expect to generate
any such revenues for at least several years, if at all. Aviron has incurred
cumulative net losses of approximately $26.2 million as of March 31, 1996, and
it expects to incur increasing operating losses for a number of years.
Aviron has financed its operations through proceeds from private placements
of Preferred Stock, revenue from its collaborative agreements, including
reimbursement of certain of Aviron's research and development expenses,
equipment lease financing and investment income earned on cash balances and
short-term investments.
The Company expects its research and development expenditures to increase
substantially over the next several years as the Company expands its research
and development efforts and preclinical testing and clinical trials with respect
to certain of its programs. In addition, general and administrative expenses are
expected to continue to increase as the Company expands its operations and
incurs the additional expenses associated with operating as a public company.
In October 1995, the Company signed an agreement with SmithKline Beecham
defining a collaboration on the Company's EBV vaccine technology (the "SB
Agreement"). Under the terms of the SB Agreement, the Company granted SmithKline
Beecham an exclusive license to produce, use and sell non-live EBV vaccines
incorporating the Company's technology for prophylactic and therapeutic uses on
a worldwide basis, except in South and North Korea (together, "Korea"). The
Company has retained the right to co-distribute a monovalent formulation of the
vaccine in certain markets in the United States and to have SmithKline Beecham
supply such vaccine. SmithKline Beecham has agreed to fund research and
development at the Company related to the EBV vaccine, in specified minimum
amounts, during the first two years of the SB Agreement. SmithKline Beecham made
an initial upfront payment to the Company and agreed to make additional payments
upon the achievement of certain product development milestones. The Company is
entitled to royalties from SmithKline Beecham based on net sales of the vaccine.
No assurance can be given, however, that the Company will receive any additional
payments from SmithKline Beecham or that SmithKline Beecham will not terminate
its agreement with the Company. See "Business -- Collaborative Agreements."
In May 1995, the Company entered into a Development and License Agreement
with Sang-A. The Company granted to Sang-A exclusive clinical development,
manufacturing and marketing rights in Korea for specified products developed by
Aviron, including vaccines for influenza (cold adapted and recombinant), EBV,
CMV, HSV-2 and RSV. However, the Company is under no obligation to develop any
product. Sang-A also will make payments to the Company upon the Company's
meeting certain regulatory milestones for each product in Korea and will pay a
royalty to the Company on net sales of such products in Korea. No assurance can
be given, however, that the Company will receive any payments from Sang-A or
that Sang-A will not terminate its agreement with the Company. See "Business --
Collaborative Agreements."
On July 1, 1996, Chiron filed a lawsuit against the Company alleging
misappropriation of trade secrets. The Company believes that the allegations in
the complaint are without merit and intends to defend itself vigorously against
such action. However, the Company expects that the legal costs incurred in
defending itself against this action could be substantial. See "Business --
Legal Proceedings" and "Risk Factors -- Litigation with Chiron Corporation."
23
<PAGE>
The Company currently is evaluating the costs and benefits of developing
internal manufacturing capabilities or contracting with third-party
manufacturers. In April 1996, the Company completed construction of a pilot
manufacturing facility funded through its existing capital lease line of credit;
however, if the Company decides to establish its own commercial-scale
manufacturing facility, it would require a significant amount of funds. See
"Business -- Manufacturing."
The Company's business is subject to significant risks, including but not
limited to the risks inherent in its research and development efforts, including
preclinical testing and clinical trials, uncertainties associated both with
obtaining and enforcing its patents and with the patent rights of others, the
lengthy, expensive and uncertain process of seeking regulatory approvals,
uncertainties regarding government reforms and product pricing and reimbursement
levels, technological change and competition, manufacturing uncertainties and
dependence on third parties. Even if the Company's product candidates appear
promising at an early stage of development, they may not reach the market for
numerous reasons. Such reasons include the possibilities that the products will
be found unsafe or ineffective during clinical trials, will fail to receive
necessary regulatory approvals, will be difficult to manufacture on a large
scale, will be uneconomical to market or will be precluded from
commercialization by proprietary rights of third parties.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1996 AND 1995
REVENUES
Total revenue for the three months ended March 31, 1996 was $188,000, and no
revenue was earned for the three months ended March 31, 1995. Revenue in the
three months ended March 31, 1996 resulted primarily from the Company's license
and development agreement with SmithKline Beecham. See "Business --
Collaborative Agreements -- SmithKline Beecham Biologicals S.A."
OPERATING EXPENSES
Research and development expenses were $3.0 million for the three months
ended March 31, 1996 and $3.1 million for the three months ended March 31, 1995.
Included in research and development expenses for the three months ended March
31, 1995 is a one-time charge of $1.6 million relating to Aviron's agreement
with the University of Michigan (see Note 2 of Notes to Financial Statements).
Without the one-time charge, research and development expenses increased 103%
between the three months ended March 31, 1996 and 1995. These increases were
primarily due to increases in research and development staffing, licensing fees,
expenses associated with clinical trials of the Company's cold adapted influenza
vaccine and preclinical testing associated with other programs.
General and administrative expenses increased 52% to $1.1 million in the
three months ended March 31, 1996 from $701,000 in the three months ended March
31, 1995. These increases were incurred to support the Company's expanded
research and development efforts and facilities, patent and legal expenses, and
corporate development activities.
NET INTEREST INCOME
The Company's net interest income increased to $183,000 in the three months
ended March 31, 1996, from $32,000 in the three months ended March 31, 1995. The
increase reflects the effect of the Company's higher average cash and cash
equivalents and short-term investment balances.
YEARS ENDED DECEMBER 31, 1995 AND 1994
REVENUES
Total revenue for 1995 was $1.7 million, and no revenue was earned in the
year ended December 31, 1994. Revenue in the year ended December 31, 1995
resulted primarily from the Company's license and development agreement with
SmithKline Beecham. See "Business -- Collaborative Agreements -- SmithKline
Beecham Biologicals S.A."
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<PAGE>
OPERATING EXPENSES
Research and development expenses increased 142% to $10.2 million in the
year ended December 31, 1995 from $4.2 million in the year ended December 31,
1994. These increases were primarily due to increases in research and
development staffing, licensing fees (including the one-time charge relating to
Aviron's agreement with the University of Michigan discussed above), and
expenses associated primarily with clinical trials of its cold adapted influenza
vaccine and preclinical testing associated with the herpes simplex virus
program. General and administrative expenses increased 30% to $3.3 million in
the year ended December 31, 1995 from $2.5 million in the year ended December
31, 1994. These increases were incurred to support the Company's expanded
research and development efforts and facilities, patent and legal expenses, and
corporate development activities.
NET INTEREST INCOME
The Company's net interest income increased 75% to $362,000 in the year
ended December 31, 1995, from $207,000 in the year ended December 31, 1994. The
increase in 1995 reflects the effect of the Company's higher average cash and
cash equivalents and short-term investment balances, offset by increased
interest expense related to capital lease obligations.
YEARS ENDED DECEMBER 31, 1994 AND 1993
OPERATING EXPENSES
Research and development expenses increased 103% to $4.2 million in the year
ended December 31, 1994, from $2.1 million in the year ended December 31, 1993.
These increases were primarily due to increases in research and development
staffing and preclinical testing. General and administrative expenses increased
33% from $2.5 million in the year ended December 31, 1994, from $1.9 million in
the year ended December 31, 1993. These increases were incurred to support the
Company's expanded research and development efforts and facilities and patent
and legal expenses.
NET INTEREST INCOME
The Company's net interest income increased 18% to $207,000 in the year
ended December 31, 1994, from $175,000 in the year ended December 31, 1993. The
increase reflected the effect of the Company's higher average cash and cash
equivalents and short-term investment balances, offset by interest expense
related to capital lease obligations in 1994.
NET OPERATING LOSS CARRYFORWARD
As of December 31, 1995, the Company had a federal net operating loss
carryforward of approximately $20.0 million available to offset future taxable
income, if any. The net operating loss carryforward will expire at various dates
beginning from 2007 through 2010, if not utilized. Utilization of the net
operating losses and credits may be subject to substantial annual limitation due
to the "change in ownership" provisions of the Internal Revenue Code of 1986 and
similar state provisions. The annual limitation may result in the expiration of
net operating losses and credits before utilization. See Note 8 of Notes to
Financial Statements.
LIQUIDITY AND CAPITAL RESOURCES
Aviron had cash, cash equivalents and short-term investments at March 31,
1996 of approximately $14.5 million. In order to preserve principal and maintain
liquidity, the Company's funds are invested in United States Treasury
obligations, highly-rated corporate obligations and other short-term
investments.
The Company has financed its operations since inception primarily through
private placements of Preferred Stock. Through March 31, 1996, the Company had
raised approximately $38.4 million from such sales net of offering expenses.
Cash used in operations was $3.4 million, $6.1 million, $8.9 million and $3.0
million in 1993, 1994, 1995 and the first quarter of 1996, respectively. Cash
expended for capital additions and to repay lease financing arrangements
amounted to approximately $593,000, $472,000, $622,000 and $659,000 in 1993,
1994 and 1995 and the first quarter of 1996, respectively. The Company expects
expenditures for capital
25
<PAGE>
additions will increase in 1996 as a result of the construction of a pilot
manufacturing facility. The Company expects expenditures for research and
development, clinical trials and general administrative expenditures will
continue to increase in 1996 as the Company develops its products and expands
its clinical trials.
The Company anticipates that the proceeds of this offering, and the sale of
Sang-A Shares together with the interest thereon, revenues from existing
collaborations, cash, cash equivalents and short-term investments, will enable
it to maintain its current and planned operations at least through 1997. The
Company's future cash requirements will depend on numerous factors, including
continued scientific progress in the research and development of the Company's
technology and vaccine programs, the size and complexity of these programs, the
ability of the Company to establish and maintain collaborative arrangements,
progress with preclinical testing and clinical trials, the time and costs
involved in obtaining regulatory approvals, the cost involved in preparing,
filing, prosecuting, maintaining and enforcing patent claims, and product
commercialization activities. The Company is seeking additional collaborative
agreements with corporate partners and may seek access to the public or private
equity markets. There can be no assurance, however, that any such agreements
will be entered into or that they will reduce the Company's funding requirements
or that additional funding will be available. The Company expects that
additional equity or debt financings will be required to fund its operations.
There can be no assurance that such funds will be available on favorable terms,
if at all. If adequate funds are not available, the Company may be required to
delay, reduce the scope of, or eliminate one or more of its research or
development programs or to obtain funds through collaborative agreements with
others that may require the Company to relinquish rights to certain of its
technologies, product candidates or products that the Company would otherwise
seek to develop or commercialize itself, which would materially adversely affect
the Company's business, financial condition and results of operations.
26
<PAGE>
BUSINESS
The following Business section contains forward-looking statements which
involve risks and uncertainties. The Company's actual results could differ
materially from those anticipated in these forward-looking statements as a
result of certain factors, including those set forth under "Risk Factors" and
elsewhere in this Prospectus.
OVERVIEW
Aviron is a biopharmaceutical company whose strategy is to focus on
prevention of disease. The Company's goal is to become a leader in the
discovery, development, manufacture and marketing of live virus vaccines which
are sufficiently cost effective to justify their use in immunization programs
targeting the general population. Live virus vaccines, such as those for
smallpox, polio, measles, mumps and rubella, have had a long record of success
in preventing, and in some cases eliminating, disease. The Company currently is
analyzing data from Phase I and Phase II clinical trials in children and adults
of its live cold adapted intranasal vaccine for influenza. The Company has
recently in-licensed a live intranasal vaccine for Parainfluenza Virus Type 3
(PIV-3) which has been tested by others in Phase I/II clinical trials. The
Company also is developing a vaccine for Epstein-Barr virus (EBV). In addition,
Aviron is using its proprietary "Rational Vaccine Design" technology to discover
new live virus vaccines. Rational Vaccine Design involves the deletion or
modification of virulence proteins, changes to the virus' genetic control
signals to slow down its replication, or addition of information to enhance the
virus' stimulation of the immune system. The Company is applying this technology
to develop candidates for the prevention of influenza in elderly persons and
diseases caused by Cytomegalovirus (CMV), Herpes Simplex Virus Type 2 (HSV-2)
and Respiratory Syncytial Virus (RSV).
BACKGROUND
PREVENTION TECHNOLOGY IN THE ERA OF MANAGED CARE AND COST CONTAINMENT
Market-based changes already underway in the United States health care
system are dramatically altering prospects for technologies which can be used to
manage disease or lower the cost of health care for patients in managed health
plans. Medical cost-containment efforts and the reorganization of United States
health care delivery into managed care systems are changing the basis of
competition for producers of health care products. Health maintenance
organization enrollment was approximately 54 million in the United States in
1995 and is growing rapidly. Decision makers in the United States, such as HMO
medical directors, clinical practice committees, and government health
authorities, are increasingly evaluating whether preventive technologies are
more cost effective than treating disease once it is present. For example,
vaccinations are widely used by managed care organizations and in government
programs. In determining whether to use an FDA-approved vaccine, decision makers
consider whether it has been recommended by the Advisory Committee on
Immunization Practices (the ACIP) of the CDC and whether it is cost effective.
Health care cost containment efforts are also evident in many of the
developed economies outside the United States. These efforts include physician
budgets in Germany and general practice schemes in the United Kingdom, where
doctors are given responsibility for the cost of their patients' overall care.
THE IMMUNE SYSTEM AND VACCINES
Infections occur when a pathogenic microorganism, such as a virus or
bacterium, invades body tissues and begins to replicate. The human immune system
responds with a battery of resources to contain and eliminate this threat. The
process begins when specialized cells recognize that molecules on the surface of
invading pathogens are foreign (antigens). Immune responses to contain and
eliminate the threat include:
- ANTIBODIES: Antigens stimulate the immune system to produce specific
molecules (antibodies) which bind to and neutralize the virus or
bacterium.
- CELL-MEDIATED RESPONSE: An effective immune response typically also leads
to the multiplication of specific types of white blood cells (a
cell-mediated response) which have the ability to inactivate the pathogen
or to destroy infected cells, thereby limiting replication of the virus or
bacterium.
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- MUCOSAL IMMUNITY: In addition to circulating antibodies and the
cell-mediated response, antibodies are produced in the mucous membranes,
such as those which line the nose and throat. Mucosal immunity is
important in protecting against pathogens which cause disease in the
respiratory, gastrointestinal and genitourinary systems, or which enter
the body through these portals.
Vaccines are designed to stimulate a person's immune system through one or
more of the above mechanisms to induce memory of specific antigens prior to the
invasion of a pathogen. This memory primes the immune system so that it can
inactivate the specific pathogen if encountered again. This may be achieved
through one of several techniques, including introduction of a live attenuated
(weakened) virus or bacterium, administration of an antigen fragment (a
subunit), or administration of an inactivated (killed) virus.
HISTORY OF VACCINES
The first successful vaccine against an infectious disease was created by
Edward Jenner who, in 1796, demonstrated that introduction of infected material
from a diseased cow could be used to protect humans from the deadly smallpox
virus. Smallpox vaccination programs based on this live virus vaccine were
gradually adopted by industrialized countries, and a concerted global effort by
public health authorities in this century succeeded in eradicating smallpox from
the human population in the 1970s.
Vaccines against two life-threatening bacterial diseases, diphtheria and
tetanus, came into use early in this century. These vaccines consist of
bacterial toxins which have been chemically inactivated. These are often
administered in combination with an inactivated pertussis bacterium vaccine to
prevent whooping cough. This combination is known as the "DTP" vaccine. Just
prior to World War II, a live attenuated virus vaccine was developed against
yellow fever, used primarily in protecting military personnel and those
traveling to areas where this disease is endemic. In the years after the war
following several widespread polio epidemics, Jonas Salk created the first
successful polio vaccine by growing the wild-type virus and inactivating it
before injection. Salk's vaccine was introduced into widespread use in the early
1950s, but was supplanted in the United States and many other countries by the
orally administered live attenuated polio virus vaccine developed by Albert
Sabin and first introduced in 1961. In the 1960s and 1970s, live attenuated
virus vaccines against measles, mumps and rubella (German measles) were
successfully developed and recommended by the ACIP to be included in childhood
immunization programs.
After a period of almost two decades during which no new vaccines came into
widespread use, a genetically engineered subunit vaccine for hepatitis B was
introduced in the mid-1980s and is now part of the ACIP-recommended childhood
immunization program. In 1990, a vaccine for bacterial meningitis was also added
to this program. Two inactivated vaccines against the hepatitis A virus were
approved in the United States in 1995 and 1996. In 1995, the ACIP also
recommended that children be vaccinated against chicken pox using a live virus
vaccine recently approved by the FDA.
Current challenges for vaccine innovation include providing effective
protection against the major infectious diseases for which no vaccines are
currently available and improving on current vaccines to achieve higher efficacy
or greater ease of administration.
TYPES OF VACCINES
LIVE VIRUS VACCINES
Live virus vaccines expose the immune system to an attenuated form of the
virus which is sufficiently infectious to stimulate a lasting immune response to
the natural (or wild-type) virus. All of the live virus vaccines in use today
are strains derived from natural infections of humans. Attenuation of live
viruses, including polio, yellow fever, measles, mumps and rubella, and chicken
pox vaccines was accomplished by "passaging," or propagating, the virus
repeatedly in non-human cells. As a result of this process, viruses may acquire
mutations that decrease the ability of the virus to cause disease in humans.
After an arbitrary number of passages, the mutated strain is tested for
attenuation in animal models, if available, or directly in human subjects.
Following assessment of safety and immunogenicity (stimulation of an immune
response) in a limited number of human subjects, larger-scale trials are used to
demonstrate efficacy in preventing naturally acquired infections.
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<PAGE>
Live virus vaccines mimic the natural disease-causing infection and
therefore may activate the same protective mechanisms of the human immune system
as the disease itself. This process results in a balanced immune response
activating all parts of the immune system including systemic and local
antibodies as well as cell-mediated immunity. As a result, live viruses are
often considered to be more effective than other types of vaccines in providing
immunity to natural variations in the wild-type viruses which cause disease. For
example, the live polio vaccine is believed to be more effective in eliminating
wild-type polio virus than inactivated polio vaccines. The basis of these
advantages is that live vaccines typically present all of the surface and
internal
antigens associated with the natural pathogen. Live virus vaccines may also be
easier to administer through their natural route of infection, intranasally or
orally, as in the case of the oral polio vaccine.
However, an attenuated live vaccine could cause disease resembling natural
infection, as might occur in people with an immune system impaired by a
congenital disease, HIV infection or drug treatment for cancer or organ
transplantation. To date, the live virus vaccines in widespread use rarely have
been associated with significant adverse events. For example, the 19 million
doses of live attenuated polio vaccine administered annually in the United
States are thought to be responsible for only eight to 10 cases of clinical
polio per year. To further reduce the number of these cases, the ACIP is
recommending that the inactivated polio vaccine be given for the initial infant
dose, now that wild-type polio has been virtually eradicated in the United
States.
Live virus strains can change as they replicate in human hosts, and it is
possible that a vaccine virus could revert to the wild-type characteristics.
This reversion potential is a small but recognized problem for some of the
current live vaccines, including polio. Finally, there are two theoretical
concerns regarding live attenuated viruses. First, an attenuated vaccine virus
may exchange genetic information with wild-type strains after immunization, with
the resulting strain being more dangerous than either alone. Second, the DNA of
a live virus vaccine could integrate into the genome of the host and cause
cancer or other problems in the future.
INACTIVATED AND SUBUNIT VIRUS VACCINES
Inactivated virus vaccines are produced by killing a virus using chemicals.
Some vaccines, such as the hepatitis A vaccine, are based on the whole,
inactivated virus. Other vaccines are the result of various degrees of
purification to concentrate certain surface glycoproteins (subunits) most
responsible for producing immunity. A different approach is used to make the
current hepatitis B vaccine, the first successful recombinant subunit vaccine.
For this vaccine, the tools of molecular biology were applied to clone and
express the dominant hepatitis surface glycoprotein in a yeast production
system. Inactivated and subunit vaccines offer the advantage of little or no
risk of infection from the vaccine itself, assuming the virus has been
adequately inactivated. Good manufacturing techniques also minimize the
possibility of contamination with other viruses or fragments of DNA which could
integrate into the recipient's genes.
The principle disadvantage of inactivated and subunit vaccines for many
viruses has been a lack of success in creating protective immunity. A successful
subunit vaccine requires knowledge of which specific antigens are responsible
for providing protection. Subunit and inactivated vaccines may produce
reasonable levels of circulating antibodies, but are less able to stimulate
antibodies in the mucosal sites of viral entry, such as the lining of the
respiratory, gastrointestinal or genitourinary tracts. To improve stimulation of
the cellular components of the immune system, adjuvants (non-specific immune
stimulants) are typically added to inactivated or subunit vaccines. Only alum
(an aluminum salt preparation) is approved for use as an adjuvant in the United
States. Several new adjuvants are in clinical testing and show promise for
boosting the immune response to subunit antigens. The mechanism by which
adjuvants work is still poorly understood, so each vaccine-adjuvant combination
must be evaluated in a trial and error process in animal models and clinical
trials. Finally, certain inactivated vaccines in clinical trials left recipients
more vulnerable to disease after vaccination, due to an unbalanced immune
response. For example, in trials of experimental inactivated vaccines against
RSV and measles, some children were shown to experience more severe, atypical
disease when they later acquired the natural viral infection following
vaccination.
EMERGING VACCINE TECHNOLOGIES
Several companies and academic scientists have reported that direct
injection of DNA encoding viral antigens can be used to stimulate an immune
response. Although at an early stage, this approach shows promise.
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However, it is not clear whether the sustained expression of viral antigens
obtainable by this approach is advantageous in eliciting a better immune
response. In addition, it is possible that the administered DNA may integrate
into the genes of the recipient and cause potential unwanted effects.
Another new technology for vaccination is based on genetic engineering to
modify one virus so that it carries antigens which may stimulate an immune
response to protect against other pathogens. For example, pox virus vector
strains, related to the virus used successfully to eradicate smallpox, have
shown usefulness in protecting dogs and cats against rabies. Other pox virus
vectors are being evaluated in experimental models of human malaria and in a
hybrid regimen combining doses of a modified live virus with a subunit HIV
vaccine to protect high-risk individuals.
AVIRON'S TECHNOLOGY
Aviron's vaccine programs are based on both classical live virus vaccine
attenuation techniques and the Company's proprietary genetic engineering
technology.
COLD ADAPTED INFLUENZA TECHNOLOGY
The Company is applying its expertise in the molecular biology of influenza
to develop a live virus vaccine discovered using classical cold-adaption
techniques. This cold adapted influenza vaccine technology was first developed
by Dr. H.F. Maassab at the University of Michigan in 1967. Dr. Maassab created
attenuated influenza strains by propagating the virus in progressively colder
conditions until these strains had lost the ability to grow well at human body
temperature. The Company has obtained exclusive rights to this cold adapted
influenza vaccine technology in all countries of the world except Japan and is
in the process of obtaining exclusive rights in Japan for no additional
consideration.
The cold adapted influenza vaccine technology includes the master strains
for influenza A and B, as well as techniques useful for updating the vaccine
each year according to recommendations of the CDC and the FDA. Updated strains
are made by mating the master strains with recent strains to obtain viruses with
the attenuated properties of the cold adapted master strain and the antigenic
properties of the current wild-type strain. This process is called genetic
reassortment. After cultured cells are infected with two different strains of
virus, the eight RNA genes of influenza mix at random in the cells and it is
possible to select the two genes for the antigens of the expected epidemic
strain and the six remaining genes from the cold adapted master donor strain.
The Company has received the technology for updating the cold adapted master
strains from the University of Michigan and has extended this approach by the
introduction of Aviron's proprietary techniques, including those of reverse
genetics, which may facilitate the annual process of creating a reassorted
vaccine.
RATIONAL VACCINE DESIGN
Since the Company's founding, its core vaccine discovery strategy has been
to apply genetic engineering techniques to create live attenuated virus vaccine
candidates for targets where traditional discovery techniques have been
inadequate. The Company believes that this "Rational Vaccine Design" approach is
more flexible and systematic than traditional methods of live vaccine discovery
and is a platform that can be applied to many viral targets and, potentially, to
the creation of viruses used in gene therapy and the treatment of cancer.
Furthermore, Aviron believes that a particular advantage of Rational Vaccine
Design is that engineered viruses can be designed so that they are less likely
to revert to wild-type characteristics than classically derived vaccines. Three
ways of implementing this approach are:
- DELETING OR MODIFYING SPECIFIC VIRAL GENES WHICH ENCODE VIRULENCE
PROTEINS. Virulence proteins are viral components thought to be
particularly important in the mechanism of disease, but which are not
required for the virus to replicate and stimulate a strong immune
response. An example of this strategy is the Company's program to create a
live attenuated vaccine against the HSV-2 virus which causes genital
herpes. One of the Company's founders, Dr. Bernard Roizman, discovered a
particular protein important
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in the ability of HSV-2 to grow in nerve cells. Since nerve ganglia are
the reservoir from which HSV-2 reseeds itself to cause painful skin
lesions, deletion of the gene encoding this protein is the basis of the
Company's Rational Vaccine Design program for development of a vaccine for
this target.
- ALTERING THE GENETIC INFORMATION USED BY THE VIRUS IN CONTROLLING ITS
REPLICATION. An example of this strategy is work by Company scientists to
create live attenuated vaccine candidates for influenza. Until recently,
it was impossible to genetically engineer vaccine strains of influenza
because influenza genes are composed of negative-strand RNA rather than
DNA or positive-strand RNA. Dr. Peter Palese, one of the Company's
founders, discovered how to create recombinant negative-strand RNA viruses
using reverse genetics. Company scientists have employed this reverse
genetics technology to engineer mutations into a gene used by the
influenza virus to make copies of itself. The resulting strains are
attenuated in animal models and at least one strain has been identified as
a potential candidate for clinical trials.
- ADDING ANTIGENIC INFORMATION DISPLAYED BY THE VACCINE VIRUS. An example of
this strategy is the Company's approach to the creation of a live
attenuated CMV vaccine, which begins with a vaccine candidate thought to
be over-attenuated and thus insufficiently immunogenic. Aviron recently
discovered genes for certain antigen structures present in wild-type CMV
viruses. These genes are being engineered into an over-attenuated vaccine
candidate to create a potentially more immunogenic vaccine. The Company
believes this technique of adding antigen structures may enable the
Company to create combination vaccines expressing antigens of more than
one virus in a single vaccine strain.
BUSINESS STRATEGY
Aviron's objective is to become a leader in the discovery, development,
manufacture and marketing of live virus vaccines which are sufficiently cost
effective to justify their use in immunization programs targeting the general
population. The Company's strategy is to:
ADDRESS INFECTIOUS DISEASES WHICH MERIT WIDESPREAD IMMUNIZATION
PROGRAMS. The concept of universal immunization is well established for certain
infectious diseases where safe and effective vaccines are already available,
including immunization against pathogens such as polio, measles, mumps, rubella
and hepatitis B. For each of its potential products, the Company's objective is
to produce vaccine strains which are sufficiently safe and cost effective to
obtain official recommendations for universal use in childhood vaccine regimens
or, in the case of influenza, annual use in the general population.
APPLY RATIONAL VACCINE DESIGN TECHNOLOGY TO A RANGE OF VIRAL
TARGETS. Aviron believes that its proprietary genetic engineering technologies
may be used to create live attenuated vaccines for a wide range of viral
targets, such as viruses related to influenza and herpes viruses.
SELECT PROGRAMS AND MARKET VACCINES BASED ON PHARMACOECONOMIC DATA. Public
health agencies and managed care systems are increasingly concerned with the
economic impact of potential new mandates for vaccines. In setting its internal
product development priorities, the Company considers the costs of implementing
widespread vaccine programs based on its products in relation to potential cost
savings to the government and managed health care systems and intends to perform
rigorous cost-effectiveness analyses on its products.
IN-LICENSE PROMISING VACCINE TECHNOLOGY. Aviron evaluates in-licensing
opportunities and intends to add programs which complement the Company's core
technologies and capabilities. For example, the Company obtained exclusive
rights to the cold adapted influenza vaccine technology from the University of
Michigan and the NIH, and to the PIV-3 vaccine from the NIH.
ESTABLISH COLLABORATIVE ARRANGEMENTS TO ENHANCE PRODUCT DEVELOPMENT
EFFORTS. Aviron intends to enter into collaborative arrangements to gain access
to specific technologies and skills which may accelerate product development and
provide additional financial resources to support its research and development
and commercialization efforts, particularly outside of the United States. The
Company has entered into collaborative arrangements with SmithKline Beecham for
development of an EBV vaccine and with Sang-A for certain rights to the
Company's products in Korea.
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VACCINE PRODUCTS UNDER DEVELOPMENT
The following table summarizes Aviron's most advanced potential products
under research and development. This table is qualified in its entirety by
reference to the more detailed descriptions appearing elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
COMMERCIAL
PROGRAM VACCINE TYPE STATUS (1) RIGHTS (2)
---------------------------- ---------------------------------------- ------------------ --------------
<S> <C> <C> <C>
Influenza
Adults Cold adapted live virus Phase II Conducted Aviron
Children Cold adapted live virus Phase I/II Aviron
Conducted
Elderly Cold adapted live virus Clinical Trials Aviron
(co-administered with inactivated Planned
vaccine)
Genetically engineered live virus Preclinical Aviron
Parainfluenza Virus Type 3 Bovine live virus IND Planned Aviron
Epstein-Barr Virus Recombinant subunit glycoprotein Preclinical SmithKline
Beecham/
Aviron (3)
Cytomegalovirus Genetically engineered live virus Preclinical Aviron
Herpes Simplex Virus Type 2 Genetically engineered live virus Preclinical Aviron
Respiratory Syncytial Virus Genetically engineered live virus Research Aviron
----------------
(1) "Phase II Conducted" means Aviron is evaluating data from multi-center, double-blind,
placebo-controlled clinical trials for safety, immunogenicity and efficacy and the Company intends to
proceed directly to Phase III clinical trials.
"Phase I/II Conducted" means Aviron is evaluating data from multi-center, double-blind,
placebo-controlled clinical trials for safety and immunogenicity in a limited patient population and
the Company intends to proceed directly to Phase III clinical trials.
"Clinical Trials Planned" indicates that no clinical trials have been conducted by Aviron to date.
Aviron intends to discuss with the FDA its plans to proceed directly to Phase III clinical trials.
"Preclinical" includes assessment of specific vaccine candidates for growth properties in cell culture
and for attenuation and immunogenicity in animal models.
"IND Planned" indicates that no clinical trials have been conducted by Aviron to date. The Company is
evaluating the timing and level of commitment for Aviron-sponsored clinical trials.
"Research" includes identification of vaccine candidates and approaches to create new candidate
strains. See "Government Regulation."
(2) Commercial rights for Korea for most listed programs are licensed to Sang-A. See "-- Collaborative
Agreements."
(3) Worldwide rights licensed to SmithKline Beecham; Aviron retains certain United States co-promotion
rights.
</TABLE>
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INFLUENZA
Every year in mid- to late-winter, influenza spreads across the globe,
infecting an average of approximately 10% to 20% of the United States
population. In the United States, 20 to 50 million cases of influenza occur
annually. Influenza cases are associated with symptoms lasting for at least
three to five days, an average of approximately three days of lost work or
missed school, and approximately 20,000 deaths each year. Field studies indicate
the attack rate ranges from a low of 10% in persons over age 65 to a high of 36%
in children aged one to 18. Children are also a major factor in spreading
influenza to other population segments, including those at high risk of
contracting the disease. At the peak of a typical epidemic, reportedly 9% to 22%
of all physician office visits are for flu-like symptoms. Over 90% of
influenza-related deaths occur in people over age 65, but children under age
five and women in the third trimester of pregnancy are also at higher risk for
serious complications. Several times this century, influenza has appeared as a
much more serious pandemic. These major pandemics occur when the influenza virus
undergoes "antigenic shift" in which one influenza subtype is replaced by a
different strain for which the population has not developed antibodies and,
therefore, for which it is extremely susceptible to infection.
The variability of certain components of the influenza virus requires that
the influenza vaccine be modified annually. The CDC and the World Health
Organization (the "WHO") maintain a global network which generates data required
to select strains for the coming influenza season's vaccine and monitor the
occurrence of especially severe epidemics. Based on these data, the FDA and the
CDC discuss circulating influenza strains which are candidates for inclusion in
the following season's influenza vaccine. A similar process is undertaken in
Europe by the WHO and various national authorities. Currently available
inactivated influenza vaccines contain three strains of influenza virus (two
strains of influenza A and one strain of influenza B) and are therefore called
trivalent vaccines. Typically one or sometimes two of the strains in these
trivalent vaccines are recommended for updating annually. Current vaccines have
been variously reported to be 60% to 80% effective in preventing illness,
pneumonia, hospitalization and death due to complications from influenza.
The ACIP has identified the principal target groups for the current
influenza vaccine as those at increased risk for influenza-related
complications: persons age 65 or older, residents of chronic-care facilities,
adults and children with chronic disorders of the pulmonary or cardiovascular
system, adults and children who have required regular medical follow-up or
hospitalization during the preceding year because of chronic metabolic diseases
or immunosuppression, and children and teenagers receiving long-term aspirin
therapy and therefore at risk of developing Reye's syndrome. The next level of
priority for vaccination identified by the ACIP includes certain groups, such as
health care personnel and household members (including children), that may
transmit influenza to high-risk persons. Furthermore, the ACIP recommends that
physicians administer influenza vaccine to any person who wishes to reduce the
chance of becoming ill with influenza.
The FDA estimates that over 75 million influenza vaccine doses were
manfactured for use in the United States in 1995. According to the CDC, over
half of the 34 million Americans over age 65 received the annual influenza
vaccine for the 1993 influenza season, up from less than approximately 25% a few
years ago. The Company believes that a lower percentage of high-risk individuals
under age 65 were vaccinated in 1994, and that the majority of influenza doses
used in the United States are being administered to healthy adults under age 65,
many of whom participate in voluntary work place immunization programs. Experts
suggest that very few of the 70 million children under age 18 receive the annual
influenza vaccine.
In addition to the currently available vaccines, two oral drugs are
currently approved for use in the prevention and treatment of influenza A:
amantadine, which has been on the market for many years, and rimantidine, a
closely related compound which produces fewer side effects. Both agents have
been shown to be effective in reducing the severity of influenza A disease and
the number of days of disability, but are not effective against influenza B.
Both are also recommended for daily use during the influenza season by certain
high-risk persons for whom the influenza vaccine is contraindicated. However,
there is a concern that widespread prophylactic use could lead to emergence of
drug-resistant strains.
AVIRON'S COLD ADAPTED INFLUENZA VACCINE. The Company's most advanced
program is based on the live cold adapted influenza vaccine technology licensed
from the University of Michigan and on a Cooperative Research and Development
Agreement ("CRADA") with the NIH. The cold adapted influenza vaccine is
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currently undergoing extensive clinical trials by Aviron with a network of
NIH-sponsored investigators. Prior to Company-initiated trials, at least 65
clinical trials of the cold adapted influenza vaccine technology have been
performed since 1977, involving more than 15,000 volunteers, of whom over 7,000
received the cold adapted influenza vaccine. See "-- Influenza Clinical Trials."
The Company intends to develop the cold adapted influenza vaccine for
widespread annual use in children and adults, and for co-administration with the
inactivated vaccine for improved protection in the elderly. The quality of the
immune response induced by cold adapted influenza vaccine differs from that
induced by inactivated influenza vaccines. The cold adapted influenza vaccine
elicits an immune response to multiple viral proteins mimicking the natural
immunobiology of influenza, whereas the response to the classical inactivated
vaccine is directed primarily to one component of the virus. Because the cold
adapted influenza vaccine is delivered as a nasal spray, the Company believes it
would provide the first practical way to immunize children on an annual basis.
Children are an important target because, while the elderly experience the
greatest mortality from the annual influenza epidemic, much of the morbidity and
illness occurs in young children. Children are also thought to be important in
the spread of influenza in the population. In addition to its proposed use in
physician's offices, Aviron believes that the nasal spray delivery of this
vaccine will enable it to be administered by adults without special medical
training, so that it will be practical to consider delivery via pharmacies,
schools, day care centers, and possibly in the home. However, before delivery
methods are established in these settings, the Company will be required to
formulate the cold adapted influenza vaccine to ensure stability of the vaccine
in such settings. There can be no assurance that the Company will be able to do
so or that regulatory authorities will approve such delivery methods.
Aviron also is targeting healthy adults, many of whom are being offered
influenza prophylaxis by their employer and who may prefer Aviron's intranasal
administration to injection. The Company believes that many adults who regularly
receive the inactivated influenza vaccine will select the intranasal vaccine if
given the choice, and that people who have avoided "flu shots" in the past will
receive a vaccination if the intranasal alternative is available. In addition,
the Company is developing its vaccine for co-administration by nasal spray with
the inactivated influenza vaccine injection for the elderly. While efficacy in
the elderly has not been conclusively demonstrated, nursing home studies suggest
that simultaneous administration of the intranasal cold adapted influenza
vaccine with an injection of the inactivated vaccine offers added protection
compared to administration of the inactivated vaccine alone. Aviron intends to
seek recommendations from the ACIP and the American Academy of Pediatrics for
use of the cold adapted influenza vaccine in the appropriate population.
The Company has completed enrollment of 259 adults and 356 children in
multicenter Phase I/II clinical trials designed to show that Aviron's trivalent
formulation and nasal spray delivery system are generally safe, well tolerated
and immunogenic. These studies were followed by a Phase II challenge study in 92
adults. Data from these studies are under analysis. Additional large-scale
clinical trials are planned for the influenza seasons of 1996 through 1998,
although FDA approval will be required before these clinical trials can
commence. In addition, the Company intends to discuss with the FDA its plans for
Phase III clinical trials to demonstrate efficacy of the co-administration with
the inactivated influenza vaccine in the elderly. No assurances can be given
that the Company will commence clinical trials as planned, or that if commenced,
such trials can be successfully completed on a timely basis, if at all. See "--
Influenza Clinical Trials -- Clinical Trials by Aviron."
AVIRON'S NEXT-GENERATION GENETICALLY ENGINEERED INFLUENZA VACCINE. The
Company is using its proprietary reverse genetics technology to engineer future
generations of influenza vaccines which are designed to the needs of various age
groups in the population. The Company's first priority is to develop strains
which offer improved protection in the elderly compared to the currently
available inactivated vaccines. Since most elderly persons have had experience
with several influenza infections in their lifetime, pre-existing antibodies may
prevent the cold adapted virus from multiplying sufficiently to be used as an
alternative to the currently available vaccines in the elderly. To address this
problem, Aviron scientists have created new strains of influenza vaccine
candidates which have been evaluated and shown to be attenuated in ferrets, an
animal model for influenza. Vaccinated animals were protected from subsequent
challenge with a virulent strain of influenza. Some of the Company's genetically
engineered strains have been found to better replicate in the upper respiratory
tract of these animals than the cold adapted influenza vaccine, while retaining
the property of restricted growth in the lower respiratory tract. Work with the
cold adapted influenza vaccine has shown that
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these features are associated with desirable characteristics of attenuation in
humans. However, animal model results are not necessarily predictive of results
in humans. The Company believes that these strains may be more immunogenic than
the cold adapted vaccine and, therefore, more suitable for use as a single-dose
vaccine for the elderly. No assurance can be given that the Company will be able
to commence or successfully complete clinical trials on a timely basis, if at
all.
PARAINFLUENZA VIRUS TYPE 3
PIV-3 is a common respiratory virus of childhood which causes croup, cough,
fever and pneumonia. Every year, primarily during the spring and summer months,
PIV-3 infects infants, children and adults. In the United States, at least 60%
of children are infected by the time they reach two years of age, and 80% by
four years of age. These cases are associated with symptoms lasting from three
to eight days and approximately 17,000 hospitalizations per year. Children are
also a major factor in introducing PIV-3 infection into the family setting.
PIV-3 frequently reoccurs and children typically experience two to three
infections of decreasing severity. Unlike influenza, PIV-3 undergoes only a very
minor degree of variation in the surface proteins from year to year; therefore,
a PIV-3 vaccine will not require annual updates.
Both serum and nasal antibodies directed to PIV-3 surface proteins play a
role in protection against PIV-3 disease. It is thought that protection of the
lower respiratory tract from PIV-3 replication and disease requires high serum
antibody levels, whereas resistance to infection and protection against disease
in the upper respiratory tract requires mucosal antibodies in the nose. There is
currently no available vaccine to protect against PIV-3 infection, and no drug
for treatment of PIV-3 disease.
AVIRON'S LIVE PARAINFLUENZA VIRUS TYPE 3 VACCINE. The Company's live PIV-3
vaccine program utilizes bovine PIV-3 (bPIV-3) vaccine technology licensed from
the NIH. Use of bPIV-3 as a vaccine to protect humans against human PIV-3
strains is based on the successful strategy first used by Jenner for smallpox
vaccination, in which an animal virus is used to protect humans from the
analogous human virus. It is thought that the attenuation of bPIV-3 in primates
is due to mutations sustained throughout its genome during its long evolutionary
adaptation to the bovine host.
Prior to the Company's in-licensing of the bPIV-3 vaccine, it had been
tested in Phase I/II clinical trials in adults, children and infants. In all age
groups, the bPIV-3 vaccine appeared satisfactorily attenuated, safe and
genetically stable. Eighty-five percent of seronegative children (six to 60
months of age) were infected by the tested dose, and 61% of bPIV-3 recipients
developed a level of antibody to PIV-3 previously associated with protection
from disease. The vaccine strain infected 92% of infants younger than six months
of age, even in the presence of maternally-derived PIV-3 antibodies. Infection
with the bPIV-3 vaccine stimulated an immune response to PIV-3 in 42% of these
young infants. The Company is evaluating the timing and level of commitment for
Aviron-sponsored Phase II clinical trials of bPIV-3 using the existing bPIV-3
vaccine supply produced and tested for the NIAID. There can be no assurance that
this vaccine supply will be suitable for clinical trials or that these or any
additional clinical trials will be commenced or, if commenced, will be
successful, or that the Company will develop successfully and receive FDA
approval of its bPIV-3 vaccine.
EPSTEIN-BARR VIRUS
Epstein-Barr virus, a herpes virus that causes infectious mononucleosis,
infects most people at some point in their lifetime. Infection at a young age
may cause mild symptoms, but the debilitating syndrome of infectious
mononucleosis is most common where infection first occurs in adolescence or
young adulthood via exchange of saliva. Sore throat and swollen neck glands are
followed by a period of fatigue and lethargy which can last for weeks or even
months. Approximately 10% of high school and college students become infected
with EBV each year in the United States, of which half or more may develop
infectious mononucleosis. The disease usually runs its course without
significant medical intervention; however, the long duration of infectious
mononucleosis can be a serious problem for high school and college students and
workers. Enlargement of the liver and spleen are also common, so doctors
typically prohibit participation in athletic activities to prevent serious
injuries. EBV is one of the viruses implicated as a contributing cause of cancer
in humans, including Hodgkin's disease, post-transplant and other lymphomas,
nasopharyngeal carcinoma (the most common head and neck cancer in large regions
of Asia) and Burkitt's lymphoma (a significant disease in Africa).
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The Company is developing a subunit vaccine for EBV based on the single
surface antigen responsible for most of the neutralizing antibodies stimulated
by EBV infection. Quantities of this antigen have been expressed, purified and
evaluated in a rabbit model, where preliminary results indicate that the antigen
is immunogenic when combined with an adjuvant. In 1995, the Company entered into
a worldwide collaboration with SmithKline Beecham, excluding Korea, whereby
SmithKline Beecham will fund the development of Aviron's EBV vaccine in exchange
for certain marketing rights. See "-- Collaborative Agreements."
CYTOMEGALOVIRUS
Most people become infected with CMV, another member of the herpes virus
family, at some time in their life, and in the United States 40% to 60% of
infections occur in childhood. These infections are typically asymptomatic or
result in mild illness with sore throat, headache, fatigue and swollen glands.
CMV also can cause an infectious mononucleosis syndrome clinically
indistinguishable from that associated with EBV infection. More serious CMV
disease is also often associated with a weakened immune system, as is often
found in AIDS, cancer and transplant patients, which may be due to reactivation
of CMV acquired early in life or a primary infection. In addition, if a woman is
first exposed to this virus early in pregnancy, the resulting infection can
cause serious fetal abnormalities. Approximately 40,000 infants in the United
States are infected each year, resulting in varying levels of brain damage or
deafness in over 10% of these infants. Congenital CMV syndrome results in
significant expenditures for neonatal intensive care.
No vaccine currently is available for CMV. Antibodies from persons with high
levels of immunity are available in the form of hyperimmune globulins for
certain high-risk patients, but use of these products can be costly and of
limited efficacy. The Company believes that widespread vaccination of children
with a safe effective CMV vaccine is justified for the same reason that children
in the United States are vaccinated against rubella: to protect unborn children
from birth defects by reducing the risk that mothers are exposed to infected
children.
A live attenuated CMV vaccine candidate, known as the Towne strain, has been
tested by third parties in several hundred people. This strain was reported to
be well tolerated, but did not provide sufficient protection in pregnant mothers
of children in day care who were at risk for congenital CMV, or in transplant
recipients at risk of acquiring CMV from the donor organs. Aviron scientists
have discovered differences between the genome of the Towne strain and that of
wild-type CMV. Based on this knowledge, the Company has used its Rational
Vaccine Design approach to create new recombinant CMV vaccine candidates in an
attempt to strike the appropriate balance between attenuation and protection.
Some of these vaccine candidates have been made and tested by Aviron in a
specialized animal model. The Company expects to select a vaccine candidate to
prevent CMV infection for testing in clinical trials. However, no assurance can
be given that the Company will be successful in identifying a CMV vaccine
candidate.
HERPES SIMPLEX VIRUS TYPE 2
It is estimated that HSV-2, the cause of genital herpes, infects one out of
five persons in the United States. Only one-third of those infected experience
symptoms, but a significant portion of new infections are caused by transmission
from asymptomatic individuals. Genital herpes is a non-lethal but incurable
disease that invades the body once and settles in for a lifetime, often
manifesting its presence several times a year with painful sores in the genital
area. It is estimated that there are over 700,000 new cases of genital herpes
per year in the United States, and that the disease is responsible for over
500,000 physician visits per year.
Genital herpes also can be acquired by newborn babies as they pass through
the birth canal of infected mothers. Neonatal herpes simplex infection can
result in serious damage to the brain and many other organs. Even with therapy,
over 20% of the 1,500 infants infected each year in the United States die, and
many of the survivors are seriously impaired. In addition, efforts to prevent
neonatal herpes contribute significantly to the cost of the disease. Thousands
of women in the United States with a history of genital herpes are advised to
undergo a Cesarean section when prenatal cultures or examinations suggest a
recurrence near the time of delivery. HSV-2 infection can also lead to serious
and fatal complications in adults with impaired immune systems due to AIDS or
drug therapy for organ transplants.
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The most widely used drug therapy for HSV-2 disease is acyclovir (Zovirax),
which has been shown to reduce the severity and duration of herpetic lesions,
although most patients treated still experience symptoms for several days. When
taken several times a day as a prophylaxis for HSV-2, acyclovir also has been
shown to reduce the frequency of recurrences. Several additional therapeutics
are available or are in the late stages of clinical trials, and several
prophylactic vaccines are in clinical trials; however, no vaccine currently is
available to prevent genital herpes. At least two companies are in Phase III
clinical trials of subunit vaccines for the primary prevention of genital
herpes.
Aviron is using its Rational Vaccine Design approach to create an injectable
live attenuated vaccine to be used in uninfected children and young adults to
prevent genital herpes. Two of the Company's founders, Dr. Bernard Roizman and
Dr. Richard Whitley, in collaboration with Pasteur Merieux Serums et Vaccins,
developed a prototype live herpes vaccine based on an oral herpes virus (HSV-1)
backbone. After extensive preclinical testing, the virus was tested in humans;
however, the immune response following vaccination was deemed insufficient. This
insufficiency was attributed to the use of the HSV-1 backbone from which too
many important genes had been deleted, thus rendering the virus over-attenuated.
Aviron has licensed this technology, along with patents covering strategies for
more specific deletions, from ARCH Development Corporation. Aviron has used this
technology to create live vaccine candidates using an HSV-2 backbone, which it
currently is evaluating in preclinical models. Several candidates have shown
attenuation in various rodent models, as well as efficacy in protecting guinea
pigs and primates from challenge with a lethal dose of wild-type HSV-2. The
Company intends to use the results of animal studies to select these or other
strains under development for evaluation in clinical trials. There can be no
assurance, however, that the Company will commence or successfully complete
clinical trials on a timely basis, if at all.
In July 1996, Aviron licensed certain of its patent rights covering or
related to the use of HSV-2 for treatment of cancer and for gene therapy, but
excluding use for vaccines, to a private Canadian corporation. In exchange,
Aviron received shares of capital stock and warrants to purchase shares of
capital stock, representing in the aggregate approximately 27% of the
outstanding equity securities of such company on a fully-diluted basis after the
first round of financing. Prior to the execution of this agreement, this company
had no employees and had conducted no material operations. Aviron is under no
obligation to fund development of this technology.
RESPIRATORY SYNCYTIAL VIRUS
RSV is the major cause of lower respiratory tract illness in the very young,
responsible for over 90,000 hospitalizations and more than 4,000 deaths a year
in the United States. Infection is manifested as cough and fever and, in some
cases, pneumonia. While RSV infection can occur at any time of year, epidemics
generally occur in the winter. Most cases are in children under age four, with
the peak of severe illness under six months of age, particularly in infants with
pre-existing heart and lung disease. No vaccine for RSV currently is available,
although certain third parties are testing a cold adapted live attenuated RSV
vaccine in infants. Available drug therapy is reserved for the most serious
cases as it has significant side effects. Aviron is developing a genetically
engineered live attenuated virus vaccine for RSV using its proprietary reverse
genetics technology. Aviron's objective is to use this technology to create a
number of live virus vaccine candidates which can be tested in animal models
before selecting a candidate for testing in humans. However, no assurance can be
given that the Company will be successful in identifying a vaccine candidate.
INFLUENZA CLINICAL TRIALS
CLINICAL TRIALS CONDUCTED BY OTHERS
The Company's most advanced vaccine product is based on the cold adapted
influenza vaccine technology licensed from the University of Michigan and the
NIH. The Company has obtained from the NIH and the University of Michigan
exclusive rights to trial results and data from the work at the Vaccine
Treatment Evaluation Units (the "VTEUs") and Wyeth-Ayerst. Aviron has reviewed
the data from over 65 previous clinical trials of influenza vaccine viruses
derived from the University of Michigan master strains. These studies, performed
since 1976, involved more than 15,000 volunteers, of whom over 7,000 received
the cold adapted influenza vaccine. Most of these trials were conducted by
academic investigators to explore the biology of the
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vaccines and were not designed to support an application to the FDA for approval
to market a product. Each of the 15 vaccine strains that were tested were
derived from the master strains and typically corresponded to the
contemporaneous inactivated influenza vaccine for the year of testing.
Those who received the cold adapted vaccine ranged in age from two months to
over 80 years. More than 50 of these trials studied strains of influenza A
vaccine, involving more than 13,000 volunteers, and 15 of the trials studied
strains of influenza B vaccines, involving approximately 2,200 volunteers. In
the aggregate, these clinical trials involved over 2,000 children. Nearly all of
these trials used monovalent (one strain) or bivalent (two strains)
formulations, containing only one or two of the three strains usually found in
the current trivalent inactivated vaccine. These trials used either placebo or
an inactivated virus vaccine as controls. In these clinical trials, trivalent
formulations were administered to about 350 adults and 200 children. The cold
adapted influenza vaccine was given in most of these clinical trials as nose
drops, although in some instances it was given as a nasal spray.
The effectiveness of the cold adapted influenza vaccine in preventing
influenza infection in adults and children has been evaluated in seven adult and
three pediatric challenge studies. Six of these adult challenge studies were
placebo-controlled and involved 254 seronegative (relatively low levels of prior
antibodies to the influenza strains used in the study) adults who were
challenged within six months of vaccination. A challenge study is a clinical
trial in which, typically, 20 to 30 adult volunteers are given wild-type
influenza by nose drops, one to two months following immunization with the
experimental or control vaccine preparation. Compared to placebo rates, the cold
adapted influenza strains resulted in significant reduction (66% to 100%) in
systemic illness compared to the placebo group and a reduction (17% to 100%) in
infection as measured by evidence of challenge virus replication, or virus
shedding, in the nose of the recipient. Two of these six studies included a
comparison group of subjects treated with the inactivated virus vaccines. While
these studies did not have a sufficient number of patients to detect a
statistical difference between the cold adapted and inactivated vaccines, the
cold adapted vaccine protection rates were equal or better than those seen for
the inactivated vaccine in each of the five studies. In one study where adults
were challenged seven months after immunization, less protection was seen as
measured by infection or any illness for both inactivated and cold adapted
vaccines. However, protection rates against systemic illness, such as fever,
were 79% to 100% for the cold adapted vaccine and 67% to 84% for the inactivated
vaccine.
Children are challenged in such studies using the cold adapted influenza
vaccine as the challenge virus rather than virulent wild-type virus. The
endpoint measured in children is protection from infection, defined as vaccine
virus growth in the nose after challenge. Of the three placebo-controlled
studies in 86 children, prior immunization with the cold adapted influenza
vaccine was associated with a significant reduction (52% to 100%) in the percent
of children infected with the challenge virus compared to placebo. In the only
children's study that included a comparison to inactivated vaccine, the cold
adapted vaccine resulted in a 52% reduction in virus shedding, whereas the
inactivated vaccine reduced shedding by 6% compared to the placebo.
Cold adapted influenza vaccines also have been tested in field trials where
children and adults were vaccinated before the influenza season, and are then
followed during the next six months in order to assess protection against
influenza disease. The largest study was conducted over four consecutive
influenza seasons. Approximately 1,500 children and adults from ages three to 65
were randomly assigned to each arm of this double-blind, placebo-controlled
study. This study design only allowed comparison of the inactivated and cold
adapted influenza A components. Both vaccines were considered to be
well-tolerated, with slightly increased redness and tenderness at the injection
site in those receiving the inactivated vaccine and slightly increased sore
throat or runny nose, lethargy and aches in those receiving the vaccine nose
drops. This study showed that both cold adapted and inactivated influenza
vaccines were well tolerated and reduced infection and morbidity due to
influenza A. The relative efficacy of the two vaccines differed from one
epidemic year to another and according to which measurement was used to assess
efficacy. As measured by rises in circulating antibodies during the influenza
season (seroconversion), the inactivated vaccine appeared more effective.
However, it is not clear how well this correlates with actual protection, as the
cold adapted and inactivated vaccines both protected recipients from
culture-positive disease at rates which did not differ by an amount which was
statistically significant.
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CLINICAL TRIALS BY AVIRON
The Company intends to conduct additional clinical trials to demonstrate
safety and efficacy of its cold adapted influenza vaccine. While the Company
believes that it can use the previous data to support its regulatory filings,
the Company's use of the previous trial data to establish safety and efficacy of
its proposed vaccine is limited because very few of the clinical trials involved
a trivalent vaccine delivered through a nasal spray. The additional studies will
relate to the safety of the formulation as well as the safety of its delivery by
intranasal spray. Aviron enrolled a total of 615 patients in Phase I/II clinical
trials and 92 patients in a Phase II challenge study in five VTEUs as part of
the Company's CRADA with the NIH.
The first study, conducted at three university research laboratories, was a
safety and immunogenicity study involving 259 healthy adults. Patients were
randomly assigned to receive either Aviron's trivalent cold adapted influenza
vaccine by nasal spray or nose drops, or placebo by nasal spray or nose drops.
No serious adverse events were seen in any subjects. In a preliminary analysis
based on approximately 80% of the patients enrolled, there were no statistically
significant differences in the occurrence of fever, sore throat, runny nose,
cough, headache or any other potential reaction assessed in the study between
the vaccine or placebo or between the different types of administration. The
Company is in the process of assessing additional safety and immunogenicity data
from this study.
Two hundred thirty-eight children between the ages of 18 months and five
years were enrolled at four VTEUs and 118 children were enrolled at the Center
for Vaccine Development in Santiago, Chile, in a Phase I/ II safety,
immunogenicity and dose-escalation study. The study design and endpoints were
similar to the adult study, except that the initial phases used a dose lower
than that given to adults. No serious adverse events were seen in any subjects
in any of the three phases of the dose escalation. Based on a statistical
analysis of safety data by an NIH-appointed data monitoring and safety committee
following each of the escalating dose phases of the children's study, the
Company received notification from the committee that it had no objection to the
Company proceeding with a larger-scale Phase III pivotal trial in children at
the highest dose tested. The Company intends to initiate such a large-scale
field trial in the second half of the year. However, the FDA must review data
from its completed Phase I/II trials before the Company can enroll subjects in
the pivotal trial. The Company intends to enroll approximately 900 children who
will be vaccinated with either the cold adapted influenza vaccine or a placebo
and observed for evidence of illness or infection during the 1996-1997 influenza
season and revaccinated and observed during the 1997-1998 influenza season. In
these trials, the Company also intends to vaccinate children enrolled before
October 1, 1996 a second time, 45 to 70 days after initial vaccination. Those
vaccinated for the first time on or after October 1, 1996 will receive a single
dose. There can be no assurance that the FDA will approve the Company's protocol
for Phase III pivotal trials or, if approved, that the Company will commence
clinical trials as planned or that the FDA will not require additional Phase II
clinical data prior to commencing Phase III clinical trials.
Aviron's trivalent intranasal spray formulation of the cold adapted
influenza vaccine also has been tested in a Phase II challenge study at two
VTEUs involving ninety-two healthy young adults. Subjects were randomized to
receive either the trivalent cold adapted intranasal vaccine, the trivalent
inactivated vaccine injection or a placebo. There were no serious adverse events
attributed to the study vaccine seen in any subjects. The Company is in the
process of analyzing safety and efficacy data from this study. Preliminary
analysis of clinical illness and viral shedding following exposure to the
challenge virus indicates that a lower than expected percentage of subjects in
the placebo group experienced influenza-like illness than had been seen in
previous challenge studies. The Company believes that this may have been due to
a problem with the challenge virus used to produce influenza in the subjects or
to a problem with selection of subjects based on their prior exposure to
influenza. Therefore, the Company believes that the challenge study is unlikely
to show statistically significant efficacy on the primary endpoint of preventing
laboratory-confirmed influenza. Regardless of the results of this study, the
Company intends to discuss with the FDA its plans to proceed directly to Phase
III clinical trials in adults and does not intend to conduct other challenge
studies.
Additional trials in children, adults and the elderly will be required to
assess the safety and efficacy of the Company's cold adapted influenza vaccine.
There can be no assurance that these or any additional trials will be successful
or that the Company will successfully develop and receive FDA approval of its
cold adapted influenza vaccine.
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ADDITIONAL RESEARCH PROGRAMS
LIVE VIRUSES AS VECTORS
Aviron believes that its virus engineering technology may be used to create
strains which carry "foreign" genes and are able to deliver genetic or antigenic
information to specific tissues in the host. For example, it is possible to
engineer antigens from other viruses into influenza, as has already been
demonstrated for small antigenic regions from agents such as HIV and malaria.
RSV and PIV-3 are two other important causes of childhood infections which may
be targeted by using the influenza virus as a vector to deliver antigens.
Members of the herpes virus family may also serve as vectors to deliver
antigens to make vaccines which protect against other viruses. Due to the
natural properties of this virus, it may be useful to delivery genetic
information to the central nervous system. Aviron is considering entering into a
collaboration to develop the Company's proprietary technology for the use of
herpes simplex virus as a vector in gene therapy. There can be no assurance that
the Company will be able to enter into a collaboration or that the Company,
alone or with others, will be successful in developing this technology.
MODIFIED HERPES SIMPLEX VIRUSES TO TREAT BRAIN CANCER
The Company's proprietary technology to modify herpes simplex viruses has
been evaluated by others in animal models for the treatment of brain cancer.
Malignant glioma is the most lethal of the common tumors originating in the
brain. In spite of surgical therapy, radiotherapy and chemotherapy, five-year
survival rates in humans of approximately 5% are seen. Many new therapies have
been investigated, including radiation, hyperthermia, phototherapy,
immunotherapy, novel drug delivery for chemotherapy and gene therapy. Two of
Aviron's founders, Dr. Richard Whitley and Dr. Bernard Roizman, modified the
herpes simplex virus using genetic engineering and have tested this virus in an
animal model of malignant glioma. Preliminary results show that tumor size was
reduced by the modified viruses, resulting in longer life and reduced
neurological deficit for the treated animals. However, no assurance can be given
that the Company will be successful in developing this technology.
MANUFACTURING
All of the vaccine material being used in the Company's current clinical
trials is being supplied by Evans Medical Limited, a subsidiary of Medeva plc
("Evans"). Evans is one of the four companies licensed by the FDA to produce
influenza vaccine for sale in the United States. Evans has also agreed to supply
clinical vaccine material for the 1996-1997 influenza season. The Company
currently does not have facilities to manufacture products for large-scale
clinical trials or in commercial quantities and has no experience in
commercial-scale manufacturing. To manufacture its products for large-scale
clinical trials or on a commercial scale, the Company will have to build or gain
access to a large-scale manufacturing facility which will require a significant
amount of funds. The production of the Company's cold adapted influenza vaccine
is subject to the availability of a large number of pathogen-free hen eggs, for
which there are currently a limited number of suppliers. Contamination or
disruption of this source of supply would adversely affect the ability to
manufacture the Company's cold adapted influenza vaccine. In addition, to make
the vaccine available for clinical trials or commercial sales before the
influenza season, the Company must successfully modify the vaccine within a
six-month period to include selected strains for a particular year.
The Company currently is considering whether to construct manufacturing
facilities capable of producing both pilot-scale and commercial quantities of
its potential vaccine products. In April 1996, the Company completed
construction of a pilot manufacturing facility for its potential vaccine
products other than cold adapted influenza. Funding was obtained through the
Company's existing capital lease line of credit. The scale-up of manufacturing
for commercial production will require the Company to develop advanced
manufacturing techniques and rigorous process controls. Furthermore, the Company
will be required to register its facility with the FDA and with the California
Department of Health Services and will be subject to state and federal
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inspections confirming the Company's compliance with cGMP regulations
established by the FDA. However, no assurance can be given as to the ability of
the Company to produce commercial quantities of its potential products in
compliance with applicable regulations or at an acceptable cost, or at all.
The Company is alternatively considering the use of contract manufacturers
for the commercial production of its potential products. The Company is aware of
only a limited number of manufacturers which it believes have the ability and
capacity to manufacture its potential products, including the cold adapted
influenza vaccine, in a timely manner. There can be no assurance that the
Company would be able to contract with any of these companies for the
manufacture of its products on acceptable terms, if at all. If the Company
enters into an agreement with a third-party manufacturer, it will be required to
relinquish control of the manufacturing process, which might adversely affect
the Company's results of operations. Furthermore, a third-party manufacturer
also will be required to manufacture the Company's products in compliance with
state and federal regulations. Failure of any such third-party manufacturer to
comply with state and federal regulations and to deliver the required quantities
on a timely basis and at commercially reasonable prices would materially
adversely affect the Company's business, financial condition and results of
operations. No assurance can be given that the Company, alone or with a third
party, will be able to make the transition to commercial-scale production of its
potential products successfully, if at all, or that if successful, the Company
will be able to maintain such production.
In November 1995, the Company and Evans entered into a manufacturing and
development agreement (the "Evans Agreement"). Under the terms of the Evans
Agreement, Evans is performing the development of a manufacturing process for
production of a cold adapted influenza vaccine and will produce such vaccine in
sufficient quantities to enable the Company to conduct its planned field trials
and large-scale clinical trials of the vaccine, subject to certain limitations.
In addition, in the event that the Company seeks to offer manufacturing rights
to a third party, Evans has a right of first negotiation to supply a portion of
the Company's commercial requirements for the vaccine in certain European
markets. The Company also granted Evans a right of first negotiation with
respect to distribution rights for the vaccine in Europe. After December 31,
1996, either party may terminate the Evans Agreement upon six months notice to
the other party.
MARKETING AND SALES
The current purchasers of vaccines are principally physicians, large HMOs
and state and federal government agencies. However, the United States health
care system is undergoing significant changes and the relative proportion that
each group will represent in the future will depend on factors such as
legislative changes and the economy. The Company intends to sell its products
directly to HMOs and state and federal health care agencies, and to other buyers
through partners with strong capabilities in local markets. Outside the United
States, the Company plans to sell its potential products through collaborative
agreements with strategic partners. Aviron intends to use rigorous
cost-effectiveness analysis as a guide for its pricing strategy and in support
of its marketing plans.
The Company currently has no marketing, sales or distribution capabilities.
To market any products, Aviron must either obtain the assistance of a third
party with a suitable distribution system, develop a direct sales and marketing
staff of its own or combine the efforts of a third party with its own efforts.
Other than SmithKline Beecham and Sang-A, the Company to date has no agreements
for marketing or distributing its potential products.
The success and commercialization of the Company's products is dependent in
part upon the ability of the Company to maintain and enter into additional
collaborative agreements with corporate partners for the development, testing
and marketing of certain of its vaccines and upon the ability of these third
parties to perform their responsibilities. Although Aviron believes that parties
to any such arrangements would have an economic motivation to succeed in
performing their contractual responsibilities, the amount and timing of
resources devoted to these activities will not be within the control of the
Company. There can be no assurance that any such agreements or arrangements
would be available on terms acceptable to the Company, if at all, that such
third parties would perform their obligations as expected, or that any revenue
would be derived from such arrangements. If Aviron is not able to enter into
such agreements or arrangements, it could encounter delays in
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introducing its potential products into the market or be forced to limit the
scope of its commercialization activities. If the Company were to market
products directly, significant additional expenditures, management resources and
time would be required to develop a marketing and sales staff within the
Company. In addition, the Company would also be competing with other companies
that currently have experienced and well-funded marketing and sales operations.
There can be no assurance that the Company will be able to establish its own
marketing and sales force or that any such force, if established, would be
successful.
COLLABORATIVE AGREEMENTS
The Company's strategy for the development, clinical trials, manufacturing
and commercialization of certain of its products includes maintaining and
entering into various collaborations with corporate partners, licensors,
licensees and others. There can be no assurance that the Company will be able to
maintain existing collaborative agreements, negotiate collaborative arrangements
in the future on acceptable terms, if at all, or that any such collaborative
arrangements will be successful. To date the Company has entered into the
following collaborative agreements.
NATIONAL INSTITUTE OF ALLERGY AND INFECTIOUS DISEASES -- PARAINFLUENZA VIRUS
TYPE 3
In May 1996, the Company obtained exclusive rights from the NIAID of the NIH
to certain biological materials and clinical trial data for its PIV-3 program.
The NIH granted to the Company exclusive rights in specific strains of bovine
parainfluenza virus (the "Licensed Materials") to develop, test, manufacture,
use and sell products for vaccination against human parainfluenza virus and
other human and animal diseases ("Licensed Products"). In addition, the Company
obtained from the NIAID the right to reference an existing IND and certain data
relating to the Licensed Materials. The NIH retained certain rights to the
Licensed Materials on behalf of the United States Government to conduct research
and to grant research licenses to third parties under certain circumstances. In
return for the rights granted by NIH, the Company will make payments to NIH on
the achievement of specified milestones and will make certain royalty payments
to NIH. Unless otherwise terminated, the Agreement will terminate on cessation
of commercial sales of Licensed Products by the Company or its sublicensee. The
Company has the unilateral right to terminate the Agreement in any country upon
providing 60 days notice to NIH.
SMITHKLINE BEECHAM BIOLOGICALS S.A.
In October 1995, the Company signed an agreement with SmithKline Beecham
defining a collaboration on the Company's EBV vaccine technology (the "SB
Agreement"). Under the terms of the SB Agreement, the Company granted SmithKline
Beecham an exclusive license to produce, use and sell non-live EBV vaccines
incorporating the Company's technology for prophylactic and therapeutic uses on
a worldwide basis, except in South and North Korea (together, "Korea"). The
Company has retained the right to co-distribute a monovalent formulation of the
vaccine in certain markets in the United States and to have SmithKline Beecham
supply such vaccine. In addition, SmithKline Beecham obtained a right of first
refusal to an exclusive, worldwide (except Korea) license under any intellectual
property rights relating to any live EBV vaccine technology developed or
controlled by the Company during the term of the SB Agreement.
SmithKline Beecham has agreed to fund research and development at the
Company related to the EBV vaccine, in specified minimum amounts, during the
first two years of the SB Agreement. SmithKline Beecham made an initial upfront
payment to the Company and agreed to make additional payments upon the
achievement of certain product development milestones. The Company is entitled
to royalties from SmithKline Beecham based on net sales of the vaccine. Unless
otherwise terminated, the SmithKline Beecham Agreement will expire upon the
expiration or invalidation of the last remaining patent covered by the SB
Agreement or 10 years from the date of first commercial sale of the vaccine,
whichever is later. The SB Agreement may be terminated by SmithKline Beecham
with respect to any country at any time. See "-- Legal Proceedings."
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SANG-A PHARM. CO., LTD.
In May 1995, the Company entered into a Development and License Agreement
with Sang-A. The Company granted to Sang-A exclusive clinical development,
manufacturing and marketing rights in Korea for specified products developed by
Aviron, including vaccines for influenza (cold adapted and recombinant), EBV,
CMV, HSV-2 and RSV. However, the Company is under no obligation to develop any
product. Sang-A also will make payments to the Company upon the Company's
meeting certain regulatory milestones for each product in Korea and will pay a
royalty to the Company on net sales of such products in Korea.
Sang-A also is obligated to establish a manufacturing facility with at least
enough capacity to meet demand for all Korean product requirements for each
product that reaches commercialization, if any. In the event that Sang-A's
manufacturing capabilities satisfy certain objective criteria and subject to an
obligation to cooperate with the Company's future corporate partners for any
given products, Sang-A has a right of first refusal to manufacture a portion of
the total requirements of the Company, its affiliates and sublicensees for the
specified products, with the exception of the EBV vaccine, in specified
countries, including the United States, provided that it can do so at a
competitive price, quality and timeline.
The term of this agreement extends, on a product-by-product basis, until 10
years from the date of first commercial sale of each product in Korea. At the
conclusion of the term, Sang-A has an option to extend the agreement on a
product-by-product basis, for the longer of an additional 10 years or the
expiration of the patents covering such product. During any such extension,
Sang-A will have either no royalty obligation to the Company or a reduced
royalty obligation, depending on the product.
In return for the rights granted to Sang-A, Sang-A made an equity investment
in the Company in May 1995 of approximately $4.0 million. Sang-A subsequently
made an additional equity investment of approximately $1.6 million in the
Company's private placement of Series C Preferred Stock and currently owns
4,265,480 shares of the Company's Series C Preferred Stock, convertible into
853,096 shares of the Company's Common Stock, representing approximately 9% of
the Company's Common Stock (on an as-converted basis) outstanding prior to this
offering. In addition, Sang-A has agreed to purchase, if so requested by Aviron,
10% of any subsequent offerings by the Company of new securities at the same
price offered to other purchasers in any such offering. This purchase obligation
expires following the closing of the first firmly underwritten public offering
of the Company's Common Stock. Concurrent with this offering, Aviron intends to
sell to Sang-A in a private placement, at the initial public offering price, a
number of shares of Common Stock equal to 10% of the aggregate number of shares
sold in the offering and in the private placement, provided however, that the
total number of shares to be purchased by Sang-A will not exceed $5,000,000
divided by the initial public offering price.
NATIONAL INSTITUTE OF ALLERGY AND INFECTIOUS DISEASES -- COLD ADAPTED INFLUENZA
VACCINE
Following a competitive application process, the Company entered into a
CRADA in March 1995 with the National Institute of Allergy and Infectious
Diseases of the NIH to conduct clinical trials of the Company's cold adapted
influenza vaccine. Wyeth-Ayerst licensed certain rights to the vaccine from the
NIH in 1991 and was developing it for sale in collaboration with the NIH until
relinquishing its rights in 1993. Aviron has obtained from the NIH and the
University of Michigan exclusive rights to trial results and data from the work
at the VTEUs and Wyeth-Ayerst. The NIH has agreed to support the trials by
enrolling subjects in its network of VTEUs. In addition, the Company acquired
exclusive commercial rights to data generated from all previous clinical trials
conducted by the NIH and Wyeth-Ayerst using the vaccine. The term of the CRADA
will not exceed five years without a written amendment by the parties. Either
party may terminate the CRADA for material breach.
UNIVERSITY OF MICHIGAN
In February 1995, the Company entered into a materials transfer and
intellectual property agreement (the "Michigan Agreement") with the University
of Michigan. Pursuant to the Michigan Agreement, the University of Michigan
granted the Company exclusive rights to certain intellectual property and
technology relating to a cold adapted influenza vaccine and proprietary donor
strains of influenza viruses useful in the production of
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products for vaccination against influenza and potentially for gene therapy and
other uses (the "Master Strains"). Specifically, the Company obtained the
exclusive right to develop, manufacture, use, market and sell products
incorporating any such intellectual property or utilizing the Master Strains in
all countries of the world except Japan. Aviron is in the process of acquiring
the Japanese rights from the University of Michigan for no additional
consideration. In consideration for the rights granted to the Company, the
Company (i) made an initial cash payment to the University of Michigan; (ii)
agreed to pay a royalty to the University of Michigan on net sales of products
subject to the license; (iii) entered into a sponsored research agreement with
the University of Michigan for a period of at least two years; and (iv) issued
to the University of Michigan 1,323,734 shares of Series B Preferred Stock,
convertible into 264,746 shares of the Company's Common Stock, representing
approximately 3% of the Company's Common Stock (on an as-converted basis)
outstanding prior to this offering. In addition, in the event that Aviron
receives approval to commercially market a product based on the University of
Michigan technology, the Company has agreed to issue a warrant to the University
of Michigan to purchase shares of the Company's Common Stock, for a number of
shares to be based on 1.25% of the Common Stock outstanding on the date of the
first commercial sale of the product incorporating the University of Michigan
technology. See "Description of Capital Stock -- Warrants."
Pursuant to the Michigan Agreement, the Company is required to grant to the
University of Michigan an irrevocable, royalty-free license for research
purposes, or for transfer to a subsequent licensee should the Michigan Agreement
be terminated, to (i) all improvements developed by the Company, its affiliates
or sublicensees, whether or not patentable, relating to delivery mechanisms and
processes for administration and manufacturing of products, as well as
packaging, storage and preservation processes for the Master Strains, and (ii)
all new technical information acquired by the Company, its affiliates or
sublicensees relating to the Master Strains and products.
The term of the Michigan Agreement is until the later of the last to expire
of the the University of Michigan patents licensed to the Company or 20 years
from the date of first commercial sale of a product incorporating the Michigan
technology. The Company has the further right to terminate for any reason upon
12 months notice to the University of Michigan.
THE MOUNT SINAI SCHOOL OF MEDICINE
In February 1993, the Company entered into a technology transfer agreement
with The Mount Sinai School of Medicine of the City University of New York
("Mount Sinai"). Under this agreement, Mount Sinai assigned to the Company all
of its rights, title and interest in and to certain patents and patent
applications, as well as all associated know-how and other technical
information, relating to recombinant negative strand RNA virus expression
systems and vaccines, attenuated influenza viruses and certain other technology.
Mount Sinai also granted the Company (i) an option to acquire any improvements
to the inventions disclosed in the assigned patents and patent applications
thereafter developed by Mount Sinai and (ii) a right of first negotiation for a
license or assignment to certain additional related technology. In consideration
for the rights granted to the Company, the Company issued to Mount Sinai 35,000
shares of the Company's Common Stock. The Company also issued to Mount Sinai
four warrants to purchase up to a total of 45,000 shares of the Company's Common
Stock, each exercisable for a term of five years commencing upon the occurrence
of certain milestone events. Exercisability accelerates upon the effectiveness
of this offering. Warrants to purchase 9,000 shares are currently exercisable at
a per share exercise price of $4.50. Warrants to purchase 29,750 shares will
become exercisable at the effective date of this offering at a per share
exercise price of 125% of the per share price of this offering. Warrants to
purchase the remaining 6,250 shares are not exercisable and will terminate
automatically on the effective date of this offering according to their terms.
See "Capital Stock -- Warrants."
ARCH DEVELOPMENT CORPORATION
In July 1992, the Company entered into a license agreement with ARCH
Development Corporation ("ARCH"), an Illinois not-for-profit corporation
associated with the University of Chicago, pursuant to which the Company
obtained an exclusive, worldwide commercialization license, with the right to
sublicense, to certain patent rights and related intellectual property and
materials pertaining to the herpes simplex viruses, EBV and various recombinant
methods and materials. In return for the rights granted to the Company under
this
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agreement, the Company will make payments to ARCH upon the achievement of
certain milestones in the development of products covered by the license and
will pay royalties to ARCH on net sales of such products. ARCH also granted the
Company certain rights to improvements and additional related technology. The
term of this agreement extends until the expiration of the last-to-expire patent
rights covered under the license. In connection with this agreement, ARCH
purchased 40,000 shares of the Company's Common Stock. Subsequent to this
agreement, affiliates of ARCH made equity investments in Aviron, purchasing
700,000, 300,000 and 113,999 shares of the Company's Series A, B and C Preferred
Stock, respectively, convertible into a total of 222,799 shares of the Company's
Common Stock. ARCH and its affiliates together own shares representing
approximately 2.6% of the Company's Common Stock (on an as-converted basis)
outstanding prior to this offering.
PATENTS AND PROPRIETARY RIGHTS
Aviron believes that patent and trade secret protection is important to its
business and that its future will depend in part on its ability to maintain its
technology licenses, maintain trade secret protection, obtain patents and
operate without infringing the proprietary rights of others. The Company owns or
has licensed rights to United States and foreign patents and patent applications
covering aspects of technology relating to herpes viruses, including EBV, CMV,
and HSV-2 and negative strand RNA viruses, such as influenza and RSV
technologies. Aviron has acquired or licensed rights to over a dozen patent
applications pending in the United States, and seven issued United States
patents.
The Company has no issued patents on the technology related to its cold
adapted influenza vaccine. The Company's rights to this technology are based on
an exclusive license of materials and know-how from the University of Michigan,
which owns the master strains from which the vaccine is derived, and on an
exclusive license of know-how and clinical trial data from the NIH. Neither The
University of Michigan nor the NIH rely on patents for ownership of the rights
licensed to Aviron. There can be no assurance that a third party will not
reproduce the Company's cold adapted influenza vaccine or that a third party
will not develop another live-virus influenza vaccine which might be comparable
to Aviron's in terms of safety and efficacy.
The Company also relies on trade secrets to protect its technology,
especially where patent protection is not believed to be appropriate or
obtainable. Certain of the Company's licensors also rely on trade secrets to
protect technology which has been licensed to Aviron, and as a result, the
Company is dependent on the efforts of these licensors to protect such trade
secrets. For example, the University of Michigan relies in part on trade secrets
to protect the master strains of the cold adapted influenza virus used by the
Company and the NIH relies in part on trade secrets to protect the master
strains of the bPIV-3 virus. Aviron protects its proprietary technology and
processes, in part, by confidentiality agreements with its employees,
consultants, collaborators and certain contractors. 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 or those of its
licensors will not otherwise become known or be independently discovered by
competitors. To the extent that Aviron or its consultants or research
collaborators use intellectual property owned by others in their work for the
Company, disputes may also arise as to the rights in related or resulting
know-how and inventions.
The Company's success also will depend in part on its ability to obtain
patents, both in the United States and in other countries. Since patent
applications in the United States are maintained in secrecy until patents issue
and since publication of discoveries in the scientific or patent literature
often lag behind actual discoveries, the Company cannot be certain that it was
the first to make the inventions covered by each of its pending patent
applications or that it was the first to file patent applications for such
inventions. The patent positions of biotechnology and pharmaceutical companies
can be highly uncertain and involve complex legal and factual questions, and
therefore the breadth of claims allowed in biotechnology and pharmaceutical
patents or their enforceability cannot be predicted. There can be no assurance
that any of the Company's patents or patent applications will issue, or if
issued, will not be challenged, invalidated or circumvented, or that the rights
granted thereunder will provide proprietary protection or competitive advantages
to the Company.
The commercial success of Aviron additionally will depend, in part, upon the
Company's not infringing patents issued to others. A number of pharmaceutical
companies, biotechnology companies, universities and
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research institutions have filed patent applications or received patents in the
areas of the Company's programs. Some of these applications or patents may limit
or preclude the Company's applications, or conflict in certain respects with
claims made under the Company's applications.
The Company is aware of pending patent applications that have been filed by
others that may pertain to certain aspects of the Company's programs, including
a genetically engineered influenza vaccine, the Company's herpes virus program
or other of its issued or pending patent applications. If patents are issued to
others containing preclusive or conflicting claims and such claims are
ultimately determined to be valid, the Company may be required to obtain
licenses to these patents or to develop or obtain alternative technology. No
assurance can be given that patents have not been issued, or will not be issued,
to third parties that contain preclusive or conflicting claims with respect to
the cold adapted influenza vaccine or any of the Company's other programs. The
Company's breach of an existing license or failure to obtain a license to
technology required to commercialize its products may have a material adverse
effect on the Company's business, financial condition and results of operations.
Litigation, which could result in substantial costs to the Company, may also be
necessary to enforce any patents issued to the Company or to determine the scope
and validity of third-party proprietary rights. If competitors of the Company
prepare and file patent applications in the United States that claim technology
also claimed by the Company, the Company may have to participate in interference
proceedings declared by the United States Patent and Trademark Office to
determine priority of invention, which could result in substantial cost to the
Company, even if the eventual outcome is favorable to the Company. An adverse
outcome could subject the Company to significant liabilities to third parties
and require the Company to license disputed rights from third parties or to
cease using such technology. On July 1, 1996, Chiron filed a complaint against
the Company in San Mateo County, California, Superior Court, alleging that
certain of Aviron's patent applications relating to its EBV program are based on
Chiron proprietary information which was improperly conveyed to Aviron by a
former Chiron employee, and that the Company has engaged in unfair competition.
See "-- Legal Proceedings."
GOVERNMENT REGULATION
Regulation by government authorities in the United States and other
countries will be a significant factor in the manufacturing and marketing of any
products that may be developed by the Company. All of the Company's products
will require regulatory approval by government agencies prior to
commercialization. The Company's vaccine products are subject to rigorous
preclinical testing and clinical trial and other approval procedures by the FDA
and similar health authorities in foreign countries. Various federal statutes
and regulations also govern or influence the manufacturing, safety, labeling,
storage, record keeping and marketing of such products.
The Company believes that its vaccine products will be classified by the FDA
as "biologic products," as opposed to "drug products." The steps ordinarily
required before a drug or biological product may be marketed in the United
States include (a) preclinical testing and clinical trials; (b) the submission
to the FDA of an IND, which must become effective before clinical trials may
commence; (c) adequate and well-controlled clinical trials to establish the
safety and efficacy of the drug; (d) the submission to the FDA of a Product
License Application ("PLA") together with an Establishment License Application
("ELA"); and (e) FDA approval of the application, including approval of all
product labeling and, in some instances, advertising.
Preclinical testing includes laboratory evaluation of product chemistry,
formulation and stability, as well as animal studies to assess the potential
safety and efficacy of each product. Preclinical safety tests must be conducted
by laboratories that comply with FDA regulations regarding Good Laboratory
Practice. The results of the preclinical tests are submitted to the FDA as part
of an IND and are reviewed by the FDA before the commencement of clinical
trials. Unless the FDA objects to an IND, the IND will become effective 30 days
following its receipt by the FDA. There can be no assurance that submission of
an IND will result in FDA authorization to commence clinical trials or that the
lack of an objection means that the FDA will ultimately approve an application
for marketing approval.
Clinical trials involve the administration of the investigational product to
humans under the supervision of a qualified principal investigator. Clinical
trials must be conducted in accordance with Good Clinical Practices under
protocols submitted to the FDA as part of the IND. In addition, each clinical
trial must be approved and
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conducted under the auspice of an Institutional Review Board and with patient
informed consent. The Institutional Review Board will consider, among other
things, ethical factors, the safety of human subjects and the possible liability
of the institution conducting the clinical trial.
Phase I clinical trials are generally performed in healthy human subjects.
The goal of the Phase I clinical trials is to establish initial data about
safety and tolerance of the vaccine in humans. Also, the data regarding the
immune response to a vaccine may be obtained. In Phase II clinical trials,
evidence is sought about the desired therapeutic efficacy of a drug or antibody,
or the immune response to a vaccine, in limited studies with small numbers of
carefully selected subjects. Efforts are made to evaluate the effects of various
dosages and to establish an optimal dosage level and dosage schedule. Additional
safety data are also gathered from these studies. The Phase III clinical trial
program consists of expanded, large-scale, multicenter studies of persons who
are susceptible to the disease. The goal of these studies is to obtain
definitive statistical evidence of the efficacy and safety of the proposed
product and dosage regimen.
All data obtained from this comprehensive development program are submitted
as a PLA to the FDA and the corresponding agencies in other countries for review
and approval. FDA approval of the PLA and the associated ELA is required before
marketing may begin in the United States. The FDA will present to the Vaccine
and Related Biological Products Advisory Committee documentation on most of
Aviron's products for review and recommendation before PLA approval. Although
the FDA's policy is to review priority applications within 180 days of their
filing, in practice longer times may be required. The FDA frequently requests
that additional information be submitted requiring significant additional review
time. All proposed products of the Company will be subject to demanding and
time-consuming PLA or similar approval procedures in the countries where the
Company intends to market its products. These regulations define not only the
form and content of the development of safety and efficacy data regarding the
proposed product, but also impose specific requirements regarding manufacture of
the product, quality assurance, packaging, storage, documentation and record
keeping, labelling and advertising, and marketing procedures. Effective
commercialization also requires inclusion of the Company's products in national,
state, provincial, or institutional formularies or cost reimbursement systems.
FDA approval of the Company's products, including a review of the
manufacturing processes and facilities used to produce such products, will be
required before such products may be marketed in the United States. The process
of obtaining approvals from the FDA can be costly, time consuming and subject to
unanticipated delays. The FDA may refuse to approve an application if it
believes that applicable regulatory criteria are not satisfied. The FDA may also
require additional testing for safety and efficacy of the drug. Moreover, if
regulatory approval of a drug product is granted, the approval will be limited
to specific indications. There can be no assurance that approvals of the
Company's proposed products, processes or facilities will be granted on a timely
basis, if at all. Any failure to obtain or delay in obtaining such approvals
would have a material adverse effect on the Company's business, financial
condition and results of operations. Moreover, even if regulatory approval is
granted, such approval may include significant limitations on indicated uses for
which a product could be marketed.
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 Nuclear Regulatory
Commission, the Resource Conservation and Recovery Act and other present and
potential future federal, state or local regulations. The Company's research and
development involves the controlled use of hazardous materials and chemicals.
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, there can be no assurance that accidental contamination or
injury from these materials will not occur. In the event of such an accident,
the Company could be held liable for any damages that result and any such
liability could exceed the resources of the Company.
Whether or not FDA approval has been obtained, approval of a product by
comparable regulatory authorities may be necessary in foreign countries prior to
the commencement of marketing of the product in such countries. The approval
procedure varies among countries, can involve additional testing, and the time
required may differ from that required for FDA approval. Although there is now a
centralized European Union approval mechanism in place, each European country
may nonetheless impose its own procedures and requirements, many of which are
time consuming and expensive. Thus, there can be substantial delays in obtaining
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required approvals from both the FDA and foreign regulatory authorities after
the relevant applications are filed. The Company expects to rely on corporate
partners and licensees, along with Company expertise, to obtain governmental
approval in foreign countries of drug formulations utilizing its candidates.
The Company believes that the approval process for vaccines may be longer
than for other therapeutic products. In addition, regulatory scrutiny may be
particularly intense for products, such as Aviron's cold-attenuated influenza
vaccine, which are designed to be given to otherwise healthy children.
COMPETITION
The Company operates in a rapidly evolving field. Any product developed by
the Company would compete with existing and new drugs and vaccines being created
by pharmaceutical, biopharmaceutical and biotechnology companies. If the Company
were able to successfully develop its vaccines, it would be competing with
larger companies that have already introduced vaccines and have significantly
greater marketing, manufacturing, financial and managerial resources. For
example, with respect to its cold adapted influenza vaccine, the Company will be
competing against larger companies such as Pasteur Merieux Connaught,
Wyeth-Ayerst, Parke-Davis and Evans. Each of these companies sells the
inactivated injectable influenza vaccine in the United States, has significantly
greater financial resources than Aviron and has established marketing and
distribution channels for such products. The Company is also aware of several
companies that are marketing or are in late-stage development of products to
prevent HSV disease, including Glaxo, SmithKline Beecham and Chiron Biocine
Corporation. In addition, the Company is also aware of the use in Russia of a
cold adapted influenza vaccine, research programs by some of the competitors
listed above, among others, to develop more effective influenza vaccines and a
cold adapted PIV-3 vaccine developed with NIH support which may be licensed to a
large vaccine company.
New developments are expected to continue in both the pharmaceutical and
biotechnology industries and in academia. Other companies may succeed in
developing products that are safer, more effective or less costly than any that
may be developed by the Company. Such companies may also be more effective than
the Company in the production and marketing of their products. Furthermore,
rapid technological development by competitors may result in the Company's
products becoming obsolete before the Company is able to recover its research,
development or commercialization expenses incurred in connection with any such
product. Many potential competitors have substantially greater financial,
technical and marketing resources than the Company. Some of these companies also
have considerable experience in preclinical testing, clinical trials and other
regulatory approval procedures. Moreover, certain academic institutions,
government agencies and other research organizations are conducting research in
areas in which the Company is working. These institutions are becoming
increasingly aware of the commercial value of their findings and are becoming
more active in seeking patent protection and licensing arrangements to collect
royalties for the use of technology that they have developed. These institutions
may also market competitive commercial products on their own or through joint
ventures.
Aviron believes that competition in the markets it is addressing will
continue to be intense. The vaccine industry is characterized by intense price
competition, and the Company anticipates that it will face this and other forms
of competition. There can be no assurance that pharmaceutical, biopharmaceutical
and biotechnology companies will not develop more effective products than those
of the Company or will not market and sell their products more effectively than
the Company, which would have a material adverse effect on the Company's
business, financial condition and results of operations.
PHARMACEUTICAL PRICING AND REIMBURSEMENT
Political, economic and regulatory influences are subjecting the health care
industry in the United States to fundamental change. Recent initiatives to
reduce the federal deficit and to reform health care delivery are increasing
cost-containment efforts. The Company anticipates that Congress, state
legislatures and the private sector will continue to review and assess
alternative benefits, controls on health care spending through limitations on
the growth of private health insurance premiums and Medicare and Medicaid
spending, the creation of large insurance purchasing groups, price controls on
pharmaceuticals and other fundamental
48
<PAGE>
changes to the health care delivery system. Any such proposed or actual changes
could cause the Company or its collaborative partners to limit or eliminate
spending on development projects. Legislative debate is expected to continue in
the future, and market forces are expected to demand reduced costs. Aviron
cannot predict what impact the adoption of any federal or state health care
reform measures or future private sector reforms may have on its business.
In both domestic and foreign markets, sales of the Company's proposed
vaccines will depend in part upon the availability of reimbursement from
third-party payors, such as government health administration authorities,
managed care providers, private health insurers and other organizations. In
addition, other third-party payors are increasingly challenging the price and
cost effectiveness of medical products and services. Significant uncertainty
exists as to the reimbursement status of newly approved health care products.
There can be no assurance that the Company's proposed products will be
considered cost effective or that adequate third-party reimbursement will be
available to enable Aviron to maintain price levels sufficient to realize an
appropriate return on its investment in product development. Legislation and
regulations affecting the pricing of pharmaceuticals may change before the
Company's proposed products are approved for marketing. Adoption of such
legislation could further limit reimbursement for medical products. If adequate
coverage and reimbursement levels are not provided by the government and
third-party payors for the Company's products, the market acceptance of these
products would be adversely affected, which would have a material adverse effect
on the Company's business, financial condition and results of operations.
Several of the Company's proposed vaccines are intended for use in children.
Widespread use of these proposed vaccines is unlikely without recommendations
for their use in childhood immunization programs from authorities such as the
ACIP, the American Academy of Pediatrics and the American College of Physicians.
The ACIP has a role in making recommendations which affect the market for most,
if not all, of the products Aviron intends to make. The CDC develops
epidemiologic data in support of the need for new vaccines and monitors vaccine
usage and changes in disease incidence. In addition, CDC staff frequently act as
key advisors to the FDA in their review process. There can be no assurance that
such authorities will recommend the use of the Company's proposed products,
which would have a material adverse effect on the Company's business, financial
condition and results of operations.
LEGAL PROCEEDINGS
On July 1, 1996, Chiron Corporation ("Chiron") filed a complaint against the
Company in San Mateo County, California, Superior Court, alleging that certain
of Aviron's patent applications relating to its EBV program are based on Chiron
proprietary information which was improperly conveyed to Aviron by a former
Chiron employee, and that the Company has engaged in unfair competition. The
complaint seeks unspecified monetary damages and seeks to impose a constructive
trust, for Chiron's benefit, over the affected patent applications, an exclusive
assignment by the Company to Chiron of such patent applications and an
injunction against the Company from disclosing, using or applying such alleged
proprietary information. Aviron believes that the allegations in the Chiron
complaint are without merit and intends to vigorously defend itself against such
action. Aviron does not utilize the alleged Chiron proprietary information in
any of its potential products currently under development. Even if Chiron were
to prevail in this action, the Company believes that it is uncertain that a
court would grant a constructive trust over the specified patent applications,
which include many claims (including certain rights the Company licensed to
SmithKline Beecham) not relating to the alleged Chiron proprietary technology.
Were a court to grant a constructive trust over such patent applications, it
could adversely impact the Company's agreement with SmithKline Beecham. There
can be no assurance that Chiron will not ultimately prevail in this action or
that it will not obtain the remedies it is seeking. In addition, the Company
expects that the legal costs incurred in defending itself against this action
could be substantial.
EMPLOYEES
As of June 1, 1996, the Company had 70 full-time employees. Thirty-eight of
the Company's employees were in research and development, 16 were in regulatory
affairs, quality assurance and quality control, and 16 were in administration.
No Company employee is represented by a labor union, and the Company has not
experienced any work stoppages. The Company considers its employee relations to
be good.
49
<PAGE>
FACILITIES
Aviron leases approximately 52,800 square feet of office and laboratory
space in Mountain View, California. The Company has leased this facility through
October 2005 and has two options to extend the lease for successive five-year
terms. The Company currently subleases approximately 15,000 square feet of space
to three subtenants. The subleases run through June 1996 and may be extended at
Aviron's discretion. The Company believes that this facility is adequate to meet
its needs for the foreseeable future.
SCIENTIFIC ADVISORY BOARD
Aviron's scientific advisors are consultants who devote six to 20 days per
year to the Company. Some meet frequently with Company employees to discuss
specific projects and others participate primarily via the Company's two annual
meetings of the Scientific Advisory Board.
ANN ARVIN, M.D., Professor of Pediatrics, Microbiology and Immunology at the
Stanford University School of Medicine, has been a member of the Company's
Scientific Advisory Board since 1992. Dr. Arvin has conducted research on the
epidemiology of maternal-to-infant transmission of HSV-2 and she directs one of
the leading laboratories in the study of the interaction of the human immune
system with the varicella zoster (chicken pox) virus in natural and vaccine
infections.
HARRY GREENBERG, M.D., Professor of Medicine, Microbiology and Immunology
and Chief of the Division of Gastroenterology and Associate Chairman for
Academic Affairs, Department of Medicine at the Stanford University School of
Medicine, has been a member of the Company's Scientific Advisory Board since
1992. Dr. Greenberg's research deals with the immunology and pathogenesis of the
principal viruses which cause infectious diarrhea and hepatitis.
ELLIOT KIEFF, M.D., PH.D., Albee Professor of Medicine, Microbiology and
Molecular Genetics and Chairman of the Virology Program at Harvard University,
and Director of Infectious Disease at the Brigham and Women's Hospital, has been
a member of the Company's Scientific Advisory Board since 1992. Dr. Kieff's
laboratory conducts research on the molecular mechanisms of how EBV is a
contributory cause of cancer in humans.
JOSHUA LEDERBERG, PH.D., the Raymond and Beverly Sackler Foundation Scholar
and former President of The Rockefeller University, has been a member of the
Company's Scientific Advisory Board since 1992. He received the Nobel Prize in
Physiology or Medicine for his discovery of genetic recombination in bacteria.
His laboratory at the Rockefeller University studies molecular genetics and he
is active in formulation of national policy concerning emerging infections.
HUNEIN F. MAASSAB, PH.D., Chairman of the Department of Epidemiology, School
of Public Health, at the University of Michigan, has been a member of the
Company's Scientific Advisory Board since 1995. He is the inventor of the cold
adapted influenza vaccine licensed to the Company by the University of Michigan
and has published numerous papers on this subject. His laboratory is studying
the molecular basis of influenza virus attenuation and is involved in
development of new vaccines for other respiratory viruses.
EDWARD MOCARSKI, JR., PH.D., Professor and Chairman of the Department of
Microbiology and Immunology at the Stanford University School of Medicine, has
been a member of the Company's Scientific Advisory Board since 1992. His
laboratory engineered the first recombinant CMV providing the first
demonstration of this virus as a vector and is one of the leading groups
conducting research on CMV gene regulation.
PETER PALESE, PH.D., a founder of the Company and member of the Scientific
Advisory Board since 1992, is Professor and Chairman of the Department of
Microbiology at The Mount Sinai School of Medicine of the City University of New
York. His laboratory developed the first successful strategy for making
genetically engineered influenza viruses. This invention is the subject of a
United States patent issued in 1992 covering the genetic engineering of negative
strand RNA viruses rights to which patent have been acquired by the Company. Dr.
Palese's research group has been responsible for developing a genetic map for
influenza virus, elucidating the function of viral proteins, and the creation of
recombinant influenza strains which demonstrate the use of this virus as a
vector.
50
<PAGE>
GERALD V. QUINNAN, JR., M.D., Professor of Preventive Medicine, Medicine and
Microbiology, Department of Preventive Medicine and Biometrics at the Uniformed
Services University of the Health Sciences in Bethesda, Maryland, has been a
member of the Company's Scientific Advisory Board since 1995. Dr. Quinnan was
employed by the FDA from 1977 until 1993. From 1980 to 1988, he was Director of
the Virology Division, subsequently serving as Deputy Director and Acting
Director, of the Center for Biologics Evaluation and Research. Dr. Quinnan's
research concerns aspects of HIV immunology related to vaccine development.
BERNARD ROIZMAN, SC.D., a founder and director of the Company and member of
the Scientific Advisory Board since 1992, is the Joseph Regenstein Distinguished
Service Professor of the Departments of Molecular Genetics and Cell Biology and
of Biochemistry and Molecular Biology at The University of Chicago. His
laboratory is a leading center of research on neurovirulence of the herpes
simplex viruses, created the first example of a large DNA virus which had been
genetically engineered and provided the first demonstration of herpes simplex
virus as a vector. Dr. Roizman is a member of the United States National Academy
of Sciences. The Company's HSV-2 vaccine program is based on his patented
technology, licensed to Aviron.
JOHN SKEHEL, PH.D., FRS, Director of the National Institute of Medical
Research of the Medical Research Council and the WHO Influenza Surveillance
Center in Mill Hill near London, has been a member of the Company's Scientific
Advisory Board since 1992. His laboratory has contributed new knowledge on the
structure of the influenza virus as well as the molecular epidemiology of this
virus.
RICHARD WHITLEY, M.D., a founder of the Company and member of the Scientific
Advisory Board since 1992, is Professor of Pediatrics, Microbiology, and
Medicine and Vice Chairman of the Department of Pediatrics at the University of
Alabama School of Medicine in Birmingham. He has conducted pharmacologic and
clinical studies on many antiviral drugs and his laboratory is a leading center
of research on the mechanism by which herpes simplex virus causes disease, and
he is studying the use of modified herpes viruses to treat brain cancer. Dr.
Whitley is former Chairman of the NIH Data Monitoring and Safety Committee for
AIDS Therapy and a member of the Committee on Infectious Disease of the American
Academy of Pediatrics (The Redbook Committee).
MAX WILHELM, PH.D., is a consultant to the biotechnology industry and has
been a member of the Company's Scientific Advisory Board since 1993. He has
retired from a 35-year career at Ciba-Geigy where he was most recently a member
of the Pharmaceuticals Division Committee overseeing worldwide research and
development operations. He was involved in the formation of The Biocine Company,
a joint venture vaccine company between Ciba-Geigy and Chiron, serving as one of
its original directors, and is currently Chairman of the Board of Directors of
Genelabs Technologies, Inc.
51
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company as of June 1, 1996 is
set forth below:
<TABLE>
<CAPTION>
NAME AGE POSITION
--------------------------------- --- -----------------------------------
<S> <C> <C>
J. Leighton Read, M.D............ 45 Chairman, Chief Executive Officer
and Chief Financial Officer
Martin L. Bryant, M.D., Ph.D..... 47 Vice President, Research
Victor Jegede, Ph.D.............. 51 Vice President, Technical Affairs
Vera Kallmeyer, M.D., Ph.D....... 37 Vice President, Corporate
Development
Paul M. Mendelman, M.D........... 48 Vice President, Clinical Research
Eric J. Patzer, Ph.D............. 47 Vice President, Development
Reid W. Dennis (1)(2)............ 70 Director
Paul H. Klingenstein (1)(2)...... 40 Director
Jane E. Shaw, Ph.D............... 57 Director
L. James Strand, M.D. (1)(2)..... 54 Director
Bernard Roizman, Sc.D............ 67 Director
Alan C. Mendelson................ 48 Secretary
</TABLE>
- -------------------
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
J. LEIGHTON READ, M.D., a founder of the Company, has been Chairman, Chief
Executive Officer and Chief Financial Officer of the Company since 1992. In
1989, he co-founded Affymax N.V. with Dr. Alejandro Zaffaroni, serving initially
as its Executive Vice President and Chief Operating Officer and later, from 1990
to 1991, as President of the Pharma Division and as a Managing Director of the
parent company. From 1991 to 1993, Dr. Read was a principal with Interhealth
Limited, an investment partnership. Prior to 1989, Dr. Read held appointments at
the Harvard Medical School and School of Public Health, where his research dealt
with techniques for assessing the cost effectiveness of pharmaceutical products.
He has served on the boards of a number of private biotechnology companies and
is currently on the board of a private biotechnology company. Dr. Read holds a
B.S. in Biology and Psychology from Rice University and an M.D. from the
University of Texas Health Science Center at San Antonio.
MARTIN L. BRYANT, M.D., PH.D., has been Vice President, Research of the
Company since 1995. Dr. Bryant also currently is Consulting Associate Professor
of Pediatrics, Microbiology and Immunology at the Stanford University School of
Medicine and Adjunct Associate Professor of Molecular Microbiology at the
Washington University School of Medicine. From 1991 to 1995, he was Director,
Infectious Disease Research for G. D. Searle & Co./Monsanto, a pharmaceutical
company. From 1990 to 1991, he was an Instructor in Pediatric Infectious
Diseases at the Washington University School of Medicine. Dr. Bryant holds a
B.A. in Chemistry from Duke University, an M.A. in Chemistry from San Diego
State University, and an M.D. and a Ph.D. from the University of Southern
California.
VICTOR JEGEDE, PH.D., has been Vice President, Technical Affairs of the
Company since 1995. From 1992 to 1994, Dr. Jegede was Vice President, Regulatory
Affairs and Quality for Creative BioMolecules, Inc., a biopharmaceuticals
company, and from 1989 to 1992, he was Director, Regulatory Affairs and Quality
for WelGen Manufacturing Partnership (BW Manufacturing, Inc.), a division of
Burroughs Welcome Manufacturing, Inc., a pharmaceutical manufacturer. Dr. Jegede
holds a B.S. and an M.S. in Biology, and a Ph.D. in Bacteriology from Boston
College.
52
<PAGE>
VERA KALLMEYER, M.D., PH.D., has been Vice President, Corporate Development
of the Company since 1994. From 1993 to 1994, Dr. Kallmeyer was Vice President,
Healthcare Banking/Biotech at Flemings, a London-based merchant bank. From 1990
to 1993, she was an Associate in Investment Banking at Wasserstein Perella and
Company. In 1994, she co-founded Pacific Futures, an investment advisory
business located in Hong Kong, for which she currently serves as Senior Advisor.
Dr. Kallmeyer holds an M.D. and a Ph.D. in Pediatric Cardiology from
Ludwig-Alexander University in Erlangen, Germany, and an M.B.A. from Stanford
University. She has also studied at the Harvard Medical School and the Royal
Postgraduate Medical School in London.
PAUL M. MENDELMAN, M.D., has been Vice President, Clinical Research of the
Company since May 1996. Prior to joining the Company, Dr. Mendelman was
Director, Clinical Research, Infectious Diseases for Merck Research
Laboratories, a pharmaceutical company, since September 1991. From 1983 to 1991,
Dr. Mendelman was Clinical Instructor, Assistant Professor and then Associate
Professor of Pediatrics at the University of Washington. Dr. Mendelman holds a
B.S. and an M.D. from Ohio State University and is a fellow of the American
Academy of Pediatrics.
ERIC J. PATZER, PH.D., has been Vice President, Development of the Company
since 1996. Prior to joining the Company, Dr. Patzer had held various positions
with Genentech, Inc., a pharmaceutical company, since 1981, most recently as
Vice President, Development. Dr. Patzer holds a B.S. in Mechanical Engineering
from The Pennsylvania State University and a Ph.D. in Microbiology from the
University of Virginia.
REID W. DENNIS has been a director of the Company since 1992. Mr. Dennis has
been active in venture capital investments since 1952. He founded Institutional
Venture Partners ("IVP"), a venture capital firm, in 1980, and has acted as
general partner of IVP since that time. He is currently a director of Collagen
Corporation, as well as several private companies. Mr. Dennis holds a B.S. in
Electrical Engineering and an M.B.A. from Stanford University.
PAUL H. KLINGENSTEIN has been a director of the Company since 1993. Mr.
Klingenstein has been associated with Accel Partners, a venture capital firm,
since 1986, where he has been a General Partner since 1988. He is a director of
several private health care and biopharmaceutical companies. Mr. Klingenstein
holds an A.B. from Harvard University and an M.B.A. from Stanford University.
BERNARD ROIZMAN, SC.D., has been a director of the Company since 1992. Dr.
Roizman has been the Joseph Regenstein Distinguished Service Professor of
Virology at the University of Chicago since 1984. He holds B.A. and M.S. degrees
from Temple University and an Sc.D. from The Johns Hopkins University. Dr.
Roizman is also a member of the Company's Scientific Advisory Board.
JANE E. SHAW, PH.D., has been a Director of the Company since May 1996. Dr.
Shaw has been associated with The Stable Network, a biopharmaceutical consulting
company, since she founded it in 1995. From 1987 to 1994, Dr. Shaw was President
and Chief Operating Officer of ALZA Corporation, a pharmaceutical company, where
she began her career as a research scientist in 1970. Dr. Shaw is also a
director of Intel Corporation, McKesson Corporation and Boise Cascade
Corporation. Dr. Shaw holds a B.Sc. and a Ph.D. in physiology from Birmingham
University, England, and an honorary Doctorate of Science degree from the
Worcester Polytechnic Institute.
L. JAMES STRAND, M.D., has been a director of the Company since 1992. Dr.
Strand began consulting for IVP, a venture capital firm, in 1986, was named Life
Sciences Venture Partner of IVP in 1993 and a General Partner in 1994. From 1983
to 1993, Dr. Strand was President of Advanced Marketing Decisions, a biomedical
marketing and product development consulting company. Dr. Strand is a director
of Microcide Pharmaceuticals, Inc. and several privately-held health care and
biomedical companies. He holds B.S., M.A. and M.D. degrees from the University
of California at San Francisco and an M.B.A. from Santa Clara University and is
a fellow of the American College of Physicians.
ALAN C. MENDELSON has served as Secretary of the Company since 1992. He has
been a partner of Cooley Godward Castro Huddleson & Tatum, counsel to the
Company, since 1980 and served as Managing Partner of its Palo Alto office from
1990 to 1995. Mr. Mendelson also served as Secretary and Acting General Counsel
of Amgen Inc., a biopharmaceutical company, from 1990 to 1991, and served as
Acting General Counsel at
53
<PAGE>
Cadence Design Systems, Inc., an electronic design automation software company,
from 1995 to 1996. He is a director of Acuson Corporation, CoCensys, Inc.,
Elexsys International, Inc. and Isis Pharmaceuticals, Inc. Mr. Mendelson holds a
B.A. from the University of California at Berkeley, and a J.D. from the Harvard
Law School.
The Board of Directors has an Audit Committee which consists of Messrs.
Dennis, Klingenstein and Strand. The Audit Committee makes recommendations to
the Board regarding the selection of independent accountants, reviews the
results and scope of the audit and other services provided by the Company's
independent accountants, and reviews and evaluates the Company's control
functions. The Board of Directors has a Compensation Committee which consists of
Messrs. Dennis, Klingenstein and Strand. The Compensation Committee makes
recommendations to the Board concerning salaries and incentive compensation for
employees and consultants of the Company.
The Board of Directors presently consists of six members who hold office
until the annual meeting of stockholders and until a successor is duly elected
and qualified. Effective upon the Company's reincorporation into Delaware, the
Board of Directors will be divided into three classes of equal size. One class
of directors will be elected annually and its members will hold office for a
three year term or until their successors are duly elected and qualified, or
until their earlier removal or resignation. The number of directors will
initially be six and may be changed by a resolution of the Board of Directors.
Executive officers are elected by the Board of Directors. There are no family
relationships among any of the directors and executive officers of the Company.
DIRECTOR COMPENSATION
Directors currently receive no cash compensation from the Company for their
services as members of the Board of Directors. They are reimbursed for certain
expenses in connection with attendance at Board and Committee meetings.
All of Aviron's non-employee directors are entitled to receive
non-discretionary annual stock option grants under the Company's 1996
Non-Employee Directors' Stock Option Plan (the "Directors' Plan"). Each option
granted pursuant to the Directors' Plan has an exercise price equal to the fair
market value of the Common Stock on the date of grant, and is subject to
three-year vesting in equal annual installments. The Directors' Plan provides
for initial grants of options to purchase 15,000 shares for each non-employee
director who joins the Board following the offering, plus annual grants of
options to purchase 3,000 shares.
EXECUTIVE COMPENSATION
The following table sets forth certain compensation awarded or paid by the
Company during the fiscal year ended December 31, 1995 to its President and
Chief Executive Officer and four of the Company's other executive officers who
earned more than $100,000 during the year ended December 31, 1995 (collectively,
the "Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
------------------------
OTHER ANNUAL ALL OTHER
NAME AND PRINCIPAL POSITION SALARY COMPENSATION COMPENSATION (1)
- -------------------------------------------------- -------- -------------- ----------------
<S> <C> <C> <C>
J. Leighton Read, M.D. ........................... $210,000 $ -- $ 743
Chairman, Chief Executive Officer and Chief
Financial Officer
Francis R. Cano, Ph.D. (2) ....................... 222,500 -- 20,381
President and Chief Operating Officer
Martin L. Bryant, M.D., Ph.D. (3) ................ 153,333 120,411(4)(5) 940
Vice President, Research
Victor Jegede, Ph.D. (6) ......................... 156,667 92,639(4) 1,555
Vice President, Technical Affairs
Vera Kallmeyer, M.D., Ph.D. ...................... 148,167 -- 304
Vice President, Corporate Development
</TABLE>
54
<PAGE>
- -------------------
(1) Includes group term life insurance paid by the Company and reimbursement by
the Company of $18,120 paid by Dr. Cano as a premium payment on his split
dollar life insurance policy.
(2) Dr. Cano resigned as a director, officer and employee of the Company in
April 1996.
(3) Dr. Bryant began his employment with the Company on January 16, 1995.
(4) Includes reimbursement of moving, housing and other expenses incurred in
connection with relocating to California as follows: for Dr. Bryant, $45,308
in direct reimbursement, $16,000 in relocation assistance, $8,000 in monthly
housing assistance, and $25,953 in federal income tax gross-up; for Dr.
Jegede, $47,042 in direct reimbursement, $16,000 in relocation assistance,
$6,500 in monthly housing assistance, and $23,097 in federal income tax
gross-up.
(5) Includes $25,000 paid to Dr. Bryant in March 1995 as reimbursement for a
bonus forfeited upon Dr. Bryant's leaving his former employer.
(6) Dr. Jegede began his employment with the Company on January 9, 1995.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-----------------------------
NUMBER OF % POTENTIAL REALIZABLE VALUE AT ASSUMED
SECURITIES OF TOTAL ANNUAL RATES OF STOCK PRICE
UNDERLYING OPTIONS GRANTED EXERCISE APPRECIATION FOR OPTION TERM (3)
OPTIONS TO EMPLOYEES IN PRICE PER EXPIRATION --------------------------------------
NAME GRANTED FISCAL YEAR (1) SHARE (2) DATE 0% 5% 10%
- ----------------------------------- ------------ --------------- ----------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
J. Leighton Read, M.D.............. 60,000 19.4% $ 0.50 05/08/05 $ 690,000 $ 1,124,700 $ 1,787,100
20,000(4) 6.5 0.50 05/08/05 230,000 374,900 595,700
20,000(4) 6.5 1.25 12/12/05 215,000 350,450 556,850
Francis R. Cano, Ph.D. (5)......... 40,000 12.9 0.50 05/08/05 460,000 749,800 1,191,400
Martin L. Bryant, M.D., Ph.D....... 24,000 7.8 0.50 03/14/05 276,000 449,880 714,840
Victor Jegede, Ph.D................ 24,000 7.8 0.50 03/14/05 276,000 449,880 714,840
Vera Kallmeyer, M.D., Ph.D......... 4,000 1.3 0.50 05/08/05 46,000 74,980 119,140
5,000 1.6 0.50 05/08/05 57,500 93,725 148,925
15,000 4.9 0.50 05/08/05 172,500 281,175 446,775
20,000 6.5 1.25 12/12/05 215,000 350,450 556,850
</TABLE>
- -------------------
(1) Based on an aggregate of 309,000 options granted to employees and directors
of the Company in fiscal 1995, including the Named Executive Officers set
forth in the "Summary Compensation Table" above and directors set forth in
"Director Compensation" above.
(2) The exercise price is equal to 100% of the fair market value of the Common
Stock at the date of grant.
(3) The potential realizable value is calculated based on the term of the option
at the time of grant (ten years). Stock price appreciation of five percent
and ten percent is assumed pursuant to rules promulgated by the Securities
and Exchange Commission and does not represent the Company's prediction of
its stock price performance. The potential realizable value of 0%
appreciation measures the value of the option at effectiveness based on the
assumed initial public offering price per share of $12.00 less the exercise
price. The potential realizable value at 5% and 10% appreciation is
calculated by assuming that the assumed initial public offering price
appreciates at the indicated rate for the entire term of the option and that
the option is exercised at the exercise price and sold on the last day of
its term at the appreciated price.
(4) Options granted outside of the 1996 Equity Incentive Plan.
(5) Dr. Cano resigned as a director, officer and employee of the Company in
April 1996.
55
<PAGE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
SHARES AT DECEMBER 31, 1995 AT DECEMBER 31, 1995
ACQUIRED ON VALUE -------------------------- -----------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE (1)
- ------------------------------------ ------------- --------- ----------- ------------- ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
J. Leighton Read, M.D............... 60,000(2) $ 15,000 40,000 -- $ 445,000 $ --
Francis R. Cano, Ph.D............... -- -- 110,000 30,000 1,282,500 352,500
Martin L. Bryant, M.D., Ph.D........ -- -- -- 24,000 -- 276,000
Victor Jegede, Ph.D................. -- -- -- 24,000 -- 276,000
Vera Kallmeyer, M.D., Ph.D.......... -- -- 14,780 49,220 169,970 551,030
</TABLE>
- -------------------
(1) Based on the assumed initial public offering price of $12.00 per share,
minus the exercise price, multiplied by the number of shares underlying the
option.
(2) As of June 1, 1996, 34,200 of the shares acquired upon exercise were subject
to repurchase by the Company.
EXECUTIVE OFFICER AND EMPLOYMENT ARRANGEMENTS
The Company's offer of employment to Martin L. Bryant, Ph.D., the Company's
Vice President, Research, in December 1994, provided for an initial annual
salary of $160,000 and payment of $25,000 as reimbursement for a bonus forfeited
by Dr. Bryant when he left his previous employer. The Company also agreed to pay
certain relocation expenses and to loan Dr. Bryant up to $50,000 in aggregate
principal amount due in five years, at 7.75% simple interest, to assist him in
the purchase of a home. Interest on this loan will be forgiven annually, and
principal will be forgiven annually at the rate of 20% per year as long as Dr.
Bryant remains with the Company.
The Company's offer of employment to Victor A. Jegede, Ph.D., the Company's
Vice President, Technical Affairs, in December 1994, provided for an initial
annual salary of $160,000. The Company also agreed to pay certain relocation
expenses and to loan Dr. Jegede up to $50,000 in aggregate principal amount due
in five years, at 7.75% simple interest, to assist him in the purchase of a
home. Interest on this loan will be forgiven annually, and principal will be
forgiven annually at the rate of 20% per year as long as Dr. Jegede remains with
the Company.
The Company's offer of employment to Eric J. Patzer, Ph.D., the Company's
Vice President, Development, in December 1995, provided for an initial annual
salary of $185,000 and a bonus payment of $25,000 upon signing of the agreement
and $25,000 after the completion of one year of service. The Company also agreed
to pay certain relocation expenses and to loan Dr. Patzer up to $100,000 in
aggregate principal amount due in five years, at 7.75% simple interest, to
assist him in the purchase of a home. Interest on this loan, when made, will be
forgiven annually, and principal will be forgiven annually at the rate of 20%
per year as long as Dr. Patzer remains with the Company.
The Company's offer of employment to Paul M. Mendelman, M.D., the Company's
Vice President, Clinical Research, in April 1996, provided for an initial annual
salary of $185,000 and a bonus payment of $25,000 upon Dr. Mendelman's
acceptance of the offer. The Company also agreed to reimburse Dr. Mendelman for
certain relocation expenses and to loan Dr. Mendelman up to $100,000 in
aggregate principal amount due in five years, at 7.75% simple interest, to
assist him in the purchase of a home. Interest on this loan, when made, will be
forgiven annually and principal will be forgiven at the rate of 20% per year as
long as Dr. Mendelman remains with the Company.
Francis R. Cano, Ph.D. resigned as Director, President and Chief Operating
Officer of the Company effective April 19, 1996. Pursuant to an agreement
between Dr. Cano and the Company, Dr. Cano will continue to be employed as a
consultant by the Company until April 18, 1997. In consideration for Dr. Cano's
consulting services, the Company will continue to pay Dr. Cano's salary and
benefits during the consulting period.
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<PAGE>
STOCK OPTION PLANS
EQUITY INCENTIVE PLAN. In March 1996, the Board adopted the 1996 Equity
Incentive Plan (the "Incentive Plan") as an amendment and restatement of its
1992 Stock Option Plan and increased the number of shares reserved for issuance
under the Incentive Plan to 1,750,000 shares. The Incentive Plan provides for
grants of incentive stock options to employees (including officers and employee
directors) and nonstatutory stock options, restricted stock purchase awards,
stock bonuses and stock appreciation rights to employees (including officers and
employee directors) and consultants of the Company. It is intended that the
Incentive Plan will be administered by the Compensation Committee, which
determines recipients and types of awards to be granted, including the exercise
price, number of shares subject to the award and the exercisability thereof.
The term of a stock option granted under the Incentive Plan generally may
not exceed 10 years. The exercise price of options granted under the Incentive
Plan is determined by the Board of Directors, but, in the case of an incentive
stock option, cannot be less than 100% of the fair market value of the Common
Stock on the date of grant or, in the case of 10% stockholders, not less than
110% of the fair market value of the Common Stock on the date of grant. Options
granted under the Incentive Plan to new employees and consultants generally will
vest at the rate of of the shares subject to the option on the first annual
anniversary of the date of hire and 1/48th of such shares at the end of each
calendar month thereafter. No option may be transferred by the optionee other
than by will or the laws of descent or distribution or, in certain limited
instances, pursuant to a qualified domestic relations order. An optionee whose
relationship with the Company or any related corporation ceases for any reason
(other than by death or permanent and total disability) may exercise options in
the three-month period following such cessation (unless such options terminate
or expire sooner by their terms) or in such longer period as may be determined
by the Board of Directors.
Shares subject to options which have lapsed or terminated may again be
subject to options granted under the Incentive Plan. Furthermore, the Board of
Directors may offer to exchange new options for existing options, with the
shares subject to the existing options again becoming available for grant under
the Incentive Plan. In the event of a decline in the value of the Company's
Common Stock, the Board of Directors has the authority to offer optionees the
opportunity to replace outstanding higher priced options with new lower priced
options.
Restricted stock purchase awards granted under the Incentive Plan may be
granted pursuant to a repurchase option in favor of the Company in accordance
with a vesting schedule determined by the Board. The purchase price of such
awards will be at least 85% of the fair market value of the Common Stock on the
date of grant. Stock bonuses may be awarded in consideration for past services
without a purchase payment. Stock appreciation rights authorized for issuance
under the Incentive Plan may be tandem stock appreciation rights, concurrent
stock appreciation rights or independent stock appreciation rights.
Upon any merger or consolidation in which the Company is not the surviving
corporation, all outstanding awards under the Incentive Plan shall either be
assumed or substituted by the surviving entity. If the surviving entity
determines not to assume or substitute such awards, the time during which such
awards may be exercised shall be accelerated and the awards terminated if not
exercised prior to the merger or consolidation.
As of June 1, 1996, 643,480 options were outstanding under the Incentive
Plan, with 1,106,520 shares reserved for future grants or purchases. The
Incentive Plan will terminate in January 2006, unless terminated sooner by the
Board of Directors. See Note 7 of Notes to Financial Statements.
EMPLOYEE STOCK PURCHASE PLAN. In March 1996, the Board adopted the Employee
Stock Purchase Plan (the "Purchase Plan") covering an aggregate of 250,000
shares of Common Stock. The Purchase Plan is intended to qualify as an employee
stock purchase plan within the meaning of Section 423 of the Code. Under the
Purchase Plan, the Board of Directors may authorize participation by eligible
employees, including officers, in periodic offerings following the adoption of
the Purchase Plan. The offering period for any offering will be no more than 27
months.
Employees are eligible to participate if they are employed by the Company,
or an affiliate of the Company designated by the Board of Directors, for at
least 20 hours per week and are employed by the Company, or an affiliate of the
Company designated by the Board, for at least five months per calendar year.
Employees who
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<PAGE>
participate in an offering can have up to 15% of their earnings withheld
pursuant to the Purchase Plan. The amount withheld will then be used to purchase
shares of the Common Stock on specified dates determined by the Board of
Directors. The price of Common Stock purchased under the Purchase Plan will be
equal to 85% of the lower of the fair market value of the Common Stock on the
commencement date of each offering period or on the specified purchase date.
Employees may end their participation in the offering at any time during the
offering period. Participation ends automatically on termination of employment
with the Company.
In the event of a merger, reorganization, consolidation or liquidation
involving the Company, in which the Company is not the surviving corporation,
the Board of Directors has discretion to provide that each right to purchase
Common Stock will be assumed or an equivalent right substituted by the successor
corporation, or the Board may shorten the offering period and provide for all
sums collected by payroll deductions to be applied to purchase stock immediately
prior to such merger or other transaction. The Purchase Plan will terminate at
the Board's discretion. The Board has the authority to amend or terminate the
Purchase Plan, subject to the limitation that no such action may adversely
affect any outstanding rights to purchase Common Stock. See Note 7 of Notes to
Financial Statements.
1996 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN. In March 1996, the Board
adopted the 1996 Non-Employee Directors' Stock Option Plan (the "Directors'
Plan") to provide for the automatic grant of options to purchase shares of
Common Stock to non-employee directors of the Company. The Directors' Plan is
administered by the Board of Directors, unless the Board delegates
administration to a committee comprised of members of the Board.
The maximum number of shares of Common Stock that may be issued pursuant to
options granted under the Directors' Plan is 200,000. Pursuant to the terms of
the Directors' Plan, each director of the Company not otherwise employed by the
Company and who is first elected as a non-employee director after the completion
of this offering automatically will be granted an option to purchase 15,000
shares of Common Stock upon such election. Finally, each director who continues
to serve as a non-employee director of the Company will be granted an additional
option to purchase 3,000 shares of Common Stock on December 31 of each year. All
such options vest one-third on the first anniversary of the date of grant and
one-third per year thereafter.
In the event of a merger, consolidation, reverse reorganization,
dissolution, sale of substantially all of the assets of the Company, or certain
changes in the beneficial ownership of the Company's securities representing at
least a 50% change of such ownership, then options outstanding under the
Directors' Plan will automatically become fully vested and will terminate if not
exercised prior to such event.
No option granted under the Directors' Plan may be exercised after the
expiration of ten years from the date it was granted. The exercise price of
options under the Directors' Plan will equal the fair market value of the Common
Stock on the date of grant. The Directors' Plan will terminate in January 2006,
unless earlier terminated by the Board. See Note 7 of Notes to Financial
Statements.
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<PAGE>
CERTAIN TRANSACTIONS
In June and July 1992, 14 investors purchased an aggregate of 5,000,000
shares of the Company's Series A Preferred Stock at a per share price of $0.50.
Institutional Venture Partners V and Institutional Venture Management V, each
affiliated with Institutional Venture Partners ("IVP"), purchased 2,955,000 and
45,000 shares, respectively, of Series A Preferred Stock. IVP is a 5%
stockholder of the Company, and Reid W. Dennis and L. James Strand, directors of
the Company, are each General Partners of IVP. J. Leighton Read, M.D., Chairman
of the Board of Directors, Chief Executive Officer and Chief Financial Officer
of the Company, and Bernard Roizman, a director of the Company, purchased
500,000 and 100,000 shares, respectively, of Series A Preferred Stock. Albert L.
Zesiger, a member of Zesiger Capital Group LLC, a 5% stockholder of the Company,
purchased 300,000 shares of Series A Preferred Stock. Peter Palese and Richard
Whitley, two of the founders of the Company, purchased 100,000 and 10,000
shares, respectively, of Series A Preferred Stock. The Series A Preferred Stock
purchased by the IVP affiliates and by Drs. Read, Roizman, Palese and Whitley
were purchased on the same terms and conditions as Series A Preferred Stock
purchased by other investors. The Series A Preferred Stock is convertible into
Common Stock of the Company at the rate of one share of Common Stock for each
five shares of Series A Preferred Stock owned.
In September 1993, 34 investors purchased an aggregate of 16,666,667 shares
of the Company's Series B Preferred Stock at a per share price of $0.90.
Institutional Venture Partners V and Institutional Venture Management V
purchased 1,361,667 and 27,767 shares, respectively, of Series B Preferred
Stock. In addition, Institutional Venture Partners V and Institutional Venture
Management V received 1,633,333 shares and 33,333 shares, respectively, of
Series B Preferred Stock upon conversion of promissory notes, bearing interest
at a 4% annualized rate and aggregating $1,500,000, which the Company issued to
these entities in connection with bridge loan financing in June 1993. Entities
affiliated with Accel Partners, a 5% stockholder of the Company, purchased
shares of Series B Preferred Stock as follows: Accel IV L.P., 2,811,111 shares
and Accel Japan L.P., 244,444 shares. Paul H. Klingenstein, a director of the
Company, is a General Partner of Accel Partners. Entities controlled by Zesiger
Capital Group LLC, an affiliate of Abingworth Bioventures SICAV, purchased
2,065,000 shares of Series B Preferred Stock. Abingworth Bioventures, a 5%
stockholder of the Company, purchased 2,777,778 shares of Series B Preferred
Stock. Entities affiliated with Brinson Partners, Inc., a 5% stockholder of the
Company, purchased shares of Series B Preferred Stock as follows: Brinson Trust
Company as trustee of the Brinson MAP Venture Capital Fund III, 311,598 shares,
and Brinson Venture Capital Fund III, 1,910,624 shares. Peter Palese also
purchased 55,556 shares of Series B Preferred Stock. The Series B Preferred
Stock purchased by the affiliates of 5% stockholders of the Company and by Dr.
Palese were purchased on the same terms and conditions as the Series B Preferred
Stock purchased by other investors. The Series B Preferred Stock is convertible
into Common Stock of the Company at the rate of one share of Common Stock for
each five shares of Series B Preferred Stock owned.
In September 1993, the Company issued warrants to purchase 400,000 shares of
its Series B Preferred Stock at an exercise price of $1.25 per share to entities
affiliated with IVP. The warrants expired unexercised in June 1995.
In May 1995, Sang-A Pharm. Co., Ltd., a 5% stockholder of the Company,
purchased 2,941,863 shares of Series C Preferred Stock at $1.35 per share. The
Series C Preferred Stock is convertible into Common Stock of the Company at the
rate of one share of Common Stock for each five shares of Series C Preferred
Stock owned.
From July through November 1995, 66 investors purchased an aggregate of
13,099,707 shares of the Company's Series C Preferred Stock at a per share price
of $1.35. Dr. Bernard Roizman purchased 20,000 shares of Series C Preferred
Stock. Institutional Venture Partners V and Institutional Venture Management V
purchased 653,332 and 13,335 shares, respectively, of Series C Preferred Stock.
Various entities affiliated with Accel Partners purchased shares of Series C
Preferred Stock as follows: Accel Investors '93 L.P., 41,112 shares; Accel IV
L.P., 930,000 shares; Accel Japan L.P., 88,890 shares; Accel Keiretsu L.P.,
20,000 shares; Ellmore C. Patterson Partners, 24,444 shares; and Prosper
Partners, 6,666 shares. Sang-A Pharm. Co., Ltd. purchased 1,187,295 shares of
Series C Preferred Stock. Orefund, whose investment in the Company is controlled
by Zesiger Capital Group LLC, purchased 1,481,400 shares of Series C Preferred
Stock. Abingworth Bioventures SICAV purchased 370,370 shares of Series C
Preferred Stock. Biotech Growth, a 5% stockholder of the
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Company, purchased 3,000,000 shares of Series C Preferred Stock. Entities
affiliated with Brinson Partners, Inc. purchased shares of Series C Preferred
Stock as follows: First National Bank of Chicago, as custodian to the Brinson
MAP Venture Capital Fund III, 36,872 shares, and First National Bank of Chicago,
as custodian to the Brinson Venture Capital Fund III, 226,091 shares. Sally
Whitley, wife of Richard Whitley purchased 10,000 shares of Series C Preferred
Stock. The Series C Preferred shares purchased by the 5% stockholders of the
Company and their affiliates and by Dr. Roizman and Mrs. Whitley were purchased
on the same terms and conditions as Series C Preferred shares purchased by other
investors. The Series C Preferred Stock is convertible into Common Stock of the
Company at the rate of one share of Common Stock for each five shares of Series
C Preferred Stock owned.
In March 1996, Sang-A Pharm Co., Ltd. purchased 136,326 shares of Series C
Preferred Stock, at a price of $1.35 per share. The Series C Preferred Stock is
convertible into Common Stock of the Company at the rate of one share of Common
Stock for each five shares of Series C Preferred Stock owned.
Vera Kallmeyer, Vice President, Corporate Development of the Company, is a
founder, senior advisor, and 15% shareholder of Pacific Futures (formerly
Pacific Century), a Hong Kong-based investment advisory business. Pacific
Futures received a sales commission on the sale of Series C Preferred Stock to
Sang-A, in an aggregate amount of $334,462 during 1995. Dr. Kallmeyer received
no portion of such sales commission, and is currently receiving no salary from
Pacific Futures.
Pursuant to certain offer letters to certain of its senior officers, the
Company made loans to these officers to facilitate home purchases and certain
other commitments. As of June 1, 1996, the amounts outstanding for principal and
interest on these loans was $40,388 to Martin L. Bryant and $40,388 to Victor A.
Jegede. See "Management -- Employment Contracts."
In January 1996, the Company extended loans to certain senior officers to
facilitate the early exercise of options to purchase shares of Common Stock,
including loans of $70,000 to Dr. Patzer; $65,000 to Dr. Bryant; $65,000 to Dr.
Jegede; $70,000 to Dr. Cano; and $40,000 to Dr. Kallmeyer. The loans bear simple
interest at a rate of 5.73% per year. Principal on each loan is due on the
earlier of 50 months from the date of the underlying option grant or the date of
employment termination.
See also "Management -- Employment Contracts."
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PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of June 1, 1996 held by (i) each
person who is known by the Company to own beneficially more than 5% of the
outstanding shares of Common Stock, (ii) each director and Named Executive
Officer of the Company, and (iii) all directors and executive officers of the
Company as a group. Unless otherwise indicated below, to the knowledge of the
Company, all persons listed below have sole voting and investment power with
respect to their shares of Common Stock, except to the extent authority is
shared by spouses under applicable law. Except as otherwise noted below, the
address of each person listed below is c/o the Company, 297 North Bernardo
Avenue, Mountain View, California 94043.
<TABLE>
<CAPTION>
PERCENTAGE OF
SHARES BENEFICIALLY
OWNED (1)
SHARES -------------------
BENEFICIALLY PRIOR TO AFTER
BENEFICIAL OWNER OWNED (1) OFFERING OFFERING
- ---------------------------------------------------------------------------- ------------ -------- --------
<S> <C> <C> <C>
Entities affiliated with Institutional Venture Partners (2) ................ 1,344,553 15.02% 10.94%
3000 Sand Hill Road
Building 2, Suite 290
Menlo Park, CA 94025
Sang-A Pharm. Co., Ltd. (3) ................................................ 853,096 9.53% 9.66%
640-9 Deung Chon Dung
Kangseo-Ku
Seoul, South Korea
Entities affiliated with Accel Partners (4) ................................ 833,330 9.31% 6.78%
One Embarcadero Center, Suite 3820
San Francisco, CA 94111
Entities controlled by Zesiger Capital Group LLC (5) ....................... 769,280 8.59% 6.26%
320 Park Avenue
New York, NY 10022
Abingworth Bioventures SICAV ............................................... 629,629 7.03% 5.12%
26 St. James's Street
London SW1A 1HA England
Biotech Growth ............................................................. 600,000 6.70% 4.88%
Bellevue Asset Management
Grundstrasse 12
CH-6343 Rotkreuz
Switzerland
Entities affiliated with Brinson Partners, Inc. (6) ........................ 497,035 5.55% 4.05%
209 South LaSalle Street, Suite 114
Chicago, IL 60604-1295
J. Leighton Read, M.D. (7).................................................. 395,000 4.41% 3.22%
Martin L. Bryant, M.D., Ph.D. (8)........................................... 34,640 * *
Victor Jegede, Ph.D. (9).................................................... 34,640 * *
Vera Kallmeyer, M.D., Ph.D. (10)............................................ 45,673 * *
Eric J. Patzer, Ph.D. (11).................................................. 40,000 * *
Reid W. Dennis (2).......................................................... 1,344,553 15.02% 10.94%
Paul H. Klingenstein (4).................................................... 833,330 9.31% 6.78%
Bernard Roizman, Sc.D. (12)................................................. 175,200 1.96% 1.43%
Jane E. Shaw, Ph.D. (13).................................................... 4,000 * *
L. James Strand, M.D. (14).................................................. 1,354,553 15.12% 11.02%
All directors and executive officers as a group
(11 persons) (15)......................................................... 2,917,036 32.38% 23.63%
</TABLE>
- -------------------
* Represents beneficial ownership of less than 1% of the outstanding shares of
the Company's Common Stock.
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(1) Calculated as if all outstanding shares of Preferred Stock have been
converted into Common Stock at a ratio of five shares of Preferred Stock for
one share of Common Stock. Beneficial ownership is determined in accordance
with the rules of the Securities and Exchange Commission and generally
includes voting or investment power with respect to securities. Beneficial
ownership also includes shares of stock subject to options and warrants
currently exercisable or convertible, or exercisable or convertible within
60 days of the date of this table. Percentage of beneficial ownership is
based on 8,952,657 shares of Common Stock outstanding as of June 1, 1996,
and 12,285,990 shares of Common Stock outstanding after completion of this
offering and the concurrent sale of the Sang-A Shares.
(2) Includes 1,320,666 shares held by Institutional Venture Partners V and
23,887 shares held by Institutional Venture Management V, of which Mr.
Dennis, a Director of the Company is a general partner. Institutional
Venture Management V is the general partner of Institutional Venture
Partners V. Mr. Dennis disclaims beneficial ownership of the shares held by
Institutional Venture Partners V and Institutional Venture Management V,
except to the extent of his pecuniary interests therein.
(3) Percentage of shares beneficially owned after offering includes the
estimated 333,333 shares Sang-A intends to purchase concurrent with the
offering.
(4) Includes 697,500 shares held by Accel IV, L.P., 66,666 shares held by Accel
Japan, L.P., 30,833 shares held by Accel Investors '93, L.P., 18,332 shares
held by Ellmore C. Patterson Partners, 15,000 shares held by Accel Keiretsu,
L.P. and 4,999 shares held by Prosper Partners. Mr. Klingenstein, a Director
of the Company is a general partner of Accel Partners. Mr. Klingenstein
disclaims beneficial ownership of the shares held by Accel IV, L.P., Accel
Japan, L.P., Accel Investors '93, L.P., Ellmore C. Patterson Partners,
Prosper Partners and Accel Keiretsu, L.P., except to the extent of his
pecuniary interests therein.
(5) Includes 8,000 shares held by A. Carey Zesiger Revocable Trust, 22,000
shares held by Atwell & Co., 11,000 shares held by Batrus & Co., 11,000
shares held by Booth & Co., 11,000 shares held by Calmont & Co., 100,000
shares held by Comply & Co., 33,000 shares held by Daly & Co., 28,000 shares
held by Heil & Co., 17,000 shares held by J.C. Orr & Co., 90,000 shares held
by Kane & Co., 17,000 shares held by Domenic Mizio, 296,280 shares held by
Orefund, 28,000 shares held by Sigler & Co., 60,000 shares held by Albert L.
Zesiger, 7,000 shares held by Alexa L. Zesiger, 22,000 shares held by Barry
Ramsay Zesiger and 8,000 shares held by Nicola L. Zesiger. Zesiger Capital
Group LLC disclaims beneficial ownership of all such shares.
(6) Includes 427,342 shares held by Brinson Venture Capital Fund III, L.P. and
69,693 shares held by Brinson Trust Company as Trustee of The Brinson MAP
Venture Capital Fund III.
(7) Includes 40,000 shares Dr. Read acquired pursuant to the exercise of stock
options. Also includes an aggregate of 110,000 shares acquired pursuant to
an early exercise of stock options, of which an aggregate of 76,400 will be
subject to repurchase by the Company as of July 31, 1996. Also includes an
aggregate of 32,000 shares held by The Travis Read 1993 Trust and The Haley
Read 1993 Trust (the "Trusts") of which Robert Fitzwilson is the trustee.
Dr. Read disclaims beneficial ownership of the shares held by the Trusts.
(8) Includes 26,000 shares acquired pursuant to an early exercise of stock
options, of which 22,880 will be subject to repurchase by the Company as of
July 31, 1996. Also includes 8,640 shares Dr. Bryant has the right to
acquire pursuant to options exercisable as of July 31, 1996.
(9) Includes 26,000 shares acquired pursuant to an early exercise of stock
options, of which 22,880 will be subject to repurchase by the Company as of
July 31, 1996. Also includes 8,640 shares Dr. Jegede has the right to
acquire pursuant to options exercisable as of July 31, 1996.
(10) Includes 16,000 shares acquired pursuant to an early exercise of stock
options, of which 14,080 will be subject to repurchase by the Company as of
July 31, 1996. Also includes 29,673 shares Dr. Kallmeyer has the right to
acquire pursuant to options exercisable as of July 31, 1996.
(11) Includes 40,000 shares acquired pursuant to an early exercise of stock
options, all of which are subject to repurchase by the Company.
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(12) Includes 12,000 shares which are subject to repurchase by the Company and
1,200 shares Dr. Roizman has the right to acquire pursuant to options
exercisable as of July 31, 1996.
(13) Includes 4,000 shares Dr. Shaw has the right to acquire pursuant to options
exercisable as of July 31, 1996.
(14) Includes 1,320,666 shares held by Institutional Venture Partners V ("IVP
V"), of which Dr. Strand is a limited partner, and 23,887 shares held by
Insitutional Venture Management V, which is the general partner of IVP V,
and 5,000 shares Dr. Strand has the right to acquire pursuant to options
exercisable as of July 31, 1996. Dr. Strand disclaims beneficial ownership
of the shares held by IVP V and Institutional Venture Management V.
(15) Includes 2,177,883 shares held by entities affiliated with certain
directors of the Company as described in footnotes 2 and 3 above and 57,153
shares subject to options exercisable as of July 31, 1996.
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DESCRIPTION OF CAPITAL STOCK
The following description of the capital stock of the Company and certain
provisions of the Company's Certificate of Incorporation and Bylaws to be
effective upon completion of this offering is a summary and is qualified in its
entirety by the provisions of the Certificate of Incorporation and Bylaws, which
have been filed as exhibits to the Company's Registration Statement, of which
this Prospectus is a part.
Upon the closing of this offering, the authorized capital stock of the
Company will consist of 30,000,000 shares of Common Stock, par value $0.001 and
5,000,000 shares of Preferred Stock, par value $0.001.
COMMON STOCK
Upon completion of this offering, there will be 12,285,990 shares of Common
Stock outstanding (plus up to 38,888 shares that may be issued upon exercise of
outstanding warrants). The holders of Common Stock are entitled to one vote for
each share held of record on all matters submitted to a vote of the
stockholders. The holders of Common Stock are not entitled to cumulative voting
rights with respect to the election of directors, and as a consequence, minority
stockholders will not be able to elect directors on the basis of their votes
alone.
Subject to preferences that may be applicable to any then outstanding shares
of Preferred Stock, holders of Common Stock are entitled to receive ratably such
dividends as may be declared by the Board of Directors out of funds legally
available therefore. See "Dividend Policy." In the event of liquidation,
dissolution or winding up of the Company, holders of the Common Stock are
entitled to share ratably in all assets remaining after payment of liabilities
and the liquidation preference of any then outstanding shares of Preferred
Stock. Holders of Common Stock have no preemptive rights and no right to convert
their Common Stock into any other securities. There are no redemption or sinking
fund provisions applicable to the Common Stock. All outstanding shares of Common
Stock are, and all shares of Common Stock to be outstanding upon completion of
this offering will be, fully paid and nonassessable.
PREFERRED STOCK
Upon the closing of this offering, all outstanding Preferred Stock of the
Company will be converted into Common Stock. The Board of Directors will have
the authority, without further action by the stockholders, to issue up to
5,000,000 shares of Preferred Stock in one or more series and to fix the rights,
preferences, privileges and restrictions thereof, including dividend rights,
conversion rights, voting rights, terms of redemption, liquidation preferences,
sinking fund terms and the number of shares constituting any series or the
designation of such series, without any further vote or action by the
stockholders. The issuance of Preferred Stock could adversely affect the voting
power of holders of Common Stock and the likelihood that such holders will
receive dividend payments and payments upon liquidation may have the effect of
delaying, deferring or preventing a change in control of the Company, which
could have a depressive effect on the market price of the Company's Common
Stock. The Company has no present plan to issue any shares of Preferred Stock.
WARRANTS
In February 1993, the Company entered into an agreement with The Mount Sinai
School of Medicine of the City University of New York ("Mount Sinai"), under
which Mount Sinai transferred to the Company rights to certain patents, patent
applications, and associated know-how and other technical information. Mount
Sinai also granted the Company (i) an option to acquire any improvements to the
inventions disclosed in the licensed patents and patent applications thereafter
developed by Mount Sinai and (ii) a right of first negotiation for a license or
assignment to certain related technology. In connection with these agreements,
the Company issued to Mount Sinai warrants (the "Mount Sinai Warrants") to
purchase, in the aggregate, 45,000 shares of Common Stock. Each Mount Sinai
Warrant is exercisable for a period of five years commencing upon the occurrence
of specified milestone events, which accelerate upon the effectiveness of this
offering. Warrants to purchase 9,000 shares are exercisable at a per share
exercise price of $4.50. Warrants to purchase 29,750 shares will become
exercisable upon the effective date of this offering, at a per share exercise
price equal to 125% of the per share
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<PAGE>
price of this offering. Warrants to purchase the remaining 6,250 shares are not
exercisable and will terminate automatically on the effective date of this
offering according to their terms. See "Business -- Collaborative Agreements --
The Mount Sinai School of Medicine of the City University of New York."
In connection with an agreement entered into in February 1995 with the
University of Michigan ("Michigan"), under which Michigan transferred to the
Company certain intellectual property rights and technology (the "Michigan
Technology"), the Company agreed to issue to Michigan a warrant (the "Michigan
Warrant") to purchase shares of its Common Stock upon the first commercial sale
of a product incorporating the Michigan Technology, for a number of shares equal
to 1.25% of the total issued and outstanding shares of the Company's Common
Stock as of the date of such first commercial sale (excluding shares of the
Company's Common Stock issued by the Company in connection with its acquisition
of another company, in connection with any corporate partnering transaction,
issued in connection with other technology transfers not involving the Michigan
Technology, or unvested employee or director option shares), at a per share
exercise price equal to 125% of the price of this Offering. See "Business --
Collaborative Agreements -- University of Michigan."
In connection with a private placement of Series C Preferred Stock, the
Company issued to the placement agent a warrant to purchase 70,507 shares of its
Common Stock at an exercise price of $8.10 per share, exercisable at any time
through November 9, 2000.
REGISTRATION RIGHTS
The holders (or their permitted transferees) ("Holders") of approximately
8,433,659 shares of Common Stock and warrants to purchase approximately 148,145
shares of Common Stock are entitled to certain rights with respect to the
registration of such shares under the Securities Act. If the Company proposes to
register any of its securities under the Securities Act, either for its own
account or for the account of other security holders, the Holders are entitled
to notice of the registration and are entitled to include, at the Company's
expense, such shares therein. In addition, certain of the Holders may require
the Company at its expense on not more than two occasions at any time beginning
approximately six months from the date of this Prospectus to file a Registration
Statement under the Securities Act, with respect to their shares of Common
Stock, and the Company is required to use its best efforts to effect the
registration, subject to certain conditions and limitations. Further, the
Holders may require the Company at its expense to register their shares on Form
S-3 when such form becomes available to the Company, subject to certain
conditions and limitations.
DELAWARE ANTI-TAKEOVER LAW AND CERTAIN CHARTER PROVISIONS
Upon completion of the Company's reincorporation in Delaware, the Company
will be subject to the provisions of Section 203 of the Delaware General
Corporation Law (the "Delaware Law"), an anti-takeover law. In general, the
statute prohibits a publicly-held Delaware corporation from engaging in a
"business combination" with an "interested stockholder" for a period of three
years after the date of the transaction in which the person became an interested
stockholder, unless the business combination is approved in a prescribed manner.
A "business combination" includes a merger, asset sale or other transaction
resulting in a financial benefit to the stockholder. For purposes of Section
203, an "interested stockholder" is a person who, together with affiliates and
associates, owns (or within three years prior, did own) 15% or more of the
corporation's voting stock.
Upon completion of the Company's reincorporation in Delaware, the Company's
Certificate of Incorporation will provide that each director will serve for a
three-year term, with approximately one-third of the directors to be elected
annually. Candidates for director may be nominated only by the Board of
Directors or by a stockholder who gives written notice to the Company no later
than 60 days prior nor earlier than 90 days prior to the first anniversary of
the last annual meeting of stockholders. The Company may have the number of
directors as determined from time to time to pursuant to a resolution of the
Board, which currently consists of six members. Between stockholder meetings,
the Board may appoint new directors to fill vacancies or newly created
directorships. The Certificate will not provide for cumulative voting at
stockholder meetings for election of directors. As a result, stockholders
controlling more than 50% of the outstanding Common Stock can elect the entire
Board of Directors, while stockholders controlling 49% of the outstanding Common
Stock may not be able
65
<PAGE>
to elect any directors. A director may be removed from office only for cause by
the affirmative vote of a majority of the combined voting power of the then
outstanding shares of stock entitled to vote generally in the election of
directors.
Upon completion of the Company's reincorporation in Delaware, the Company's
Certificate of Incorporation will require that any action required or permitted
to be taken by stockholders of the Company must be effected at a duly called
annual or special meeting of stockholders and may not be effected by a consent
in writing. The Company's Certificate of Incorporation also provides that the
authorized number of directors may be changed only by resolution of the Board of
Directors. See "Management -- Directors and Executive Officers." Delaware Law
and these charter provisions may have the effect of deterring hostile takeovers
or delaying changes in control or management of the Company, which could have a
depressive effect on the market price of the Company's Common Stock.
LIMITATION OF LIABILITY AND INDEMNIFICATION
Upon completion of the Company's reincorporation in Delaware, the Company's
Certificate of Incorporation will contain certain provisions permitted under
Delaware Law relating to the liability of directors. These provisions eliminate
a director's personal liability for monetary damages resulting from a breach of
fiduciary duty, except in certain circumstances involving certain wrongful acts,
such as (i) for any breach of the director's duty of loyalty to the Company or
its stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under Section 174 of
the Delaware General Corporation Law, or (iv) for any transaction from which the
director derives an improper personal benefit. These provisions do not limit or
eliminate the rights of the Company or any stockholder to seek non-monetary
relief, such as an injunction or rescission, in the event of a breach of
director's fiduciary duty. These provisions will not alter a directors liability
under federal securities laws. The Company's Certificate of Incorporation also
contains provisions indemnifying the directors and officers of the Company to
the fullest extent permitted by Delaware General Corporation Law. The Company
believes that these provisions will assist the Company in attracting and
retaining qualified individuals to serve as directors.
TRANSFER AGENT
The transfer agent for the Common Stock of the Company is The First National
Bank of Boston.
66
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has not been any public market for the Common
Stock of the Company. Further sales of substantial amounts of Common Stock in
the open market may adversely affect the market price of the Common Stock
offered hereby.
Upon completion of this offering, based on the number of shares outstanding
as of June 1, 1996, the Company will have outstanding an aggregate of 12,285,990
shares of Common Stock assuming (i) the issuance by the Company of 3,000,000
shares of Common Stock offered hereby, (ii) the issuance of the 333,333 Sang-A
Shares, (iii) no issuance of 148,145 shares of Common Stock relating to
outstanding warrants to purchase Common Stock, (iv) no exercise of outstanding
options exercisable to purchase 643,480 shares of Common Stock, and (v) no
exercise of the Underwriters' over-allotment option to purchase 450,000 shares
of Common Stock. Of these shares, 3,000,000 shares sold in this offering will be
freely tradable without restriction or further registration under the Securities
Act, except for shares held by "affiliates" of the Company as that term is
defined in Rule 144 under the Securities Act (whose sales would be subject to
certain limitations and restrictions described below) and the regulations
promulgated thereunder.
The remaining 8,952,657 shares held by officers, directors, employees,
consultants and other shareholders of the Company were sold by the Company in
reliance on exemptions from the registration requirements of the Securities Act
and are "restricted" securities within the meaning of Rule 144 under the
Securities Act. Approximately 48,000 of these shares of Common Stock will be
eligible for sale in the public market upon the effective date of the
Registration Statement of which this Prospectus is a part (the "Effective Date")
in reliance on Rule 144(k) under the Securities Act. Beginning 90 days after the
Effective Date, an additional 109,756 of these shares will become eligible for
sale subject to the provisions of Rule 144 and Rule 701 of the Securities Act.
Beginning 180 days after the Effective Date, an additional 5,279,881 of these
shares will become eligible for sale subject to the provisions of Rule 144 or
Rule 701 upon the expiration of agreements not to sell such shares. In addition,
on the Effective Date, 148,145 shares subject to exercisable warrants will be
available for sale, and beginning 90 days after the Effective Date, 283,160
shares subject to vested options will be available for sale, subject to
compliance with Rule 701, and an additional 33,726 shares subject to additional
vested options will be available for sale upon the expiration of the Lock-Up
Period described below.
Each officer, director and certain stockholders of the Company have agreed
with the representatives of the Underwriters for a period of 180 days after the
effective date of this Prospectus (the "Lock-Up Period"), subject to certain
exceptions, not to offer to sell, contract to sell, or otherwise sell, dispose
of, loan, pledge or grant any rights with respect to any shares of Common Stock,
any options or warrants to purchase any shares of Common Stock, or any
securities convertible into or exchangeable for shares of Common Stock owned as
of the date of this Prospectus or thereafter acquired directly by such holders
or with respect to which they have or hereafter acquire the power of
disposition, without the prior written consent of Robertson, Stephens & Company.
However, Robertson, Stephens & Company may, in its sole discretion and at any
time without notice, release all or any portion of the securities subject to
lock-up agreements. In addition, the Company has agreed that during the Lock-Up
Period, the Company will not, without the prior written consent of Robertson,
Stephens & Company, subject to certain exceptions, issue, sell, contract to
sell, or otherwise dispose of, any shares of Common Stock, any options or
warrants to purchase any shares of Common Stock or any securities convertible
into, exercisable for or exchangeable for shares of Common Stock.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated), including an affiliate, who has beneficially owned
shares for at least two years is entitled to sell, within any three-month period
commencing 90 days after the Effective Date, a number of shares that does not
exceed the greater of (i) 1% of the then outstanding shares of Common Stock
(approximately 122,860 shares outstanding immediately after this offering) or
(ii) the average weekly trading volume in the Common Stock during the four
calendar weeks preceding such sale, subject to the filing of a Form 144 with
respect to such sale and certain other limitations and restrictions. In
addition, a person who is not deemed to have been an affiliate of the Company at
any time during the three months preceding a sale, and who has beneficially
owned the shares proposed to be sold for at least three years, would be entitled
to sell such shares under Rule 144(k) without regard to the
67
<PAGE>
requirements described above. To the extent that shares were acquired from an
affiliate of the Company, such stockholder's holding period for the purpose of
effecting a sale under Rule 144 commences on the date of transfer from the
affiliate.
Any employee, officer or director of or consultant to the Company who
purchased shares or was granted options to purchase shares pursuant to a written
compensatory plan or contract ("Rule 701 Shares") is entitled to rely on the
resale provisions of Rule 701. Rule 701 permits non-affiliates to sell their
Rule 701 Shares without having to comply with the public-information,
holding-period, volume-limitation or notice provisions of Rule 144 and permits
affiliates to sell their Rule 701 Shares without having to comply with the
holding period restrictions of Rule 144, in each case commencing 90 days after
the Effective Date. However, all officers and directors and certain other
stockholders have agreed not to sell or otherwise dispose of Common Stock of the
Company during the Lock-Up Period without the prior written consent of
Robertson, Stephens & Company. See "Underwriting."
The Company intends to file a registration statement under the Securities
Act to register shares of Common Stock reserved for issuance under the Option
Plan, thus permitting the resale of such shares by non-affiliates in the public
market without restriction under the Securities Act. Such registration statement
will become effective immediately upon filing.
68
<PAGE>
UNDERWRITING
The Underwriters named below, acting through their representatives
Robertson, Stephens & Company LLC, Bear, Stearns & Co. Inc., and Hambrecht &
Quist LLC (the "Representatives"), have severally agreed, subject to the terms
and conditions of the Underwriting Agreement, to purchase from the Company the
number of shares of Common Stock set forth opposite their names below. The
Underwriters are committed to purchase and pay for all such shares, if any are
purchased.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
- ----------------------------------------------------------------- ----------
<S> <C>
Robertson, Stephens & Company LLC................................
Bear, Stearns & Co. Inc..........................................
Hambrecht & Quist LLC............................................
----------
Total........................................................ 3,000,000
----------
----------
</TABLE>
The Representatives have advised the Company that the Underwriters propose
to offer the shares of Common Stock to the public at the initial public offering
price set forth on the cover page of this Prospectus and to certain dealers at
such price less a concession of not more than $ per share, of which
$ may be reallowed to other dealers. After the initial public offering,
the public offering price, concession and reallowance to dealers may be reduced
by the Representatives. No such reduction shall change the amount of proceeds to
be received by the Company as set forth on the cover page of this Prospectus.
The Company has granted to the Underwriters an option, exercisable during
the 30-day period after the date of this Prospectus, to purchase up to 450,000
additional shares of Common Stock at the same price per share as the Company
will receive for the 3,000,000 shares that the Underwriters have agreed to
purchase. To the extent that the Underwriters exercise such option, each of the
Underwriters will have a firm commitment to purchase approximately the same
percentage of such additional shares that the number of shares of Common Stock
to be purchased by it shown in the above table represents as a percentage of the
3,000,000 shares offered hereby. If purchased, such additional shares will be
sold by the Underwriters on the same terms as those on which the 3,000,000
shares are being sold.
The Underwriting Agreement contains covenants of indemnity among the
Underwriters and the Company against certain civil liabilities, including
liabilities under the Securities Act and liabilities arising from breaches of
representations and warranties contained in the Underwriting Agreement.
Each executive officer and director and certain other shareholders of the
Company have agreed with the Representatives for the Lock-Up Period not to offer
to sell, contract to sell, or otherwise sell, dispose of, loan, pledge or grant
any rights with respect to any shares of Common Stock, any options or warrants
to purchase any shares of Common Stock, or any securities convertible into or
exchangeable for shares of Common Stock owned as of the date of this Prospectus
or thereafter acquired directly by such holders or with respect to which they
have or hereinafter acquire the power of disposition, without the prior written
consent of Robertson, Stephens & Company LLC. However, Robertson, Stephens &
Company LLC may, in its sole discretion at any time or from time to time,
without notice, release all or any portion of the securities subject to the
lock-up agreements. Approximately 5,279,881 of such shares will be eligible for
immediate public sale following expiration of the Lock-Up Period, subject to the
provisions of Rule 144. In addition, the Company has agreed that during the
Lock-Up Period, it will not, without the prior written consent of Robertson,
Stephens & Company LLC, issue, sell, contract to sell or otherwise dispose of
any shares of Common Stock, any options or warrants to purchase any shares of
Common Stock or any securities convertible into, exercisable for or exchangeable
for shares of Common Stock other than the issuance of Common Stock upon the
exercise of outstanding options and under the existing employee stock purchase
plan and the Company's issuance of options under existing employee stock option
plans. See "Shares Eligible For Future Sale."
69
<PAGE>
The Underwriters do not intend to confirm sales to any accounts over which
they exercise discretionary authority in excess of 5% of the number of shares of
Common Stock offered hereby.
Prior to this offering, there has been no public market for the Common Stock
of the Company. Consequently, the initial public offering price for the Common
Stock offered hereby was determined through negotiations among the Company and
the Representatives. Among the factors considered in such negotiations were
prevailing market conditions, certain financial information of the Company,
market valuations of other companies that the Company and the Representatives
believe to be comparable to the Company, estimates of the business potential of
the Company, the present state of the Company's development and other factors
deemed relevant.
In addition to the 3,000,000 shares of Common Stock to be sold by the
Company in this offering, concurrent with this offering the Company intends to
sell to Sang-A in a private placement a number of shares of Common Stock equal
to 10% of the aggregate number of shares sold in this offering and in the
private placement at the initial public offering price (333,333 shares assuming
a purchase price of $12.00 per share); provided however, that the total number
of shares to be purchased by Sang-A will not exceed $5,000,000 divided by the
initial public offering price. Such sale will be effected pursuant to a separate
agreement with Sang-A entered into in May 1995 and not pursuant to the
Underwriting Agreement.
An individual associated with Bear, Stearns & Co. Inc. beneficially owns
10,000 shares of the Company's Common Stock.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Cooley Godward Castro Huddleson & Tatum, Palo Alto,
California. GC&H Investments, an entity affiliated with Cooley Godward Castro
Huddleson & Tatum, beneficially owns 22,000 shares of the Company's Common
Stock. Certain legal matters will be passed upon for the Underwriters by Wilson
Sonsini Goodrich & Rosati, Palo Alto, California.
EXPERTS
The financial statements of Aviron as of December 31, 1994 and 1995 and for
each of the three years in the period ended December 31, 1995 appearing in this
Prospectus and Registration Statement have been audited by Ernst & Young LLP,
independent auditors, as set forth in their report theron appearing elsewhere
herein and are included in reliance upon such report given on the authority of
such firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
A Registration Statement on Form S-1, including amendments thereto, relating
to the Common Stock offered hereby has been filed by the Company with the
Securities and Exchange Commission. This Prospectus does not contain all of the
information set forth in the Registration Statement and the exhibits and
schedules thereto. Statements contained in this Prospectus as to the contents of
any contract or other document referred to are not necessarily complete and in
each instance reference is made to the copy of such contract or other document
filed as an exhibit to the Registration Statement, each such statement being
qualified in all respects by such reference. For further information with
respect to the Company and the Common Stock offered hereby, reference is made to
such Registration Statement, exhibits and schedules. A copy of the Registration
Statement may be inspected by anyone without charge at the Commission's
principal office located at 450 Fifth Street, N.W., Washington, D.C. 20549, the
New York Regional Office located at 7 World Trade Center, 13th Floor, New York,
New York 10048, and the Chicago Regional Office located at Northwestern Atrium
Center, 500 West Madison Street, Chicago, Illinois 60661-2511, and copies of all
or any part thereof may be obtained from the Public Reference Branch of the
Commission upon the payment of certain fees prescribed by the Commission. The
Commission maintains a World-Wide Web site that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission. The address of the Commission's Web site is
http://www.sec.gov.
70
<PAGE>
AVIRON
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Ernst & Young LLP, Independent Auditors......................... F-2
Audited Financial Statements
Balance Sheets............................................................ F-3
Statements of Operations.................................................. F-4
Statement of Stockholders' Equity......................................... F-5
Statements of Cash Flows.................................................. F-7
Notes to Financial Statements............................................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors
Aviron
We have audited the accompanying balance sheets of Aviron as of December 31,
1994 and 1995, and the related statements of operations, stockholders' equity,
and cash flows for each of the three years in the period ended December 31,
1995. 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 financial position of Aviron at December 31, 1994
and 1995, and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 1995, in conformity with generally
accepted accounting principles.
ERNST & YOUNG LLP
Palo Alto, California
January 26, 1996,
except as to the first paragraph of Note 1 and
Note 10, for which the date is May 30, 1996
F-2
<PAGE>
AVIRON
BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1994 1995
--------- ---------
MARCH 31, UNAUDITED
1996 PRO FORMA
----------- STOCKHOLDERS'
EQUITY AT
(UNAUDITED) MARCH 31,
1996
-----------
(NOTE 10)
ASSETS
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents............................... $ 952 $ 11,532 $ 10,000
Short-term investments.................................. 5,497 6,287 4,494
Prepaid expenses and other current assets............... 105 679 873
--------- --------- -----------
Total current assets...................................... 6,554 18,498 15,367
Property and equipment, net............................... 1,216 1,275 1,816
Deposits and other assets................................. 19 105 92
--------- --------- -----------
Total assets............................................ $ 7,789 $ 19,878 $ 17,275
--------- --------- -----------
--------- --------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable........................................ $ 101 $ 312 $ 703
Accrued compensation.................................... 68 130 149
Accrued clinical trial costs............................ -- 545 470
Accrued expenses and other liabilities.................. 201 108 319
Deferred revenue........................................ -- 208 437
Current portion of capital lease obligations............ 307 420 485
--------- --------- -----------
Total current liabilities................................. 677 1,723 2,563
Capital lease obligations, noncurrent..................... 750 618 545
Commitments
Stockholders' equity:
Preferred Stock, no par value; 43,000,000 shares
authorized, issuable in series; 21,666,667, 39,031,971
and 39,168,297, convertible preferred shares issued and
outstanding at December 31, 1994 and 1995 and March 31,
1996 respectively, aggregate liquidation preference of
$40,347,481 and $40,531,520 at December 31, 1995 and
March 31, 1996, respectively (pro forma at March 31,
1996 -- $0.001 par value, 5,000,000 shares authorized,
none issued and outstanding)........................... 17,406 39,844 40,028 $ --
Common Stock, no par value; 53,000,000 shares
authorized; 695,414, 758,306 and 1,040,822 shares
issued and outstanding at December 31, 1994 and 1995,
and March 31, 1996 respectively (pro forma at March 31,
1996 -- $0.001 par value 30,000,000 shares authorized,
8,874,456 shares issued and outstanding)............... 16 317 1,579 9
Additional paid-in capital.............................. -- -- -- 41,598
Notes receivable from stockholders...................... -- -- (310) (310)
Deferred compensation................................... -- (180) (938) (938)
Accumulated deficit..................................... (11,060) (22,444) (26,192) (26,192)
--------- --------- -----------
Total stockholders' equity................................ 6,362 17,537 14,167 14,167
--------- --------- ----------- -----------
Total liabilities and stockholders' equity.............. $ 7,789 $ 19,878 $ 17,275 $ 17,275
--------- --------- ----------- -----------
--------- --------- ----------- -----------
</TABLE>
See accompanying notes.
F-3
<PAGE>
AVIRON
STATEMENTS OF OPERATIONS
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
---------------------------------- ----------------------
1993 1994 1995 1995 1996
---------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
License revenue..................................... $ -- $ -- $ 1,500 $ -- $ --
Contract revenue.................................... -- -- 207 -- 188
---------- ---------- ---------- ---------- ----------
Total revenues........................................ -- -- 1,707 -- 188
Operating expenses:
Research and development............................ 2,073 4,216 10,220 3,088 3,044
General and administrative.......................... 1,874 2,493 3,252 701 1,063
---------- ---------- ---------- ---------- ----------
Total operating expenses.............................. 3,947 6,709 13,472 3,789 4,107
---------- ---------- ---------- ---------- ----------
Loss from operations.................................. (3,947) (6,709) (11,765) (3,789) (3,919)
Other income (expense):
Interest income..................................... 175 306 520 71 220
Interest expense.................................... -- (99) (158) (39) (37)
---------- ---------- ---------- ---------- ----------
Total other income, net............................... 175 207 362 32 183
---------- ---------- ---------- ---------- ----------
Net loss.............................................. $ (3,772) $ (6,502) $ (11,403) $ (3,757) $ (3,736)
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Pro forma net loss per share.......................... $ (1.24) $ (0.41)
---------- ----------
---------- ----------
Shares used in computing pro forma net loss per
share................................................ 9,182,642 9,223,033
</TABLE>
See accompanying notes.
F-4
<PAGE>
AVIRON
STATEMENT OF STOCKHOLDERS' EQUITY
(in thousands, except share data)
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK
---------------------- ---------------------- NOTES DEFERRED
SHARES AMOUNT SHARES AMOUNT RECEIVABLE COMPENSATION
--------- ----------- --------- ----------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1992......... 5,000,000 $ 2,471 648,000 $ 3 -- $ --
Issuance of Series B Convertible
Preferred Stock at $0.90 per share
for cash and conversion of notes
payable in September 1993, net of
issuance costs of $65.............. 16,666,667 14,935 -- -- -- --
Issuance of Common Stock at $0.25
per share in April 1993 for certain
technology and patent rights....... -- -- 35,000 9 -- --
Exercise of stock options at $0.25
per share for cash................. -- -- 2,550 1 -- --
Net loss............................ -- -- -- -- -- --
--------- ----------- --------- ----------- ----- -----
Balance at December 31, 1993.......... 21,666,667 17,406 685,550 13 -- --
Exercise of stock options at $0.25
to $0.50 per share for cash........ -- -- 9,864 3 -- --
Net unrealized loss on available-
for-sale investments............... -- -- -- -- -- --
Net loss............................ -- -- -- -- -- --
--------- ----------- --------- ----------- ----- -----
Balance at December 31, 1994.......... 21,666,667 17,406 695,414 16 -- --
Issuance of Series B Convertible
Preferred Stock at $1.20 per share
in February 1995 for certain
in-process technology.............. 1,323,734 1,588 -- -- -- --
Issuance of Series C Convertible
Preferred Stock at $1.35 per share
for cash in June through November
1995, net of issuance costs of
$807............................... 16,041,570 20,850 -- -- -- --
Exercise of stock options at $0.25
to $0.50 per share for cash........ -- -- 62,892 31 -- --
Deferred compensation related to the
grant of certain stock options..... -- -- -- 270 -- (270)
Amortization of deferred
compensation....................... -- -- -- -- -- 90
Change in net unrealized loss on
available-for-sale investments..... -- -- -- -- -- --
Net loss............................ -- -- -- -- -- --
--------- ----------- --------- ----------- ----- -----
Balance at December 31, 1995.......... 39,031,971 $ 39,844 758,306 $ 317 -- $ (180)
Issuance of Series C Convertible
Preferred Stock at $1.35 per share
for cash in March 1996
(unaudited)........................ 136,326 184 -- -- -- --
Exercise of stock options at $0.25
to $2.50 per share for cash
(unaudited)........................ -- -- 114,516 168 -- --
Exercise of stock options at $0.50
to $2.50 per share for notes
receivable (unaudited)............. -- -- 168,000 310 (310) --
Deferred compensation related to the
grant of certain stock options
(unaudited)........................ -- -- -- 784 -- (784)
Amortization of deferred
compensation (unaudited)........... -- -- -- -- -- 26
Change in net unrealized gain on
available-for-sale Investments
(unaudited)........................ -- -- -- -- -- --
Net loss (unaudited)................ -- -- -- -- -- --
--------- ----------- --------- ----------- ----- -----
Balance at March 31, 1996
(unaudited).......................... 39,168,297 $ 40,028 1,040,822 $ 1,579 $ (310) $ (938)
--------- ----------- --------- ----------- ----- -----
--------- ----------- --------- ----------- ----- -----
<CAPTION>
TOTAL
ACCUMULATED STOCKHOLDERS'
DEFICIT EQUITY
------------- -------------
<S> <C> <C>
Balances at December 31, 1992......... $ (753) $ 1,721
Issuance of Series B Convertible
Preferred Stock at $0.90 per share
for cash and conversion of notes
payable in September 1993, net of
issuance costs of $65.............. -- 14,935
Issuance of Common Stock at $0.25
per share in April 1993 for certain
technology and patent rights....... -- 9
Exercise of stock options at $0.25
per share for cash................. -- 1
Net loss............................ (3,772) (3,772)
------------- -------------
Balance at December 31, 1993.......... (4,525) 12,894
Exercise of stock options at $0.25
to $0.50 per share for cash........ -- 3
Net unrealized loss on available-
for-sale investments............... (33) (33)
Net loss............................ (6,502) (6,502)
------------- -------------
Balance at December 31, 1994.......... (11,060) 6,362
Issuance of Series B Convertible
Preferred Stock at $1.20 per share
in February 1995 for certain
in-process technology.............. -- 1,588
Issuance of Series C Convertible
Preferred Stock at $1.35 per share
for cash in June through November
1995, net of issuance costs of
$807............................... -- 20,850
Exercise of stock options at $0.25
to $0.50 per share for cash........ -- 31
Deferred compensation related to the
grant of certain stock options..... -- --
Amortization of deferred
compensation....................... -- 90
Change in net unrealized loss on
available-for-sale investments..... 19 19
Net loss............................ (11,403) (11,403)
------------- -------------
Balance at December 31, 1995.......... $ (22,444) $ 17,537
Issuance of Series C Convertible
Preferred Stock at $1.35 per share
for cash in March 1996
(unaudited)........................ -- 184
Exercise of stock options at $0.25
to $2.50 per share for cash
(unaudited)........................ -- 168
Exercise of stock options at $0.50
to $2.50 per share for notes
receivable (unaudited)............. -- --
Deferred compensation related to the
grant of certain stock options
(unaudited)........................ -- --
Amortization of deferred
compensation (unaudited)........... -- 26
Change in net unrealized gain on
available-for-sale Investments
(unaudited)........................ (12) (12)
Net loss (unaudited)................ (3,736) (3,736)
------------- -------------
Balance at March 31, 1996
(unaudited).......................... $ (26,192) $ 14,167
------------- -------------
------------- -------------
</TABLE>
See accompanying notes.
F-5
<PAGE>
AVIRON
STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------- --------------------
1993 1994 1995 1995 1996
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss................................................... $ (3,772) $ (6,502) $ (11,403) $ (3,757) $ (3,736)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization............................ 223 416 544 127 110
Acquired technology and patent rights.................... 9 -- 1,588 1,588 --
Amortization of deferred compensation.................... -- -- 90 -- 26
Changes in assets and liabilities:
Prepaid expenses and other current assets.............. (16) (46) (574) (66) (194)
Deposits and other assets.............................. (1) (4) (86) -- 13
Accounts payable....................................... (34) (39) 211 61 391
Accrued expenses and other liabilities................. 168 96 514 (19) 155
Deferred revenue....................................... -- -- 208 -- 229
--------- --------- --------- --------- ---------
Net cash used in operating activities...................... (3,423) (6,079) (8,908) (2,066) (3,006)
--------- --------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of short-term investments........................ (7,854) (9,755) (9,493) (441) (3,147)
Maturities of short-term investments....................... 1,815 11,579 8,722 4,257 4,928
Expenditures for property and equipment.................... (593) (260) (238) (75) (545)
--------- --------- --------- --------- ---------
Net cash provided by (used in) investing activities........ (6,632) 1,564 (1,009) 3,741 1,236
--------- --------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from capital lease line of credit................. -- 620 -- -- --
Principal payments on capital lease obligation............. -- (212) (384) (85) (114)
Proceeds from notes payable................................ 1,500 -- -- -- --
Cash proceeds from issuance of:
Series B Convertible Preferred Stock..................... 13,434 -- -- -- --
Series C Convertible Preferred Stock..................... -- -- 20,850 -- 184
Common Stock............................................. 1 3 31 1 168
--------- --------- --------- --------- ---------
Cash flows provided by financing activities................ 14,935 411 20,497 (84) 238
--------- --------- --------- --------- ---------
Net increase (decrease) in cash and cash equivalents....... 4,880 (4,104) 10,580 1,591 (1,532)
Cash and cash equivalents at beginning of year............. 176 5,056 952 952 11,532
--------- --------- --------- --------- ---------
Cash and cash equivalents at end of year................... $ 5,056 $ 952 $ 11,532 $ 2,543 $ 10,000
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
SUPPLEMENTAL SCHEDULE OF NONCASH FINANCING ACTIVITIES
Issuance of Common Stock and Preferred Stock for certain
technology and patent rights.............................. $ 9 $ -- $ 1,588 $ 1,588 $ --
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Conversion of notes payable to Series B Preferred Stock.... $ 1,500 $ -- $ -- $ -- $ --
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Equipment acquired under line of credit.................... $ -- $ 648 $ 365 $ 114 $ 106
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Deferred compensation related to the grant of certain stock
options................................................... $ -- $ -- $ 270 $ -- $ 784
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
See accompanying notes.
F-6
<PAGE>
AVIRON
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996 IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BUSINESS
Aviron (the "Company") was incorporated in the State of California on April
15, 1992 and will be reincorporated in the State of Delaware in June, 1996. The
Company was organized to develop and commercialize cost-effective forms of
disease prevention and treatment based on live virus vaccines. Prior to October
1995, the Company was considered to be in the development stage.
The Company anticipates working on a number of long-term development
projects which will involve experimental and unproven technology. The projects
may require many years and substantial expenditures to complete, and which may
ultimately be unsuccessful. Therefore, the Company will need to obtain
additional funds from outside sources to continue its research and development
activities, fund operating expenses, pursue regulatory approvals and build
production, sales and marketing capabilities, as necessary. Management believes
it has sufficient capital to achieve planned business objectives including
supporting preclinical development and clinical testing, through at least 1996.
INTERIM FINANCIAL INFORMATION
The financial information at March 31, 1996, for the three months ended
March 31, 1995 and 1996 is unaudited but includes all adjustments (consisting
only of normal recurring adjustments) which the Company considers necessary for
a fair presentation of the financial position at such date and of the operating
results and cash flows for those periods. Results of the 1996 period are not
necessarily indicative of results expected for the entire year.
USE OF ESTIMATES
The preparation of the 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.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with an original
maturity of 90 days or less to be cash equivalents. Cash equivalents include
$11,831,000 and $9,667,000 in money market funds at December 31, 1995 and March
31, 1996, respectively.
SHORT-TERM INVESTMENTS
The Company adopted the provisions of Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and Equity
Securities" ("SFAS No. 115") for investments held as of or acquired after
January 1, 1994.
The Company's entire short-term investment portfolio is currently classified
as available-for-sale and is carried at fair value based on quoted market prices
with the unrealized gains and losses included in stockholders' equity. The
amortized cost of debt securities classified as available-for-sale is adjusted
for amortization of premiums and accretion of discounts to maturity. Such
amortization is included in interest income. Realized gains or losses and
declines in value judged to be other-than-temporary are included in other
income. The cost of securities sold is based on the specific identification
method. The Company has not experienced any significant realized gains or losses
on its investments.
F-7
<PAGE>
AVIRON
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996 IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost. Depreciation is provided on a
straight-line basis over the estimated useful lives of the respective assets
which range from three to seven years. Leasehold improvements are amortized on a
straight-line basis over the shorter of their useful lives or the term of the
lease.
REVENUE RECOGNITION
Collaborative research revenue earned is based on research expenses
incurred. Amounts received in advance of services to be performed are recorded
as deferred revenue until the related expenses are incurred. Milestone payments
are recognized as revenue in the period earned.
STOCK COMPENSATION
In October 1995, the Financial Accounting Standards Board issued Statement
No. 123, "Accounting for Stock-Based Compensation" ("SFAS No. 123"). The
Statement is effective for Aviron beginning in 1996. Under SFAS No. 123,
stock-based compensation expense to employees is measured using either the
intrinsic-value method as prescribed by Accounting Principle Board Opinion No.
25 or the fair-value method described in SFAS No. 123. Companies choosing the
intrinsic-value method will be required to disclose but not actually record the
pro forma impact of the fair-value method on net income and earnings per share.
The Company plans to adopt the SFAS No. 123 in 1996 using the intrinsic-value
method for stock awards to employees. There will be no effect of adopting the
SFAS No. 123 on the Company's financial position or results of operations.
RECENT PRONOUNCEMENTS
During March 1995, the Financial Accounting Standards Board issued Statement
No. 121 (SFAS 121), "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of," which requires the Company to review for
impairment of long-lived assets. SFAS 121 will become effective for the
Company's year ending December 31, 1996. The Company has studied the
implications of SFAS 121 and, based on its initial evaluation, does not expect
it to have a material impact on the Company's financial condition or results of
operations.
NET LOSS PER SHARE
Except as noted below, historical net loss per share is computed using the
weighted average number of common shares outstanding. Common equivalent shares
from stock options, convertible preferred stock and warrants are excluded from
the computation as their effect is antidilutive, except that, pursuant to the
Securities and Exchange Commission Staff Accounting Bulletins, common and common
equivalent shares issued during the period beginning 12 months prior to the
initial filing of the proposed public offering at prices substantially below the
assumed public offering price have been included in the calculation as if they
were outstanding for all periods presented (using the treasury stock method and
the assumed public offering price for stock options and warrants and the
if-converted method for convertible preferred stock).
F-8
<PAGE>
AVIRON
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996 IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Historical net loss per share information is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
---------------------------------- ----------------------
1993 1994 1995 1995 1996
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net loss per share...................... $ (0.82) $ (1.41) $ (2.47) $ (0.81) $ (0.81)
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Shares used in computing net loss per
share.................................. 4,600,440 4,614,907 4,624,721 4,624,078 4,624,953
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
</TABLE>
Pro forma net loss per share has been computed as described above and also
gives effect to the conversion of convertible preferred shares not included
above that will automatically convert upon completion of the Company's initial
public offering (using the if-converted method) from the original date of
issuance.
2. LICENSE AGREEMENTS
ARCH DEVELOPMENT CORPORATION
On July 1, 1992, the Company entered into an exclusive license agreement
with ARCH Development Corporation ("ARCH") to acquire the rights to use or
sublicense certain technology and make, use or sell certain licensed products.
The agreement calls for the Company to make certain payments to ARCH totaling as
much as $2.6 million as certain milestones are met. No benchmark payments were
made or were due through 1995. If commercialization is achieved, the Company
will be required to pay ARCH royalties based on net sales of the licensed
products. Further, if the Company were to sublicense the technology, it would be
required to pay ARCH royalties on net sales of the sublicensee and, under
certain circumstances, up to 50% of the license fee paid by the sublicensee. In
conjunction with this license agreement, the Company sold 40,000 shares of
Common Stock to ARCH at $0.005 per share in 1992. Subsequent to this agreement,
affiliates of ARCH purchased 700,000, 300,000 and 113,999 shares of the
Company's Series A, B and C Preferred Stock, respectively.
THE MOUNT SINAI SCHOOL OF MEDICINE
In 1993, the Company entered into a technology transfer agreement with The
Mount Sinai School of Medicine of the City University of New York ("Mount
Sinai") to acquire certain patent rights and technical information. Pursuant to
the agreement, the Company issued to Mount Sinai 35,000 shares of Common Stock
which resulted in a charge to research and development expense of $8,750, and
warrants to purchase, in the aggregate, 225,000 shares of Series A Preferred
Stock. The warrants become exercisable upon the occurrence of specific
milestones and expire five years from such date or on the day preceding the sale
of the Company. Upon the closing of an initial public offering by the Company,
warrants covering 148,750 shares of Series A Preferred Stock will become
exercisable at a price per share of Common Stock of 125% of the initial public
offering price of the Common Stock. The remaining warrants will be cancelled. At
December 31, 1995 and March 31, 1996, warrants covering 45,000 shares of Series
A Preferred Stock are exercisable at $0.90 per share. The Company is also
required to reimburse Mount Sinai for costs incurred in connection with the
maintenance and protection of certain patents.
UNIVERSITY OF MICHIGAN
In February 1995, the Company signed a license agreement with the University
of Michigan. The license agreement gives the Company a worldwide license to the
University of Michigan's inventions and discoveries
F-9
<PAGE>
AVIRON
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996 IS UNAUDITED)
2. LICENSE AGREEMENTS (CONTINUED)
related to a cold adapted influenza vaccine, including the ability to develop,
use, sublicense, manufacture and sell products and processes claimed in the
patent rights. Under the arrangement, the Company paid the University of
Michigan and expensed a $100,000 fee and issued 1,323,734 shares of Series B
Preferred Stock which resulted in a charge to research and development expense
of $1,588,481. Upon commercialization of the vaccine product, the license
agreement provides that the Company will pay royalties based on net revenues as
well as issuing warrants to purchase 1.25% of the Company's then total
outstanding Common Stock at an exercise price equal to 125% of the per share
price of Common Stock in the Company's initial public offering of Common Stock.
The warrant will be exercisable for five years after its issuance date. In
conjunction with the license agreement, the Company signed a research agreement
with the University of Michigan which obligates the Company to fund
approximately $530,000 of specific research projects. As of December 31, 1996,
the Company had funded $184,000 for research under this agreement. The Company
had also paid the University of Michigan $67,000 for other research services.
3. DEVELOPMENT AGREEMENTS
SMITHKLINE BEECHAM BIOLOGICALS S.A.
In October 1995, the Company signed an agreement with SmithKline Beecham
Biologicals S.A. ("SmithKline Beecham") which grants SmithKline Beecham
exclusive worldwide (excluding Korea) rights to produce and market any
prophylactic and therapeutic Epstein-Barr Virus ("EBV") vaccines under the
Company's patents. Under the Agreement, SmithKline Beecham paid the Company a
$1,500,000 nonrefundable licensing fee and is required to make additional
benchmark payments as certain milestones are met. Upon commercialization,
SmithKline Beecham will pay the Company a royalty based on net sales (by
country). In conjunction with the licensing rights, SmithKline Beecham will fund
the Company's development of the EBV vaccine for a minimum of two years based on
approved budgeted amounts. For the year ended December 31, 1995, the Company
recognized $1,500,000 of license revenue and $125,000 of development revenue
pursuant to the agreement. As of December 31, 1995, the Company has recorded
$208,000 in deferred revenue relating to development that will be recognized in
1996.
SANG-A PHARM. CO., LTD.
In May 1995, the Company signed a development and licensing agreement with
Sang-A Pharm. Co., Ltd. ("Sang-A"), a Korean pharmaceutical company. The
agreement covers a wide range of vaccine products and grants Sang-A the
exclusive rights and licenses to such products in South and North Korea
("Korea"). Under the terms of the agreement, Sang-A will conduct all clinical
development work necessary for approval in Korea at its expense, and is required
to make payments based on certain milestones and, upon commercialization of each
product, to pay royalties based on net revenues. The agreement also gives Sang-A
the first right of refusal to supply a percentage of Aviron's products in
selected countries.
In connection with this agreement, Sang-A purchased 2,941,863 shares of
Series C Preferred Stock for $3,971,515. Sang-A subsequently purchased 1,187,295
additional shares of Series C Preferred Stock for $1,602,848. In the future,
Sang-A is required to purchase 10% of any offering of new securities (as
defined) of the Company, if requested by the Company, until the earlier of 36
months following Sang-A's initial investment or an initial public offering.
During the three months ended March 31, 1996, Sang-A purchased 136,326 shares of
Series C Preferred Stock for $184,040.
F-10
<PAGE>
AVIRON
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996 IS UNAUDITED)
4. SHORT-TERM INVESTMENTS
At December 31, 1994 and 1995, the Company's short-term investments
consisted of the following debt securities, all of which had maturities of one
year or less (in thousands):
<TABLE>
<CAPTION>
AVAILABLE-FOR-SALE SECURITIES
-------------------------------------------
GROSS GROSS ESTIMATED
UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
------ ---------- ---------- ---------
<S> <C> <C> <C> <C>
As of December 31, 1994:
U.S. Treasury securities and
obligations of U.S. government
agencies............................ $2,261 $ -- $(22) $2,239
U.S. corporate commercial paper...... 2,983 -- (1) 2,982
U.S. corporate obligations........... 514 -- (1) 513
Foreign government securities........ 520 -- (9) 511
------ ---------- --- ---------
$6,278 $ -- $(33) $6,245
------ ---------- --- ---------
------ ---------- --- ---------
As of December 31, 1995:
U.S. Treasury securities and
obligations of U.S. government
agencies............................ $1,025 $ 2 $ (4) $1,023
U.S. corporate commercial paper...... 3,705 -- -- 3,705
U.S. corporate obligations........... 1,571 -- (12) 1,559
------ ---------- --- ---------
$6,301 $ 2 $(16) $6,287
------ ---------- --- ---------
------ ---------- --- ---------
</TABLE>
Included in the above table as of December 31, 1994 are corporate debt
obligations with a fair value of $748 which are classified as cash equivalents
in the accompanying balance sheet.
5. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1994 1995 1996
--------- --------- -----------
<S> <C> <C> <C>
Laboratory equipment................................... $ 1,220 $ 1,512 $ 1,601
Computer equipment..................................... 199 323 370
Office equipment....................................... 68 90 100
Leasehold improvements................................. 336 62 567
--------- --------- -----------
1,823 1,987 2,638
Less accumulated depreciation and amortization......... (607) (712) (822)
--------- --------- -----------
$ 1,216 $ 1,275 $ 1,816
--------- --------- -----------
--------- --------- -----------
</TABLE>
6. LEASE ARRANGEMENTS
In April 1994, the Company entered into a $2,500,000 equipment and leasehold
improvement lease line of credit that bears interest based on an average of the
three-year and five-year indices of U.S. Treasury bonds. Outstanding balances
under the line are secured by the related equipment purchased. The lease line
was extended and expires December 31, 1996. At March 31, 1996, $761,000 of the
line was available. In connection with this financing arrangement, the Company
issued warrants to purchase 116,667 shares of the Company's Series B Preferred
Stock. These warrants are exercisable at an exercise price of $0.90 per share
and will expire at the earlier of March 2000 or upon the initial public offering
of the Company's Common Stock. As consideration for extending the expiration
date of the lease line, the Company issued warrants in 1995 to purchase 77,778
F-11
<PAGE>
AVIRON
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996 IS UNAUDITED)
6. LEASE ARRANGEMENTS (CONTINUED)
shares of the Company's Series B Preferred Stock. These warrants are exercisable
at an exercise price of $0.90 per share and will expire at the earlier of May
2001 or upon the initial public offering of the Company's Common Stock. As of
March 31, 1996, none of the warrants had been exercised.
Included in property and equipment at December 31, 1995 and March 31, 1996
are assets with a cost of $1,826,125 and $2,032,532, respectively, and
accumulated amortization of $688,594 and $786,784, respectively, which have been
financed pursuant to the lease line of credit.
The Company has entered into an operating lease agreement for office and
research facilities which expires in 2005 and includes an option allowing the
Company to extend the lease for two additional five-year terms. The agreement
requires the Company to pay operating costs, including property taxes,
utilities, insurance and maintenance. Rent expense for the years ended December
31, 1993, 1994 and 1995 was $130,400, $167,568 and $412,869, respectively.
At December 31, 1995, the Company's aggregate commitment under such
arrangements are as follows (in thousands):
<TABLE>
<CAPTION>
CAPITAL LEASE OPERATING
OBLIGATIONS LEASE
------------- -----------
<S> <C> <C>
Years ending December 31,
1996................................................. $ 528 $ 747
1997................................................. 424 866
1998................................................. 226 919
1999................................................. 49 924
2000................................................. -- 950
Thereafter........................................... -- 4,910
------ -----------
1,227 $ 9,316
-----------
-----------
Less amounts representing interest..................... (189)
------
1,038
Less current portion................................... (420)
------
$ 618
------
------
</TABLE>
7. STOCKHOLDERS' EQUITY
COMMON STOCK
During June and July 1992, 648,000 shares of Common Stock were issued to the
Company's founders, consultants and a licensor of technology at $0.005 per
share. These shares are subject to certain transfer restrictions. Certain of
these shares, until vested, are subject to repurchase at $0.005 per share
(adjusted to reflect any stock splits or stock dividends) on termination of
employment. In addition, certain shares of Common Stock issued to members of
management in 1995 and 1996 through exercises of stock options are subject to
repurchase by the Company at $0.50-$2.50 per share. The above shares vest over
periods specified by the Board of Directors. At December 31, 1995 and March 31,
1996, 101,700 and 268,480 shares remain subject to the Company's right of
repurchase, respectively.
PREFERRED STOCK
Preferred Stock is issuable in series. Series A, Series B and Series C
Preferred Stock are convertible into 0.20 share of Common Stock of the Company
at the option of the holder, and carry voting rights equivalent to
F-12
<PAGE>
AVIRON
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996 IS UNAUDITED)
7. STOCKHOLDERS' EQUITY (CONTINUED)
Common Stock on a share-for-share basis. The conversion rate of the Preferred
Stock is subject to adjustment in the event of, among other things, stock splits
and stock dividends. Each share of Preferred Stock automatically converts into
0.20 shares of Common Stock in the event of an initial public offering of the
Company's Common Stock in which the gross offering proceeds equal or exceed
$10.0 million or upon approval of the conversion by a majority of the preferred
stockholders voting together as a single class. The Series A, Series B and
Series C preferred stockholders are entitled to noncumulative dividends at the
rate of $0.05, $0.09 and $0.135 per share, respectively, when and if declared by
the board of directors. None have been declared.
The Series A, Series B and Series C Preferred Stock are subject to a
liquidation preference of $0.50, $0.90 and $1.35 per share, respectively, plus
all declared but unpaid dividends.
The Preferred Stock authorized, issued and outstanding at December 31, 1995
is as follows:
<TABLE>
<CAPTION>
SHARES SHARES ISSUED LIQUIDATION
AUTHORIZED AND OUTSTANDING PREFERENCE
------------ --------------- -------------
<S> <C> <C> <C>
Series A............................................... 5,225,000 5,000,000 $ 2,500,000
Series B............................................... 18,650,000 17,990,401 16,191,361
Series C............................................... 18,000,000 16,041,570 21,656,120
Undesignated........................................... 1,125,000 -- --
------------ --------------- -------------
43,000,000 39,031,971 $ 40,347,481
------------ --------------- -------------
------------ --------------- -------------
</TABLE>
In November 1995, in conjunction with the private placement of Series C
Preferred Stock, the Company issued to the placement agent warrants to purchase
352,536 shares of the Company's Series C Preferred Stock. These warrants have an
exercise price of $1.62 per share and will expire in November 2000. As of March
31, 1996, none of the warrants had been exercised.
A total of 771,981 shares of Preferred Stock have been reserved for issuance
upon exercise of outstanding warrants as of December 31, 1995 and March 31,
1996.
In addition, 8,600,000 shares of Common Stock have been reserved for
issuance upon the conversion of convertible Preferred Stock.
STOCK OPTIONS
On September 15, 1992, the board of directors adopted the 1992 Stock Option
Plan (the "1992 Plan"). The Company initially reserved 272,000 shares of Common
Stock for issuance under the 1992 Plan which was increased by 200,000 shares in
1993 and 300,000 shares in 1994.
The 1992 Plan provides for both incentive and nonqualified stock options to
be granted to employees, directors and consultants. The 1992 Plan provides that
incentive stock options will be granted at no less than the fair value of the
Company's Common Stock (no less than 85% of the fair value for nonqualified
stock options), as determined by the board of directors at the date of the
grant. If, at the time the Company grants an option, the optionee owns more than
10% of the total combined voting power of all the classes of stock of the
Company, the option price shall be at least 110% of the fair value and the
option shall not be exercised more than five years after the date of grant. The
options vest and become exercisable over periods determined by the board of
directors. Except as noted above, options expire no more than 10 years after the
date of grant, or earlier if employment terminates.
F-13
<PAGE>
AVIRON
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996 IS UNAUDITED)
7. STOCKHOLDERS' EQUITY (CONTINUED)
Option activity under the Plan is as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
--------------------------
SHARES EXERCISE
AVAILABLE NUMBER OF PRICE PER
FOR GRANT SHARES SHARE
--------- ----------- -------------
<S> <C> <C> <C>
Balance at December 31, 1992..................................... 157,100 114,900 $ 0.25
Options authorized............................................. 200,000 -- --
Options granted................................................ (235,117) 235,117 $0.25-$0.50
Options exercised.............................................. -- (2,550) $ 0.25
Options canceled............................................... 9,550 (9,550) $ 0.25
--------- ----------- -------------
Balance at December 31, 1993..................................... 131,533 337,917 $0.25-$0.50
Options authorized............................................. 300,000 -- --
Options granted................................................ (71,230) 71,230 $ 0.50
Options exercised.............................................. -- (9,864) $0.25-$0.50
Options canceled............................................... 29,996 (29,996) $0.25-$0.50
--------- ----------- -------------
Balance at December 31, 1994..................................... 390,299 369,287 $0.25-$0.50
Options granted................................................ (269,000) 269,000 $0.50-$1.25
Options exercised.............................................. -- (62,892) $0.50-$1.25
Options canceled............................................... 2,357 (2,357) $0.25-$0.50
--------- ----------- -------------
Balance at December 31, 1995..................................... 123,656 573,038 $0.25-$1.25
Options granted (unaudited).................................... (96,625) 96,625 $ 2.50
Options exercised (unaudited).................................. -- (64,516) $0.25-$0.50
Options canceled (unaudited)................................... 735 (735) $0.25-$2.50
--------- ----------- -------------
Balance at March 31, 1996 (unaudited)............................ 27,766 604,412 $0.25-$2.50
--------- ----------- -------------
--------- ----------- -------------
</TABLE>
In addition, during 1995 fully-vested non-qualified stock options covering
40,000 shares were issued outside of the 1992 Plan at exercise prices of
$0.50-$1.25 per share. During January 1996, 208,000 non-qualified stock options
were issued outside the 1992 Plan at exercise prices of $1.75-$2.50 per share.
Of the stock options issued outside of the 1992 Plan, 218,000 options were
exercised at exercise prices of $0.50-$2.50 per share during the quarter ending
March 31, 1996.
During the three months ended March 31, 1996, officers of the Company
exercised options for 168,000 shares by signing promissory notes amounting to
$310,000 which bear interest at 5.73%.
As of December 31, 1995 and March 31, 1996, options to purchase 347,893 and
291,491 shares of Common Stock were exercisable.
For certain options granted during 1995 and 1996, the Company recognized as
deferred compensation the excess of the deemed value for financial reporting
purposes of the Common Stock issuable upon the exercise of such options over the
aggregate exercise price of such options. Total deferred compensation of
$270,000 recorded through December 31, 1995 is being amortized over the vesting
period of such options. A portion of these options vested immediately upon
grant. In January 1996, the Company granted an additional 304,625 options with
exercise prices of $1.75 to $2.50 and recorded related deferred compensation of
approximately $784,000. In May 1996, the Company granted 102,950 options with an
exercise price of $2.50 and recorded related deferred compensation of
approximately $463,000.
F-14
<PAGE>
AVIRON
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996 IS UNAUDITED)
7. STOCKHOLDERS' EQUITY (CONTINUED)
In March 1996, the Company amended and restated the 1992 Plan as the 1996
Equity Incentive Plan (the "1996 Plan"). Total shares of Common Stock reserved
for future issuance under the 1996 Plan were increased to 1,750,000. The 1996
Plan provides for the grant of incentive and nonstatutory stock options to
employees and consultants of the Company.
In March 1996, the Company adopted the 1996 Non-Employee Directors' Stock
Option Plan (the "Directors' Plan") under which 200,000 shares of Common Stock
are reserved for issuance pursuant to nonstatutory stock options.
In March 1996, the Company also adopted the Employee Stock Purchase Plan
(the "Purchase Plan"). A total of 250,000 shares of Common Stock are reserved
for issuance under the Purchase Plan. The Purchase Plan permits eligible
employees to purchase Common Stock through payroll deductions at a price equal
to the lower of 85% of the fair market value of the Company's Common Stock at
the beginning or end of the applicable offering period.
8. INCOME TAXES
As of December 31, 1995, the Company had a federal net operating loss
carryforward of approximately $20,000,000. The net operating loss carryforward
will expire at various dates beginning from 2007 through 2010, if not utilized.
Utilization of the net operating losses and credits may be subject to a
substantial annual limitation due to the "ownership change" provisions of the
Internal Revenue Code of 1986.
Significant components of the Company's deferred tax assets are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
1993 1994 1995
--------- --------- ---------
(in thousands)
<S> <C> <C> <C>
Net operating loss carryforward.......................................... $ 1,500 $ 3,800 $ 7,100
Capitalized research expenses............................................ -- 200 1,060
Research tax credits (expires from 2007-2010)............................ 100 300 550
Other.................................................................... 200 100 140
--------- --------- ---------
Net deferred tax assets.................................................. 1,800 4,400 8,850
Valuation allowance...................................................... (1,800) (4,400) (8,850)
--------- --------- ---------
$ -- $ -- $ --
--------- --------- ---------
--------- --------- ---------
</TABLE>
Because of the Company's lack of earnings history, the net deferred tax
asset has been fully offset by a valuation allowance. The valuation allowance
increased by approximately $1,500,000 in 1993.
9. RELATED PARTY TRANSACTIONS
In 1995, the Company made unsecured loans to officers totalling $100,000
which bear interest at 7.75% and are due in April 2000.
An officer of the Company is a shareholder in an investment advisory
business which was paid a commission by the Company of approximately $334,000
during 1995 related to the Sang-A transaction (see Note 3). The officer received
no direct compensation from the transaction.
10. PROPOSED PUBLIC OFFERING AND RELATED MATTERS
On May 30, 1996, the board of directors authorized management of the Company
to file a Registration Statement with the Securities and Exchange Commission
offering shares of its Common Stock to the public. If the offering is
consummated under the terms presently anticipated, all of the Preferred Stock
outstanding will
F-15
<PAGE>
AVIRON
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996 IS UNAUDITED)
10. PROPOSED PUBLIC OFFERING AND RELATED MATTERS (CONTINUED)
automatically convert into 7,833,634 shares of Common Stock upon the closing of
the offering. Unaudited pro forma stockholders' equity as of December 31, 1995
as adjusted for the assumed conversion of the Preferred Stock is set forth on
the accompanying balance sheet.
In May 1996, the Company filed restated Articles of Incorporation in
California to effect a one-for-five reverse stock split of all outstanding
shares of Common Stock, Common Stock options and warrants. The conversion ratio
of all outstanding shares of Convertible Preferred Stock were adjusted such that
each preferred share converts into .20 shares of common stock. All common share
and per share data in the accompanying financial statements has been adjusted
retroactively to give effect to the reverse stock split. In conjunction with the
registration, the board of directors also authorized the reincorporation of the
Company in Delaware.
11. SUBSEQUENT EVENTS (UNAUDITED)
On July 1, 1996, Chiron Corporation ("Chiron") filed a complaint against the
Company in San Mateo County, California, Superior Court, alleging that certain
of Aviron's patent applications relating to its EBV program are based on Chiron
proprietary information which was improperly conveyed to Aviron by a former
Chiron employee, and that the Company has engaged in unfair competition. The
complaint seeks unspecified monetary damages and seeks to impose a constructive
trust, for Chiron's benefit, over the affected patent applications, an exclusive
assignment by the Company to Chiron of such patent applications and an
injunction against the Company from disclosing, using or applying such alleged
proprietary information. Aviron believes that the allegations in the Chiron
complaint are without merit and intends to vigorously defend itself against such
action. Aviron does not utilize the alleged Chiron proprietary information in
any of its potential products currently under development. Even if Chiron were
to prevail in this action, the Company believes that it is uncertain that a
court would grant a constructive trust over the specified patent applications,
which include many claims (including certain rights the Company licensed to
SmithKline Beecham) not relating to the alleged Chiron proprietary technology.
Were a court to grant a constructive trust over such patent applications, it
could adversely impact the Company's agreement with SmithKline Beecham. There
can be no assurance that Chiron will not ultimately prevail in this action or
that it will not obtain the remedies it is seeking. In addition, the Company
expects that the legal costs incurred in defending itself against this action
could be substantial.
In July 1996, the Company licensed certain of its patent rights covering or
relating to the use of HSV-2 for treatment of cancer and for gene therapy, but
excluding use of vaccines, to a private Canadian corporation. In exchange, the
Company received shares of capital stock and a warrant to purchase shares of
capital stock, representing in the aggregate approximately 27% of the
outstanding equity securities of such company on a fully-diluted basis after the
first round of financing. Prior to the execution of this agreement, the Canadian
company had no employees and had conducted no material operations. Aviron is
under no obligation to fund development of this technology.
F-16
<PAGE>
[LOGO]
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth all expenses, other than the underwriting
discounts and commissions, payable by the Registrant in connection with the sale
of the Common Stock being registered. All the amounts are estimates except for
the registration fee and the NASD filing fee.
<TABLE>
<S> <C>
Registration fee.......................................... $ 15,466
NASD filing fee........................................... 4,985
Blue sky qualification fees and expenses.................. 5,000
Printing and engraving expenses........................... 125,000
Legal fees and expenses................................... 300,000
Accounting fees and expenses.............................. 130,000
Transfer agent and registrar fees......................... 10,000
Miscellaneous............................................. 9,549
---------
Total................................................. $ 600,000
---------
---------
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Under Section 145 of the Delaware General Corporation Law, the Registrant
has broad powers to indemnify its directors and officers against liabilities
they may incur in such capacities, including liabilities under the Securities
Act of 1933, as amended (the "Securities Act"). The Registrant's Bylaws also
provide that the Registrant will indemnify its directors and executive officers
and may indemnify its other officers, employees and agents to the fullest extent
permitted by Delaware law.
The Registrant's Certificate of Incorporation provides for the elimination
of liability for monetary damages for breach of the directors' fiduciary duty of
care to the Registrant and its stockholders. These provisions do not eliminate
the directors' duty of care and, in appropriate circumstances, equitable
remedies such an injunctive or other forms of non-monetary relief will remain
available under Delaware law. In addition, each director will continue to be
subject to liability for breach of the director's duty of loyalty to the
Registrant, for acts or omissions not in good faith or involving intentional
misconduct, for knowing violations of law, for any transaction from which the
director derived an improper personal benefit, and for payment of dividends or
approval of stock repurchases or redemptions that are unlawful under Delaware
law. The provision does not affect a director's responsibilities under any other
laws, such as the federal securities laws or state or federal environmental
laws.
The Underwriting Agreement filed as Exhibit 1.1 to this Registration
Statement, will provide for indemnification by the Underwriters and their
controlling persons, on the one hand, and of the Registrant and its controlling
persons on the other hand, for certain liabilities arising under the Securities
Act or otherwise.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Since inception, the Registrant has sold and issued the following
unregistered securities (adjusted to give effect to the one-for-five reverse
stock split):
(1) From April 1992 through June 1, 1996, the Registrant has granted
stock options to purchase 889,822 shares of the Company's Common Stock at a
weighted average exercise price of $1.02 per share to employees, consultants
and directors pursuant to its 1996 Equity Incentive Plan, or predecessor
plans (the "Plans"). Of these options, 58,318 have been canceled without
being exercised, 218,024 have been exercised and 613,480 remain outstanding.
In January 1996, 248,000 options were issued outside the Plan to certain
senior executives and founders of the Company, at exercise prices ranging
from $0.50 to $2.50 per share. Of these options, 218,000 have been
exercised, and 30,000 remain outstanding.
II-1
<PAGE>
(2) In April 1992, the Company sold and issued an aggregate of 608,000
shares of Common Stock at $0.005 per share for an aggregate consideration of
approximately $3,040, paid in cash, to six purchasers.
(3) In June and July 1992, the Registrant issued 5,000,000 shares of
Series A Preferred Stock to 14 purchasers at $0.50 per share, for an
aggregate purchase price of $2,500,000. Shares of Series A Preferred Stock
are convertible into shares of Common Stock at the rate of one share of
Common Stock for each five shares of Series A Preferred Stock owned.
(4) In February 1993, the Company issued warrants to purchase up to
225,000 shares of Series A Preferred Stock to The Mount Sinai School of
Medicine of the City University of New York ("Mount Sinai") in connection
with the transfer by Mount Sinai to the Company of certain technology
rights. The shares of Series A Preferred Stock issuable upon exercise of the
warrants are convertible into shares of Common Stock at the rate of one
share of Common Stock for each five shares of Series A Preferred Stock
owned.
(5) In September 1993, the Registrant issued 16,666,667 shares of Series
B Preferred Stock to 34 purchasers (including two purchasers who received
1,666,666 shares upon conversion of promissory notes aggregating $1,500,000)
at $0.90 per share, for an aggregate purchase price of $15,000,000. Shares
of Series B Preferred Stock are convertible into shares of Common Stock at
the rate of one share of Common Stock for each five shares of Series B
Preferred Stock owned.
(6) In September 1993, the Registrant issued warrants to purchase
400,000 shares of its Series B Preferred Stock, at an exercise price of
$1.25 per share, to entitles affiliated with IVP. These warrants expired
unexercised in June 1995.
(7) In February 1995, the Registrant entered into a license agreement
with the University of Michigan under which, in return for certain rights to
the University of Michigan's inventions and discoveries related to a cold
adapted influenza vaccine, the Registrant issued 1,323,734 shares of the
Registrant's Series B Preferred Shares, plus a warrant to purchase up to
1.25% of the Registrant's outstanding Common Stock under certain conditions.
Shares of Series B Preferred Stock are convertible into shares of Common
Stock at the rate of one share of Common Stock for each five shares of
Series B Preferred Stock owned.
(8) In April 1994 and May 1995, the Registrant issued warrants to
purchase an aggregate of 194,445 shares of Series B Preferred Stock at an
exercise price of $0.90 per share to Lease Management Services, Inc.
(9) In May 1995, the Registrant entered into a license agreement with
Sang-A Pharm Co., Ltd., ("Sang-A") under which, in return for certain rights
to certain of the Registrant's products in Korea, Sang-A purchased 2,941,863
of the Registrant's Series C Preferred Stock for $3,971,575, or $1.35 per
share and committed to purchase a number of shares equal to 10% of the
number of shares issued in future equity financings, up to and including the
Company's initial public offering. Shares of Series C Preferred Stock are
convertible into shares of Common Stock at the rate of one share of Common
Stock for each five shares of Series C Preferred Stock owned.
(10) From July through November 1995, the Registrant issued 13,099,707
shares of Series C Preferred Stock to 66 purchasers at a purchase price of
$1.35 per share (including 1,187,295 shares to Sang-A), for an aggregate
purchase price of $17,684,604. Shares of Series C Preferred Stock are
convertible into shares of Common Stock at the rate of one share of Common
Stock for each five shares of Series C Preferred Stock owned.
(11) In November 1995, the Registrant issued a warrant to purchase
352,536 shares of the Series C Preferred Stock of the Company to Raymond,
James & Associates, Inc., for an exercise price of $1.62 per share
(convertible into 70,507 shares of Common Stock) issuable upon exercise of
the warrant. Shares of Series C Preferred Stock are convertible into shares
of Common Stock at the rate of one share of Common Stock for each five
shares of Series C Preferred Stock owned.
(12) In March 1996, the Registrant issued 136,315 shares of Series C
Preferred Stock to Sang-A Pharm Co., Ltd. at $1.35 per share, for an
aggregate purchase price of $184,025. Shares of Series C Preferred Stock are
convertible into shares of Common Stock at the rate of one share of Common
Stock for each five shares of Series C Preferred Stock owned.
II-2
<PAGE>
(13) Concurrent with this offering the Company intends to sell to Sang-A
in a private placement a number of shares of Common Stock equal to 10% of
the aggregate number of shares sold in this offering and in the private
placement at the initial public offering price pursuant to the agreement
with Sang-A entered into in May 1995 (333,333 shares assuming a purchase
price of $12.00 per share); provided, however, that the total number of
shares to be purchased by Sang-A will not exceed $5,000,000 divided by the
initial public offering price.
The sales and issuances of securities described in paragraph (1) above were
deemed to be exempt from registration under the Securities Act by virtue of Rule
701 of the Securities Act. The sales and issuances of securities described in
paragraphs (2) through (9) above were deemed to be exempt from registration
under the Securities Act by virtue of Rule 4(2) of the Securities Act. The sale
and issuance of securities described in paragraph (10) above were deemed to be
exempt from registration under the Securities Act by virtue of Rule 3(a)(9) of
the Securities Act.
Appropriate legends are affixed to the stock certificates issued in the
aforementioned transactions. Similar legends were imposed in connection with any
subsequent sales of any such securities. All recipients either received adequate
information about the Registrant or had access, through employment or other
relationships, to such information.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) The following is a list of exhibits filed as a part of this
Registration Statement:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------------- ------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement.
3.1 Amended and Restated Articles of Incorporation of the
Registrant, as amended.(1)
3.2 Amendment to the Amended and Restated Articles of
Incorporation of the Registrant.(1)
3.3 Bylaws of the Registrant.(1)
3.4 Form of Certificate of Incorporation of the Registrant to be
effective upon reincorporation in Delaware.
3.5 Form of Bylaws of the Registrant to be effective upon
reincorporation in Delaware.
3.6 Form of Restated Certificate of Incorporation of the
Registrant, to be filed after completion of this offering.
4.1 Reference is made to Exhibits 3.1, 3.2, 3.3, 3.4., 3.5 and
3.6.
4.2 Specimen Stock Certificate.
4.3 Warrant for Series A Preferred Stock, issued to The Mount
Sinai School of Medicine of the City of New York.(1)
4.4 Warrant for Series A Preferred Stock, issued to The Mount
Sinai School of Medicine of the City of New York.(1)
4.5 Warrant for Series A Preferred Stock, issued to The Mount
Sinai School of Medicine of the City of New York.(1)
4.6 Warrant for Series A Preferred Stock, issued to The Mount
Sinai School of Medicine of the City of New York.(1)
4.7 Warrant for Series C Preferred Stock, issued to Raymond,
James & Associates.(1)
4.8 Investors Rights Agreement, dated July 18, 1995, among the
Registrant and the investors named therein.(1)
5.1 Opinion of Cooley Godward Castro Huddleson & Tatum.(1)
+10.1 License Agreement between the Registrant and ARCH
Development Corporation, dated July 1, 1992.(1)
+10.2 Technology Transfer Agreement between the Registrant and The
Mount Sinai School of Medicine of the City University of
New York, dated February 9, 1993.(1)
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------------- ------------------------------------------------------------
<C> <S>
+10.3 Materials Transfer and Intellectual Property Agreement
between the Registrant and the Regents of the University of
Michigan, dated February 24, 1995.(1)
10.4 Stock Transfer Agreement between the Registrant and the
Regents of the University of Michigan, dated February 24,
1995.(1)
+10.5 Development and License Agreement between the Registrant and
Sang-A Pharm. Co., Ltd., dated May 3, 1995.(1)
+10.6 Cooperative Research and Development Agreement between the
Registrant and the National Institutes of Health, dated May
30, 1995.(1)
+10.7 Heads of Agreement between the Registrant and SmithKline
Beecham Biologicals S.A., dated October 8, 1995.(1)
+10.8 Manufacturing and Development Agreement between the
Registrant and Evans Medical Limited, dated November 7,
1995.(1)
10.9 1996 Equity Incentive Plan.(1)
10.10 1996 Non-Employee Directors' Stock Option Plan.(1)
10.11 1996 Employee Stock Purchase Plan.(1)
10.12 Industrial Lease between the Registrant and the Vanni
Business Park General Partnership, dated August 29,
1995.(1)
+10.13 First Amendment to License Agreement between the Registrant
and ARCH Development Corporation, dated March 15, 1996.(1)
+10.14 Biological Materials License Agreement between the
Registrant and the National Institutes of Health, dated May
31, 1996.(1)
11.1 Statement regarding Computation of Pro Forma Net Loss Per
Share.
23.1 Consent of Ernst & Young LLP.
24.2 Consent of Cooley Godward Castro Huddleson & Tatum.
Reference is made to Exhibit 5.1.
25.1 Power of Attorney. Reference is made to page II-5.(1)
27.1 Financial Data Schedules.(1)
</TABLE>
- -------------------
+ Confidential treatment has been requested for portions of this exhibit.
(1) Previously filed.
ITEM 17. UNDERTAKINGS.
The Registrant hereby undertakes to provide the Underwriters at the closing
specified in the Underwriting Agreement certificates in such denominations and
registered in such names as required by the Underwriters to permit prompt
delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers, and controlling persons of the
Registrant pursuant to the provisions described in Item 14 or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer, or controlling
person of the Registrant in the successful defense of any action, suit, or
proceeding) is asserted by such director, officer, or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will governed by the final adjudication of such issue.
The undersigned Registrant undertakes that: (1) for purposes of determining
any liability under the Securities Act, the information omitted from the form of
prospectus filed as part of the registration statement in reliance upon Rule
430A and contained in the form of prospectus filed by the Registrant pursuant to
II-4
<PAGE>
Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be
part of the registration statement as of the time it was declared effective, and
(2) for the purpose of determining any liability under the Securities Act, each
post-effective amendment that contains a form of prospectus shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
II-5
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant has duly caused this Amendment No. 2 to the Registration Statement on
Form S-1 to be signed on its behalf by the undersigned, in the City of Moutain
View, County of Santa Clara, State of California, on the 12th day of July, 1996.
AVIRON
By: /s/ J. LEIGHTON READ
-----------------------------------
J. Leighton Read, M.D.
CHAIRMAN, CHIEF EXECUTIVE OFFICER
AND CHIEF FINANCIAL OFFICER
(PRINCIPAL EXECUTIVE OFFICER)
IN ACCORDANCE WITH THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
AMENDMENT NO. 2 TO THE REGISTRATION STATEMENT WAS SIGNED BELOW BY THE FOLLOWING
PERSON IN THE CAPACITIES AND ON THE DATES STATED.
<TABLE>
<C> <S> <C>
SIGNATURE TITLE DATE
- ------------------------------------------------ ------------------------------ --------------
Chairman, Chief Executive
Officer and Chief Financial
/s/ J. LEIGHTON READ Officer
-------------------------------------- (PRINCIPAL EXECUTIVE OFFICER July 12, 1996
J. Leighton Read, M.D. AND PRINCIPAL FINANCIAL AND
ACCOUNTING OFFICER)
*
-------------------------------------- Director July 12, 1996
Reid W. Dennis
*
-------------------------------------- Director July 12, 1996
Paul H. Klingenstein
*
-------------------------------------- Director July 12, 1996
Bernard Roizman, Sc.D.
*
-------------------------------------- Director July 12, 1996
L. James Strand, M.D.
*
-------------------------------------- Director July 12, 1996
Jane E. Shaw, Ph.D.
/s/ J. LEIGHTON READ
--------------------------------------
* (Attorney-in-fact)
</TABLE>
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT PAGE
NUMBER DESCRIPTION OF DOCUMENT NUMBER
- --------- ------------------------------------------------------------------------------------------- ----------
<C> <S> <C>
1.1 Form of Underwriting Agreement.
3.1 Amended and Restated Articles of Incorporation of the Registrant, as amended.(1)
3.2 Amendment to the Amended and Restated Articles of Incorporation of the Registrant.(1)
3.3 Bylaws of the Registrant.(1)
3.4 Form of Certificate of Incorporation of the Registrant to be effective upon reincorporation
in Delaware.
3.5 Form of Bylaws of the Registrant to be effective upon reincorporation in Delaware.
3.6 Form of Restated Certificate of Incorporation of the Registrant, to be filed after
completion of this offering.
4.1 Reference is made to Exhibits 3.1, 3.2, 3.3, 3.4., 3.5 and 3.6.
4.2 Specimen Stock Certificate.
4.3 Warrant for Series A Preferred Stock, issued to The Mount Sinai School of Medicine of the
City of New York.(1)
4.4 Warrant for Series A Preferred Stock, issued to The Mount Sinai School of Medicine of the
City of New York.(1)
4.5 Warrant for Series A Preferred Stock, issued to The Mount Sinai School of Medicine of the
City of New York.(1)
4.6 Warrant for Series A Preferred Stock, issued to The Mount Sinai School of Medicine of the
City of New York.(1)
4.7 Warrant for Series C Preferred Stock, issued to Raymond, James & Associates.(1)
4.8 Investors Rights Agreement, dated July 18, 1995, among the Registrant and the investors
named therein.(1)
5.1 Opinion of Cooley Godward Castro Huddleson & Tatum.(1)
+10.1 License Agreement between the Registrant and ARCH Development Corporation, dated July 1,
1992.(1)
+10.2 Technology Transfer Agreement between the Registrant and The Mount Sinai School of Medicine
of the City University of New York, dated February 9, 1993.(1)
+10.3 Materials Transfer and Intellectual Property Agreement between the Registrant and the
Regents of the University of Michigan, dated February 24, 1995.(1)
10.4 Stock Transfer Agreement between the Registrant and the Regents of the University of
Michigan, dated February 24, 1995.(1)
+10.5 Development and License Agreement between the Registrant and Sang-A Pharm. Co., Ltd., dated
May 3, 1995.(1)
+10.6 Cooperative Research and Development Agreement between the Registrant and the National
Institutes of Health, dated May 30, 1995.(1)
+10.7 Heads of Agreement between the Registrant and SmithKline Beecham Biologicals S.A., dated
October 8, 1995.(1)
+10.8 Manufacturing and Development Agreement between the Registrant and Evans Medical Limited,
dated November 7, 1995.(1)
10.9 1996 Equity Incentive Plan.(1)
10.10 1996 Non-Employee Directors' Stock Option Plan.(1)
10.11 1996 Employee Stock Purchase Plan.(1)
10.12 Industrial Lease between the Registrant and the Vanni Business Park General Partnership,
dated August 29, 1995.(1)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT PAGE
NUMBER DESCRIPTION OF DOCUMENT NUMBER
- --------- ------------------------------------------------------------------------------------------- ----------
<C> <S> <C>
+10.13 First Amendment to License Agreement between the Registrant and ARCH Development
Corporation, dated March 15, 1996.(1)
+10.14 Biological Materials License Agreement between the Registrant and the National Institutes
of Health, dated May 31, 1996.(1)
11.1 Statement regarding Computation of Pro Forma Net Loss Per Share.
23.1 Consent of Ernst & Young LLP.
24.2 Consent of Cooley Godward Castro Huddleson & Tatum. Reference is made to Exhibit 5.1.
25.1 Power of Attorney. Reference is made to page II-5.(1)
27.1 Financial Data Schedules.(1)
</TABLE>
- -------------------
+ Confidential treatment has been requested for portions of this exhibit.
(1) Previously filed.
<PAGE>
3,000,000 SHARES(1)
AVIRON
COMMON STOCK
UNDERWRITING AGREEMENT
____________, 1996
ROBERTSON, STEPHENS & COMPANY LLC
BEAR STEARNS & CO.
HAMBRECHT & QUIST LLC
As Representatives of the several Underwriters
c/o Robertson, Stephens & Company LLC
555 California Street
Suite 2600
San Francisco, California 94104
Ladies/Gentlemen:
Aviron, a Delaware corporation (the "Company"), addresses you as the
Representatives of each of the persons, firms and corporations listed in
Schedule A hereto (herein collectively called the "Underwriters") and hereby
confirms its agreement with the several Underwriters as follows:
1. DESCRIPTION OF SHARES. The Company proposes to issue and sell
3,000,000 shares of its authorized and unissued Common Stock, $.001 par value,
(the "Firm Shares") to the several Underwriters. The Company also proposes to
grant to the Underwriters an option to purchase up to 450,000 additional shares
of the Company's Common Stock, $.001 par value, (the "Option Shares"), as
provided in Section 7 hereof. As used in this Agreement, the term "Shares"
shall include the Firm Shares and the Option Shares. All shares of Common
Stock, $.001 par value of the Company to be outstanding after giving effect to
the sales contemplated hereby, including the Shares, are hereinafter referred to
as "Common Stock." All representations and warranties and agreements of the
Company herein shall also be deemed to be representations and warranties and
agreements with respect to Aviron, a California corporation, the predecessor
entity to the Company.
2. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE COMPANY. The
Company represents and warrants to and agrees with each Underwriter that:
(a) A registration statement on Form S-1 (File No. 333-05209) with
respect to the Shares, including a prospectus subject to completion, has been
prepared by the Company in conformity with the requirements of the Securities
Act of 1933, as amended (the "Act"), and the applicable rules and regulations
(the "Rules and Regulations") of the Securities and Exchange Commission (the
"Commission") under the Act and has been filed with the Commission; such
amendments to such registration statement, such amended prospectuses subject to
completion and such abbreviated registration statements pursuant to Rule 462(b)
of
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(1) Plus an option to purchase up to 450,000 additional shares from the
Company to cover over-allotments.
<PAGE>
the Rules and Regulations as may have been required prior to the date hereof
have been similarly prepared and filed with the Commission; and the Company will
file such additional amendments to such registration statement, such amended
prospectuses subject to completion and such abbreviated registration statements
as may hereafter be required. Copies of such registration statement and
amendments, of each related prospectus subject to completion (the "Preliminary
Prospectuses") and of any abbreviated registration statement pursuant to Rule
462(b) of the Rules and Regulations have been delivered to you.
If the registration statement relating to the Shares has been
declared effective under the Act by the Commission, the Company will prepare and
promptly file with the Commission the information omitted from the registration
statement pursuant to Rule 430A(a) or, if Robertson, Stephens & Company LLC, on
behalf of the several Underwriters, shall agree to the utilization of Rule 434
of the Rules and Regulations, the information required to be included in any
term sheet filed pursuant to Rule 434(b) or (c), as applicable, of the Rules and
Regulations pursuant to subparagraph (1), (4) or (7) of Rule 424(b) of the Rules
and Regulations or as part of a post-effective amendment to the registration
statement (including a final form of prospectus). If the registration statement
relating to the Shares has not been declared effective under the Act by the
Commission, the Company will prepare and promptly file an amendment to the
registration statement, including a final form of prospectus, or, if Robertson,
Stephens & Company LLC, on behalf of the several Underwriters, shall agree to
the utilization of Rule 434 of the Rules and Regulations, the information
required to be included in any term sheet filed pursuant to Rule 434(b) or (c),
as applicable, of the Rules and Regulations. The term "Registration Statement"
as used in this Agreement shall mean such registration statement, including
financial statements, schedules and exhibits, in the form in which it became or
becomes, as the case may be, effective (including, if the Company omitted
information from the registration statement pursuant to Rule 430A(a) or files a
term sheet pursuant to Rule 434 of the Rules and Regulations, the information
deemed to be a part of the registration statement at the time it became
effective pursuant to Rule 430A(b) or Rule 434(d) of the Rules and Regulations)
and, in the event of any amendment thereto or the filing of any abbreviated
registration statement pursuant to Rule 462(b) of the Rules and Regulations
relating thereto after the effective date of such registration statement, shall
also mean (from and after the effectiveness of such amendment or the filing of
such abbreviated registration statement) such registration statement as so
amended, together with any such abbreviated registration statement. The term
"Prospectus" as used in this Agreement shall mean the prospectus relating to the
Shares as included in such Registration Statement at the time it becomes
effective (including, if the Company omitted information from the Registration
Statement pursuant to Rule 430A(a) of the Rules and Regulations, the information
deemed to be a part of the Registration Statement at the time it became
effective pursuant to Rule 430A(b) of the Rules and Regulations); PROVIDED,
HOWEVER, that if in reliance on Rule 434 of the Rules and Regulations and with
the consent of Robertson, Stephens & Company LLC, on behalf of the several
Underwriters, the Company shall have provided to the Underwriters a term sheet
pursuant to Rule 434(b) or (c), as applicable, prior to the time that a
confirmation is sent or given for purposes of Section 2(10)(a) of the Act, the
term "Prospectus" shall mean the "prospectus subject to completion" (as defined
in Rule 434(g) of the Rules and Regulations) last provided to the Underwriters
by the Company and circulated by the Underwriters to all prospective purchasers
of the Shares (including the information deemed to be a part of the Registration
Statement at the time it became effective pursuant to Rule 434(d) of the Rules
and Regulations). Notwithstanding the foregoing, if any revised prospectus
shall be provided to the Underwriters by the Company for use in connection with
the offering of the Shares that differs from the prospectus referred to in the
immediately preceding sentence (whether or not such revised prospectus is
required to be filed with the Commission pursuant to Rule 424(b) of the Rules
and Regulations), the term "Prospectus" shall refer to such revised prospectus
from and after the time it is first provided to the Underwriters for such use.
If in reliance on Rule 434 of the Rules and Regulations and with the consent of
Robertson, Stephens & Company LLC, on behalf of the several Underwriters, the
Company shall have provided to the Underwriters a term
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<PAGE>
sheet pursuant to Rule 434(b) or (c), as applicable, prior to the time that a
confirmation is sent or given for purposes of Section 2(10)(a) of the Act, the
Prospectus and the term sheet, together, will not be materially different from
the prospectus in the Registration Statement.
(b) The Commission has not issued any order preventing or
suspending the use of any Preliminary Prospectus or instituted proceedings for
that purpose, and each such Preliminary Prospectus has conformed in all material
respects to the requirements of the Act and the Rules and Regulations and, as of
its date, has not included any untrue statement of a material fact or omitted to
state a material fact necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading; and at the time
the Registration Statement became or becomes, as the case may be, effective and
at all times subsequent thereto up to and on the Closing Date (hereinafter
defined) and on any later date on which Option Shares are to be purchased, (i)
the Registration Statement and the Prospectus, and any amendments or supplements
thereto, contained and will contain all material information required to be
included therein by the Act and the Rules and Regulations and will in all
material respects conform to the requirements of the Act and the Rules and
Regulations, (ii) the Registration Statement, and any amendments or supplements
thereto, did not and will not include any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to make
the statements therein not misleading, and (iii) the Prospectus, and any
amendments or supplements thereto, did not and will not include any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements therein, in the light of the circumstances under which they were
made, not misleading; PROVIDED, HOWEVER, that none of the representations and
warranties contained in this subparagraph (b) shall apply to information
contained in or omitted from the Registration Statement or Prospectus, or any
amendment or supplement thereto, in reliance upon, and in conformity with,
written information relating to any Underwriter furnished to the Company by such
Underwriter specifically for use in the preparation thereof.
(c) The Company has been duly incorporated and is validly existing
as a corporation in good standing under the laws of the jurisdiction of its
incorporation with full power and authority (corporate and other) to own, lease
and operate its properties and conduct its business as described in the
Prospectus; the reincorporation of the Company from a California corporation
into a Delaware corporation was duly and properly effectuated in accordance with
the Delaware and California corporation laws, the successor Company succeeded to
all rights, privileges and obligations of the predecessor Company, the
reincorporation was effectuated as a merger (the "Merger") pursuant to Delaware
law and the offer and sale of the securities issued in connection with the
Merger were in compliance with the applicable federal and state securities laws;
the Company is duly qualified to do business as a foreign corporation and is in
good standing in each jurisdiction in which the ownership or leasing of its
properties or the conduct of its business requires such qualification, except
where the failure to be so qualified or be in good standing would not have a
material adverse effect on the condition (financial or otherwise), earnings,
operations, business or business prospects of the Company; no proceeding has
been instituted in any such jurisdiction, revoking, limiting or curtailing, or
seeking to revoke, limit or curtail, such power and authority or qualification;
the Company is in possession of and operating in compliance with all
authorizations, licenses, certificates, consents, orders and permits from state,
federal and other regulatory authorities which are material to the conduct of
its business, all of which are valid and in full force and effect; the Company
is not in violation of its charter or bylaws or in default in the performance or
observance of any obligation, agreement, covenant or condition contained in any
material bond, debenture, note or other evidence of indebtedness, or in any
material lease, contract, indenture, mortgage, deed of trust, loan agreement,
joint venture or other agreement or instrument to which the Company is a party
or by which it or its properties may be bound; and the Company is not in
violation of any material law, order, rule, regulation, writ, injunction,
judgment or decree of any court, government or governmental agency or body,
domestic or foreign, having jurisdiction over the Company or over its
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<PAGE>
properties of which it has knowledge. The Company does not own or control,
directly or indirectly, any corporation, association or other entity.
(d) The Company has full legal right, power and authority to enter
into this Agreement and perform the transactions contemplated hereby. This
Agreement has been duly authorized, executed and delivered by the Company and is
a valid and binding agreement on the part of the Company, enforceable in
accordance with its terms, except as rights to indemnification hereunder may be
limited by applicable law and except as the enforcement hereof may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws relating to or affecting creditors' rights generally or by general
equitable principles; the performance of this Agreement and the consummation of
the transactions herein contemplated will not result in a material breach or
violation of any of the terms and provisions of, or constitute a default under,
(i) any material bond, debenture, note or other evidence of indebtedness, or
under any lease, contract, indenture, mortgage, deed of trust, loan agreement,
joint venture or other agreement or instrument to which the Company is a party
or by which it or its properties may be bound, (ii) the charter or bylaws of the
Company, or (iii) any material law, order, rule, regulation, writ, injunction,
judgment or decree of any court, government or governmental agency or body,
domestic or foreign, having jurisdiction over the Company or over its
properties. No consent, approval, authorization or order of or qualification
with any court, government or governmental agency or body, domestic or foreign,
having jurisdiction over the Company or over its properties is required for the
execution and delivery of this Agreement and the consummation by the Company of
the transactions herein contemplated, except such as may be required under the
Act and the Securities and Exchange Act of 1934, as amended (the "Exchange
Act"), which will have been obtained prior to the Closing Date (as hereinafter
defined) and except such as may be required under state or other securities or
Blue Sky laws.
(e) There is not any pending or, to the best of the Company's
knowledge, threatened action, suit, claim or proceeding against the Company or
any of its officers or any of its properties, assets or rights before any court,
government or governmental agency or body, domestic or foreign, having
jurisdiction over the Company or over its officers or properties or otherwise
which (i) might result in any material adverse change in the condition
(financial or otherwise), earnings, operations, business or business prospects
of the Company or might materially and adversely affect its properties, assets
or rights, (ii) might prevent consummation of the transactions contemplated
hereby or (iii) is required to be disclosed in the Registration Statement or
Prospectus and is not so disclosed; and there are no agreements, contracts,
leases or documents of the Company of a character required to be described or
referred to in the Registration Statement or Prospectus or to be filed as an
exhibit to the Registration Statement by the Act or the Rules and Regulations
which have not been accurately described in all material respects in the
Registration Statement or Prospectus or filed as exhibits to the Registration
Statement.
(f) All outstanding shares of capital stock of the Company have
been duly authorized and validly issued and are fully paid and nonassessable,
have been issued in compliance with all federal and state securities laws, were
not issued in violation of or subject to any preemptive rights or other rights
to subscribe for or purchase securities, and the authorized and outstanding
capital stock of the Company is as set forth in the Prospectus under the caption
"Capitalization" and conforms in all material respects to the statements
relating thereto contained in the Registration Statement and the Prospectus (and
such statements correctly state the substance of the instruments defining the
capitalization of the Company); the Firm Shares and the Option Shares have been
duly authorized for issuance and sale to the Underwriters pursuant to this
Agreement and, when issued and delivered by the Company against payment therefor
in accordance with the terms of this Agreement, will be duly and validly issued
and fully paid and nonassessable, and will be sold free and clear of any pledge,
lien, security interest, encumbrance, claim or equitable interest; and no
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<PAGE>
preemptive right, co-sale right, registration right, right of first refusal or
other similar right of stockholders exists with respect to any of the Firm
Shares or Option Shares or the issuance and sale thereof other than those that
have been expressly waived prior to the date hereof and those that will
automatically expire upon and will not apply to the consummation of the
transactions contemplated on the Closing Date. No further approval or
authorization of any stockholder, the Board of Directors of the Company or
others is required for the issuance and sale or transfer of the Shares except as
may be required under the Act state or other securities or Blue Sky laws.
Except as disclosed in the Prospectus and the financial statements of the
Company, and the related notes thereto, included in the Prospectus, the Company
has no outstanding options to purchase, or any preemptive rights or other rights
to subscribe for or to purchase, any securities or obligations convertible into,
or any contracts or commitments to issue or sell, shares of its capital stock or
any such options, rights, convertible securities or obligations. The
description of the Company's warrants, stock option, stock bonus and other stock
plans or arrangements, and the options or other rights granted and exercised
thereunder, set forth in the Prospectus accurately and fairly presents the
information required to be shown with respect to such warrants, plans,
arrangements, options and rights. Concurrent with the issuance of the Shares
pursuant to this Agreement, the Company shall sell to Sang-A Pharm Co., Ltd.
("Sang-A") in a private placement and at the initial public offering price set
forth in the fourth paragraph of Section 3 hereof, a number of shares of Common
Stock of the Company equal to 10% of the aggregate number of Shares sold to the
Underwriters pursuant to this Agreement and in such private placement; provided,
however, that the total number of shares purchased by Sang-A shall not exceed
$5,000,000 divided by the initial public offering price. Furthermore, such sale
of shares of Common Stock to Sang-A shall not require a filing with the Federal
Trade Commission and shall not violate the Hart-Scott-Rodino Act.
(g) Ernst & Young LLP, which has examined the financial statements
of the Company, together with the related schedules and notes, as of December
31, 1995 and 1994 and for each of the years in the three (3) years ended
December 31, 1995 filed with the Commission as a part of the Registration
Statement, which are included in the Prospectus, are independent accountants
within the meaning of the Act and the Rules and Regulations; the audited
financial statements of the Company, together with the related schedules and
notes, and the unaudited financial information, forming part of the Registration
Statement and Prospectus, fairly present the financial position and the results
of operations of the Company at the respective dates and for the respective
periods to which they apply; and all audited financial statements of the
Company, together with the related schedules and notes, and the unaudited
financial information, filed with the Commission as part of the Registration
Statement, have been prepared in accordance with generally accepted accounting
principles consistently applied throughout the periods involved except as may be
otherwise stated therein. The selected and summary financial and statistical
data included in the Registration Statement present fairly the information shown
therein and have been compiled on a basis consistent with the audited financial
statements presented therein. No other financial statements or schedules are
required to be included in the Registration Statement.
(h) Subsequent to the respective dates as of which information is
given in the Registration Statement and Prospectus, there has not been (i) any
material adverse change in the condition (financial or otherwise), earnings,
operations, business or business prospects of the Company, (ii) any transaction
that is material to the Company, except transactions entered into in the
ordinary course of business, (iii) any obligation, direct or contingent, that is
material to the Company, incurred by the Company, except obligations incurred in
the ordinary course of business, (iv) any change in the capital stock or
outstanding indebtedness of the Company that is material to the Company, (v) any
dividend or distribution of any kind declared, paid or made on the capital stock
of the Company, or (vi) any loss or damage (whether or not insured) to the
property of the Company which has been sustained which has a material adverse
effect on the condition (financial or otherwise), earnings, operations, business
or business prospects of the Company.
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<PAGE>
(i) Except as set forth in the Registration Statement and
Prospectus, (i) the Company has good and marketable title to all properties and
assets described in the Registration Statement and Prospectus as owned by it,
free and clear of any pledge, lien, security interest, encumbrance, claim or
equitable interest, other than such as would not have a material adverse effect
on the condition (financial or otherwise), earnings, operations, business or
business prospects of the Company, (ii) the agreements to which the Company is a
party described in the Registration Statement and Prospectus are valid
agreements, enforceable by the Company, except as the enforcement thereof may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
other similar laws relating to or affecting creditors' rights generally or by
general equitable principles and, to the best of the Company's knowledge, the
other contracting party or parties thereto are not in material breach or
material default under any of such agreements, and (iii) the Company has valid
and enforceable leases for all properties described in the Registration
Statement and Prospectus as leased by it, except as the enforcement thereof may
be limited by applicable bankruptcy, insolvency, reorganization, moratorium or
other similar laws relating to or affecting creditors' rights generally or by
general equitable principles. Except as set forth in the Registration Statement
and Prospectus, the Company owns or leases all such properties as are necessary
to its operations as now conducted or as proposed to be conducted.
(j) The Company has timely filed all necessary federal, state and
foreign income and franchise tax returns and has paid all taxes shown thereon as
due, and there is no tax deficiency that has been or, to the best of the
Company's knowledge, might be asserted against the Company that might have a
material adverse effect on the condition (financial or otherwise), earnings,
operations, business or business prospects of the Company; and all tax
liabilities are adequately provided for on the books of the Company.
(k) The Company maintains insurance with insurers of recognized
financial responsibility of the types and in the amounts generally deemed
adequate for its business and consistent with insurance coverage maintained by
similar companies in similar businesses, including, but not limited to,
insurance covering real and personal property owned or leased by the Company
against theft, damage, destruction, acts of vandalism, and all other risks
customarily insured against, all of which insurance is in full force and effect;
the Company has not been refused any insurance coverage sought or applied for;
and the Company has no reason to believe that it will not be able to renew its
existing insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue its
business at a cost that would not materially and adversely affect the condition
(financial or otherwise), earnings, operations, business or business prospects
of the Company.
(l) To the best of Company's knowledge, no labor disturbance by
the employees of the Company exists or is imminent; and the Company is not aware
of any existing or imminent labor disturbance by the employees of any of its
principal suppliers, customers, manufacturers, partners or collaborators that
might be expected to result in a material adverse change in the condition
(financial or otherwise), earnings, operations, business or business prospects
of the Company. No collective bargaining agreement exists with any of the
Company's employees and, to the best of the Company's knowledge, no such
agreement is imminent.
(m) The Company owns or possesses adequate rights to use all
patents (all of which are set forth in Exhibit 1 attached hereto), patent
rights, inventions, trade secrets, know-how, trademarks, service marks, trade
names and copyrights which are necessary to conduct its business as described in
the Registration Statement and Prospectus; no patents, patent rights, trade
secrets, trademarks, service marks, trade names or copyrights that would have a
material adverse effect on the condition (financial or otherwise), earnings,
operations, business or business prospects of the Company have expired or
terminated, and no
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<PAGE>
patents, patent rights, trademarks, service marks, trade names and copyrights
necessary to conduct its business as described in the Registration Statement and
Prospectus will expire or terminate prior to four years from the date of this
Agreement. Except as disclosed in the Prospectus under the caption
"Business--Legal Proceedings," the Company has not received any notice of, and
has no knowledge of, any infringement of or conflict with asserted rights of the
Company by others with respect to any patent, patent rights, inventions, trade
secrets, know-how, trademarks, service marks, trade names or copyrights; and the
Company has not received any notice of, and has no knowledge of, any
infringement of or conflict with asserted rights of others with respect to any
patent, patent rights, inventions, trade secrets, know-how, trademarks, service
marks, trade names or copyrights which, singly or in the aggregate, if the
subject of an unfavorable decision, ruling or finding, might have a material
adverse effect on the condition (financial or otherwise), earnings, operations,
business or business prospects of the Company.
(n) The Common Stock has been approved for quotation on The Nasdaq
National Market, subject to official notice of issuance.
(o) The Company has been advised concerning the Investment Company
Act of 1940, as amended (the "1940 Act"), and the rules and regulations
thereunder, and has in the past conducted, and intends in the future to conduct,
its affairs in such a manner as to ensure that it will not become an "investment
company" or a company "controlled" by an "investment company" within the meaning
of the 1940 Act and such rules and regulations.
(p) The Company has not distributed and will not distribute prior
to the later of (i) the Closing Date, or any date on which Option Shares are to
be purchased, as the case may be, and (ii) completion of the distribution of the
Shares, any offering material in connection with the offering and sale of the
Shares other than any Preliminary Prospectuses, the Prospectus, the Registration
Statement and other materials, if any, permitted by the Act.
(q) The Company has not at any time during the last five (5) years
(i) made any unlawful contribution to any candidate for foreign office or failed
to disclose fully any contribution in violation of law, or (ii) made any payment
to any federal or state governmental officer or official, or other person
charged with similar public or quasi-public duties, other than payments required
or permitted by the laws of the United States or any jurisdiction thereof.
(r) The Company has not taken and will not take, directly or
indirectly, any action designed to or that might reasonably be expected to cause
or result in stabilization or manipulation of the price of the Common Stock to
facilitate the sale or resale of the Shares.
(s) Each officer and director of the Company and each beneficial
owner of one percent or more of the Company's outstanding shares of capital
stock as of the date of this Agreement has agreed in writing that such person
will not, for a period of 180 days from the date of the Prospectus (the "Lock-up
Period"), offer to sell, contract to sell, or otherwise sell, dispose of, loan,
pledge or grant any rights with respect to (collectively, a "Disposition") any
shares of Common Stock, any options or warrants to purchase any shares of Common
Stock or any securities convertible into or exchangeable for shares of Common
Stock (collectively, "Securities") now owned or hereafter acquired directly by
such person or with respect to which such person has or hereafter acquires the
power of disposition, otherwise than (i) as a bona fide gift or gifts, provided
the donee or donees thereof agree in writing to be bound by this restriction,
(ii) as a distribution to partners or stockholders of such person, provided that
the distributees thereof agree in writing to be bound by the terms of this
restriction, or (iii) with the prior written consent of Robertson, Stephens &
Company
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<PAGE>
LLC. The foregoing restriction has been expressly agreed to preclude the holder
of the Securities from engaging in any hedging or other transaction which is
designed to or reasonably expected to lead to or result in a Disposition of
Securities during the Lock-up Period, even if such Securities would be disposed
of by someone other than such holder. Such prohibited hedging or other
transactions would include, without limitation, any short sale (whether or not
against the box) or any purchase, sale or grant of any right (including, without
limitation, any put or call option) with respect to any Securities or with
respect to any security (other than a broad-based market basket or index) that
includes, relates to or derives any significant part of its value from
Securities. Furthermore, such person has also agreed and consented to the entry
of stop transfer instructions with the Company's transfer agent against the
transfer of the Securities held by such person except in compliance with this
restriction. The Company has provided to counsel for the Underwriters a
complete and accurate list of all securityholders of the Company and the number
and type of securities held by each securityholder. The Company has provided to
counsel for the Underwriters true, accurate and complete copies of all of the
agreements pursuant to which its officers, directors and stockholders have
agreed to such or similar restrictions (the "Lock-up Agreements") presently in
effect or effected hereby. The Company hereby represents and warrants that it
will not release any of its officers, directors or other stockholders from any
Lock-up Agreements currently existing or hereafter effected without the prior
written consent of Robertson, Stephens & Company LLC.
(t) Except as set forth in the Registration Statement and
Prospectus, (i) the Company is in compliance with all rules, laws and
regulations relating to the use, treatment, storage and disposal of toxic
substances and protection of health or the environment ("Environmental Laws")
which are applicable to its business, (ii) the Company has received no notice
from any governmental authority or third party of an asserted claim under
Environmental Laws, which claim is required to be disclosed in the Registration
Statement and the Prospectus, (iii) to its knowledge, the Company has not
conducted any activity which would require it to make material capital
expenditures to comply with Environmental Laws and (iv) no property which is
owned, leased or occupied by the Company has been designated as a Superfund site
pursuant to the Comprehensive Response, Compensation, and Liability Act of 1980,
as amended (42 U.S.C. Section 9601, ET SEQ.), or otherwise designated as a
contaminated site under applicable state or local law.
(u) The Company maintains a system of internal accounting controls
sufficient to provide reasonable assurances that (i) transactions are executed
in accordance with management's general or specific authorizations, (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain accountability for assets, (iii) access to assets is permitted only in
accordance with management's general or specific authorization, and (iv) the
recorded accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
(v) There are no outstanding loans, advances (except normal
advances for business expenses in the ordinary course of business) or guarantees
of indebtedness by the Company to or for the benefit of any of the officers or
directors of the Company or any of the members of the families of any of them in
excess of $60,000 in the aggregate, except as disclosed in the Registration
Statement and the Prospectus.
(w) The Company has complied with all provisions of Section
517.075, Florida Statutes relating to doing business with the Government of Cuba
or with any person or affiliate located in Cuba.
3. PURCHASE, SALE AND DELIVERY OF SHARES. On the basis of the
representations, warranties and agreements herein contained, but subject to the
terms and conditions herein set forth, the Company agrees to sell to the
Underwriters, and each Underwriter agrees, severally and not jointly, to
purchase from the
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<PAGE>
Company at a purchase price of $_____ per share, the respective number of Firm
Shares as hereinafter set forth. The obligation of each Underwriter to the
Company shall be to purchase from the Company that number of Firm Shares which
is set forth opposite the name of such Underwriter in Schedule A hereto (subject
to adjustment as provided in Section 10).
Delivery of definitive certificates for the Firm Shares to be
purchased by the Underwriters pursuant to this Section 3 shall be made against
payment of the purchase price therefor by the several Underwriters by wire
transfer of same-day funds paid to an account designated by the Company in
writing at the offices of Cooley Godward Castro Huddleson & Tatum, Five Palo
Alto Square, 3000 El Camino Real, Palo Alto, California 94306-2155 (or at such
other place as may be agreed upon among the Representatives and the Company, at
7:00 A.M., San Francisco time (a) on the third (3rd) full business day following
the first day that Shares are traded, (b) if this Agreement is executed and
delivered after 1:30 P.M., San Francisco time, the fourth (4th) full business
day following the day that this Agreement is executed and delivered or (c) at
such other time and date not later than seven (7) full business days following
the first day that Shares are traded as the Representatives and the Company may
determine (or at such time and date to which payment and delivery shall have
been postponed pursuant to Section 10 hereof), such time and date of payment and
delivery being herein called the "Closing Date;" PROVIDED, HOWEVER, that if the
Company has not made available to the Representatives copies of the Prospectus
within the time provided in Section 4(d) hereof, the Representatives may, in
their sole discretion, postpone the Closing Date until no later than two (2)
full business days following delivery of copies of the Prospectus to the
Representatives. The certificates for the Firm Shares to be so delivered will
be made available to you at such office or such other location including,
without limitation, in New York City, as you may reasonably request for checking
at least one (1) full business day prior to the Closing Date and will be in such
names and denominations as you may request, such request to be made at least two
(2) full business days prior to the Closing Date. If the Representatives so
elect, delivery of the Firm Shares may be made by credit through full fast
transfer to the accounts at The Depository Trust Company designated by the
Representatives.
It is understood that you, individually, and not as the
Representatives of the several Underwriters, may (but shall not be obligated to)
make payment of the purchase price on behalf of any Underwriter or Underwriters
whose check or checks shall not have been received by you prior to the Closing
Date for the Firm Shares to be purchased by such Underwriter or Underwriters.
Any such payment by you shall not relieve any such Underwriter or Underwriters
of any of its or their obligations hereunder.
After the Registration Statement becomes effective, the several
Underwriters intend to make an initial public offering (as such term is
described in Section 11 hereof) of the Firm Shares at an initial public offering
price of $_____ per share. After the initial public offering, the several
Underwriters may, in their discretion, vary the public offering price.
The information set forth in the last paragraph on the front cover
page (insofar as such information relates to the Underwriters), on the inside
front cover concerning stabilization and over-allotment by the Underwriters, and
under the first, second, and seventh paragraphs under the caption "Underwriting"
in any Preliminary Prospectus and in the Prospectus constitutes the only
information furnished by the Underwriters to the Company for inclusion in any
Preliminary Prospectus, the Prospectus or the Registration Statement, and you,
on behalf of the respective Underwriters, represent and warrant to the Company
that the statements made therein do not include any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading.
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4. FURTHER AGREEMENTS OF THE COMPANY. The Company agrees with the
several Underwriters that:
(a) The Company will use its best efforts to cause the
Registration Statement and any amendment thereof, if not effective at the time
and date that this Agreement is executed and delivered by the parties hereto, to
become effective as promptly as possible; the Company will use its best efforts
to cause any abbreviated registration statement pursuant to Rule 462(b) of the
Rules and Regulations as may be required subsequent to the date the Registration
Statement is declared effective to become effective as promptly as possible; the
Company will notify you, promptly after it shall receive notice thereof, of the
time when the Registration Statement, any subsequent amendment to the
Registration Statement or any abbreviated registration statement has become
effective or any supplement to the Prospectus has been filed; if the Company
omitted information from the Registration Statement at the time it was
originally declared effective in reliance upon Rule 430A(a) of the Rules and
Regulations, the Company will provide evidence satisfactory to you that the
Prospectus contains such information and has been filed, within the time period
prescribed, with the Commission pursuant to subparagraph (1) or (4) of Rule
424(b) of the Rules and Regulations or as part of a post-effective amendment to
such Registration Statement as originally declared effective which is declared
effective by the Commission; if the Company files a term sheet pursuant to Rule
434 of the Rules and Regulations, the Company will provide evidence satisfactory
to you that the Prospectus and term sheet meeting the requirements of Rule
434(b) or (c), as applicable, of the Rules and Regulations, have been filed,
within the time period prescribed, with the Commission pursuant to subparagraph
(7) of Rule 424(b) of the Rules and Regulations; if for any reason the filing of
the final form of Prospectus is required under Rule 424(b)(3) of the Rules and
Regulations, it will provide evidence satisfactory to you that the Prospectus
contains such information and has been filed with the Commission within the time
period prescribed; it will notify you promptly of any request by the Commission
for the amending or supplementing of the Registration Statement or the
Prospectus or for additional information; promptly upon your request, it will
prepare and file with the Commission any amendments or supplements to the
Registration Statement or Prospectus which, in the opinion of counsel for the
several Underwriters ("Underwriters' Counsel"), may be necessary or advisable in
connection with the distribution of the Shares by the Underwriters; it will
promptly prepare and file with the Commission, and promptly notify you of the
filing of, any amendments or supplements to the Registration Statement or
Prospectus which may be necessary to correct any statements or omissions, if, at
any time when a prospectus relating to the Shares is required to be delivered
under the Act, any event shall have occurred as a result of which the Prospectus
or any other prospectus relating to the Shares as then in effect would include
any untrue statement of a material fact or omit to state a material fact
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading; in case any Underwriter is required
to deliver a prospectus nine (9) months or more after the effective date of the
Registration Statement in connection with the sale of the Shares, it will
prepare promptly upon request, but at the expense of such Underwriter, such
amendment or amendments to the Registration Statement and such prospectus or
prospectuses as may be necessary to permit compliance with the requirements of
Section 10(a)(3) of the Act; and it will file no amendment or supplement to the
Registration Statement or Prospectus which shall not previously have been
submitted to you in a reasonable time prior to the proposed filing thereof or to
which you shall reasonably object in writing, subject, however, to compliance
with the Act and the Rules and Regulations and the provisions of this Agreement.
(b) The Company will advise you, promptly after it shall receive
notice or obtain knowledge, of the issuance of any stop order by the Commission
suspending the effectiveness of the Registration Statement or of the initiation
or threat of any proceeding for that purpose; and it will promptly use its best
efforts to prevent the issuance of any stop order or to obtain its withdrawal at
the earliest possible moment if such stop order should be issued.
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(c) The Company will use its best efforts to qualify the Shares
for offering and sale under the securities laws of such jurisdictions as you may
designate and to continue such qualifications in effect for so long as may be
required for purposes of the distribution of the Shares, except that the Company
shall not be required in connection therewith or as a condition thereof to
qualify as a foreign corporation or to execute a general consent to service of
process in any jurisdiction in which it is not otherwise required to be so
qualified or to so execute a general consent to service of process. In each
jurisdiction in which the Shares shall have been qualified as above provided,
the Company will make and file such statements and reports in each year as are
or may be required by the laws of such jurisdiction.
(d) The Company will furnish to you, as soon as available, and, in
the case of the Prospectus and any term sheet or abbreviated term sheet under
Rule 434, in no event later than the first (1st) full business day following the
first day that Shares are traded, copies of the Registration Statement (three of
which will be signed and which will include all exhibits), each Preliminary
Prospectus, the Prospectus and any amendments or supplements to such documents,
including any prospectus prepared to permit compliance with Section 10(a)(3) of
the Act, all in such quantities as you may from time to time reasonably request.
Notwithstanding the foregoing, if Robertson, Stephens & Company LLC, on behalf
of the several Underwriters, shall agree to the utilization of Rule 434 of the
Rules and Regulations, the Company shall provide to you copies of a Preliminary
Prospectus updated in all respects through the date specified by you in such
quantities as you may from time to time reasonably request.
(e) During a period of five (5) years after the date hereof, the
Company will furnish to its stockholders as soon as practicable after the end of
each respective period, annual reports (including financial statements audited
by independent certified public accountants), and will furnish to you and the
other several Underwriters hereunder, upon request (i) statements of operations
of the Company for each of the first three (3) quarters in the form furnished to
the Company's stockholders, (ii) a balance sheet of the Company as of the end of
such fiscal year, together with statements of operations, of stockholders'
equity, and of cash flows of the Company for such fiscal year, accompanied by a
copy of the certificate or report thereon of independent certified public
accountants, (iii) as soon as they are available, copies of all reports
(financial or other) mailed to stockholders, (iv) as soon as they are available,
copies of all reports and financial statements furnished to or filed with the
Commission, any securities exchange or the National Association of Securities
Dealers, Inc. ("NASD"), (v) every material press release and every material news
item or article in respect of the Company or its affairs which was generally
released to stockholders or prepared and released by the Company, and (vi) any
additional information of a public nature concerning the Company, or its
business which you may reasonably request. During such five (5) year period, if
the Company shall have active subsidiaries, the foregoing financial statements
shall be on a consolidated basis to the extent that the accounts of the Company
and its subsidiaries are consolidated, and shall be accompanied by similar
financial statements for any significant subsidiary which is not so
consolidated.
(f) The Company will apply the net proceeds from the sale of the
Shares being sold by it in the manner set forth under the caption "Use of
Proceeds" in the Prospectus.
(g) The Company will maintain a transfer agent and, if necessary
under the jurisdiction of incorporation of the Company, a registrar (which may
be the same entity as the transfer agent) for its Common Stock.
(h) The Company will file Form SR in conformity with the
requirements of the Act and the Rules and Regulations.
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(i) If the transactions contemplated hereby are not consummated by
reason of any failure, refusal or inability on the part of the Company to
perform any agreement on its part to be performed hereunder or to fulfill any
condition of the Underwriters' obligations hereunder, or if the Company shall
terminate this Agreement pursuant to Section 11(a) hereof, or if the
Underwriters shall terminate this Agreement pursuant to Section 11(b)(i), the
Company will reimburse the several Underwriters for all reasonable out-of-pocket
expenses (including fees and disbursements of Underwriters' Counsel) incurred by
the Underwriters in investigating or preparing to market or marketing the
Shares.
(j) If at any time during the ninety (90) day period after the
Registration Statement becomes effective, any rumor, publication or event
relating to or affecting the Company shall occur as a result of which in your
opinion the market price of the Common Stock has been or is likely to be
materially affected (regardless of whether such rumor, publication or event
necessitates a supplement to or amendment of the Prospectus), the Company will,
after written notice from you advising the Company to the effect set forth
above, forthwith prepare, consult with you concerning the substance of and
disseminate a press release or other public statement, responding to or
commenting on such rumor, publication or event.
(k) During the Lock-up Period, the Company will not, without the
prior written consent of Robertson Stephens & Company LLC, effect the
Disposition of, directly or indirectly, any Securities other than (i) the sale
of the Firm Shares and the Option Shares hereunder, the issuance of shares to
Sang-A Pharm Co., Ltd. as described in Section 6(l) hereof and the Company's
issuance of options or Common Stock under the Company's presently authorized
1996 Equity Incentive Plan, Employee Stock Purchase Plan and 1996 Non-Employee
Directors' Stock Option Plan (the "Option Plans"); (ii) upon exercise of any
warrants of the Company outstanding as of or to be issued pursuant to a written
agreement dated prior to the date of this Agreement (the "Warrants"); (iii)
pursuant to equipment or lease financing activities entered into in the ordinary
course of the Company's business; or (iv) to a strategic partner of the Company
in conjunction with an agreement involving a technical, manufacturing and/or
marketing collaboration.
(l) During a period of ninety (90) days from the effective date of
the Registration Statement, the Company will not file a registration statement
registering shares under the Option Plans or any other employee benefit plan.
5. EXPENSES.
(a) The Company agrees with each Underwriter that:
(i) The Company will pay and bear all costs and expenses
in connection with the preparation, printing and filing of the Registration
Statement (including financial statements, schedules and exhibits), Preliminary
Prospectuses and the Prospectus and any amendments or supplements thereto; the
printing of this Agreement, the Agreement Among Underwriters, the Selected
Dealer Agreement, the Preliminary Blue Sky Survey and any Supplemental Blue Sky
Survey, the Underwriters' Questionnaire and Power of Attorney, and any
instruments related to any of the foregoing; the issuance and delivery of the
Shares hereunder to the several Underwriters, including transfer taxes, if any,
the cost of all certificates representing the Shares and transfer agents' and
registrars' fees; the fees and disbursements of counsel for the Company; all
fees and other charges of the Company's independent certified public
accountants; the cost of furnishing to the several Underwriters copies of the
Registration Statement (including exhibits), Preliminary Prospectus and the
Prospectus, and any amendments or supplements to any of the foregoing; NASD
filing fees and the cost of qualifying the Shares under the laws of such
jurisdictions as you may designate (including filing fees and fees and
disbursements of Underwriters' Counsel in connection with such
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NASD filings and Blue Sky qualifications); and all other expenses directly
incurred by the Company in connection with the performance of their obligations
hereunder.
(ii) In addition to its other obligations under Section
8(a) hereof, the Company agrees that, as an interim measure during the pendency
of any claim, action, investigation, inquiry or other proceeding described in
Section 8(a) hereof, it will reimburse the Underwriters on a monthly basis for
all reasonable legal or other expenses incurred in connection with investigating
or defending any such claim, action, investigation, inquiry or other proceeding,
notwithstanding the absence of a judicial determination as to the propriety and
enforceability of the Company's obligation to reimburse the Underwriters for
such expenses and the possibility that such payments might later be held to have
been improper by a court of competent jurisdiction. To the extent that any such
interim reimbursement payment is so held to have been improper, the Underwriters
shall promptly return such payment to the Company together with interest,
compounded daily, determined on the basis of the prime rate (or other commercial
lending rate for borrowers of the highest credit standing) listed from time to
time in The Wall Street Journal which represents the base rate on corporate
loans posted by a substantial majority of the nation's thirty (30) largest banks
(the "Prime Rate"). Any such interim reimbursement payments which are not made
to the Underwriters within thirty (30) days of a request for reimbursement shall
bear interest at the Prime Rate from the date of such request.
(b) In addition to their other obligations under Section 8(c)
hereof, the Underwriters severally and not jointly agree that, as an interim
measure during the pendency of any claim, action, investigation, inquiry or
other proceeding described in Section 8(c) hereof, they will reimburse the
Company on a monthly basis for all reasonable legal or other expenses incurred
in connection with investigating or defending any such claim, action,
investigation, inquiry or other proceeding, notwithstanding the absence of a
judicial determination as to the propriety and enforceability of the
Underwriters' obligation to reimburse the Company for such expenses and the
possibility that such payments might later be held to have been improper by a
court of competent jurisdiction. To the extent that any such interim
reimbursement payment is so held to have been improper, the Company shall
promptly return such payment to the Underwriters together with interest,
compounded daily, determined on the basis of the Prime Rate. Any such interim
reimbursement payments which are not made to the Company within thirty (30) days
of a request for reimbursement shall bear interest at the Prime Rate from the
date of such request.
(c) It is agreed that any controversy arising out of the operation
of the interim reimbursement arrangements set forth in Sections 5(a)(ii) and
5(b) hereof, including the amounts of any requested reimbursement payments, the
method of determining such amounts and the basis on which such amounts shall be
apportioned among the reimbursing parties, shall be settled by arbitration
conducted under the provisions of the Constitution and Rules of the Board of
Governors of the New York Stock Exchange, Inc. or pursuant to the Code of
Arbitration Procedure of the NASD. Any such arbitration must be commenced by
service of a written demand for arbitration or a written notice of intention to
arbitrate, therein electing the arbitration tribunal. In the event the party
demanding arbitration does not make such designation of an arbitration tribunal
in such demand or notice, then the party responding to said demand or notice is
authorized to do so. Any such arbitration will be limited to the operation of
the interim reimbursement provisions contained in Sections 5(a)(ii) and 5(b)
hereof and will not resolve the ultimate propriety or enforceability of the
obligation to indemnify for expenses which is created by the provisions of
Sections 8(a)and 8(b) hereof or the obligation to contribute to expenses which
is created by the provisions of Section 8(d) hereof.
6. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The obligations of the
several Underwriters to purchase and pay for the Shares as provided herein shall
be subject to the accuracy, as of the date hereof and
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the Closing Date and any later date on which Option Shares are to be purchased,
as the case may be, of the representations and warranties of the Company herein,
to the performance by the Company of its obligations hereunder and to the
following additional conditions:
(a) The Registration Statement shall have become effective not
later than 2:00 P.M., San Francisco time, on the date following the date of this
Agreement, or such later date as shall be consented to in writing by you; and no
stop order suspending the effectiveness thereof shall have been issued and no
proceedings for that purpose shall have been initiated or, to the knowledge of
the Company or any Underwriter, threatened by the Commission, and any request of
the Commission for additional information (to be included in the Registration
Statement or the Prospectus or otherwise) shall have been complied with to the
reasonable satisfaction of Underwriters' Counsel.
(b) All corporate proceedings and other legal matters in
connection with this Agreement, the form of Registration Statement and the
Prospectus, and the registration, authorization, issue, sale and delivery of the
Shares, shall have been reasonably satisfactory to Underwriters' Counsel, and
such counsel shall have been furnished with such papers and information as they
may reasonably have requested to enable them to pass upon the matters referred
to in this Section.
(c) Subsequent to the execution and delivery of this Agreement and
prior to the Closing Date, or any later date on which Option Shares are to be
purchased, as the case may be, there shall not have been any change in the
condition (financial or otherwise), earnings, operations, business or business
prospects of the Company from that set forth in the Registration Statement or
Prospectus, which, in your sole judgment, is material and adverse and that makes
it, in your sole judgment, impracticable or inadvisable to proceed with the
public offering of the Shares as contemplated by the Prospectus.
(d) You shall have received on the Closing Date and on any later
date on which Option Shares are to be purchased, as the case may be, the
following opinion of Cooley Godward Castro Huddleson & Tatum, counsel for the
Company, dated the Closing Date or such later date on which Option Shares are to
be purchased addressed to the Underwriters and with reproduced copies or signed
counterparts thereof for each of the Underwriters, to the effect that:
(i) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the jurisdiction of
its incorporation;
(ii) The Company has the corporate power and authority to
own, lease and operate its properties and to conduct its business as described
in the Prospectus;
(iii) To such counsel's knowledge, the Company is duly
qualified to do business as a foreign corporation and is in good standing in
each jurisdiction, if any, in which the ownership or leasing of its properties
or the conduct of its business requires such qualification, except where the
failure to be so qualified or be in good standing would not have a material
adverse effect on the financial condition, earnings, operations or business of
the Company. To such counsel's knowledge, the Company does not own or control,
directly or indirectly, any corporation, association or other entity;
(iv) The authorized, issued and outstanding capital stock
of the Company was as set forth in the Prospectus under the caption
"Capitalization" as of the date stated therein, the issued and outstanding
shares of capital stock of the Company have been duly and validly issued and are
fully paid and
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<PAGE>
nonassessable, and, to such counsel's knowledge, will not have been issued in
violation of or subject to any preemptive right, co-sale right, registration
right, right of first refusal or other similar right;
(v) The Firm Shares or the Option Shares, as the case may
be, to be issued by the Company pursuant to the terms of this Agreement have
been duly authorized and, upon issuance and delivery against payment therefor in
accordance with the terms hereof, will be duly and validly issued and fully paid
and nonassessable, and to such counsel's knowledge, will not have been issued in
violation of or subject to any preemptive right, co-sale right, registration
right, right of first refusal or other similar right.
(vi) The Company has the corporate power and authority to
enter into this Agreement and to issue, sell and deliver to the Underwriters the
Shares to be issued and sold by it hereunder;
(vii) This Agreement has been duly authorized by all
necessary corporate action on the part of the Company, has been duly executed
and delivered by the Company and, assuming due authorization, execution and
delivery by you, is a valid and binding agreement of the Company, enforceable in
accordance with its terms, except insofar as indemnification and contribution
provisions may be limited by applicable law and except as enforceability may be
limited by bankruptcy, insolvency, reorganization, moratorium or similar laws
relating to or affecting creditors' rights generally or by general equitable
principles and limitations on equitable remedies;
(viii) The Registration Statement has become effective under
the Act and, to such counsel's knowledge, no stop order suspending the
effectiveness of the Registration Statement has been issued and no proceedings
for that purpose have been instituted or are pending or threatened under the
Act;
(ix) The Registration Statement and the Prospectus, and
each amendment or supplement thereto (other than the financial statements
(including supporting schedules) and financial and statistical data derived
therefrom as to which such counsel need express no opinion), as of the effective
date of the Registration Statement, complied as to form in all material respects
with the requirements of the Act and the applicable Rules and Regulations;
(x) The information in the Prospectus under the caption
"Description of Capital Stock," to the extent that it constitutes matters of law
or legal conclusions, has been reviewed by such counsel and is a fair summary of
such matters and conclusions to the extent required under the Act and the
applicable Rules and Regulations; and the forms of certificates evidencing the
Common Stock and filed as exhibits to the Registration Statement comply with
Delaware law;
(xi) The descriptions in the Registration Statement and
the Prospectus of the charter and bylaws of the Company under the captions "Risk
Factors--Anti-Takeover Effects of Delaware Law and Certain Charter Provisions,"
"Management" and "Description of Capital Stock" are accurate and fairly present
the information required to be presented by the Act and the applicable Rules and
Regulations;
(xii) To such counsel's knowledge, there are no agreements,
contracts, leases or documents to which the Company is a party of a character
required under the Act and the applicable Rules and Regulations to be described
or referred to in the Registration Statement or Prospectus or to be filed as an
exhibit to the Registration Statement which are not described or referred to
therein or filed as required; to the best of such counsel's knowledge, the
statements contained in the Registration Statement and Prospectus under the
caption "Business--Collaborative Agreements," insofar as such statements
constitute
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<PAGE>
matters of law, are a fair and accurate summary of the matters set forth
therein, as required under the Act and applicable Rules and Regulations;
(xiii) The performance of this Agreement and the
consummation of the transactions herein contemplated (other than performance of
the Company's indemnification obligations hereunder, concerning which no opinion
need be expressed) will not (a) result in any violation of the Company's charter
or bylaws or (b) to such counsel's knowledge, result in a breach or violation of
any of the terms and provisions of, or constitute a default under, any material
bond, debenture, note or other evidence of indebtedness, or any material lease,
contract, indenture, mortgage, deed of trust, loan agreement, joint venture or
other agreement or instrument, filed as an exhibit to the Registration
Statement, or any applicable material statute, rule or regulation known to such
counsel or, to such counsel's knowledge, any material order, writ or decree of
any court, government or governmental agency or body having jurisdiction over
the Company, or over any of its properties or operations;
(xiv) No consent, approval, authorization or order of or
qualification with any court, government or governmental agency or body having
jurisdiction over the Company, or over any of its properties or operations is
necessary in connection with the consummation by the Company of the transactions
herein contemplated, except such as have been obtained under the Act and the
Exchange Act or such as may be required under state or other securities or Blue
Sky laws in connection with the purchase and the distribution of the Shares by
the Underwriters;
(xv) Except as disclosed in the Prospectus under the
caption "Business--Legal Proceedings," to such counsel's knowledge, there are no
legal or governmental proceedings pending or threatened against the Company of a
character required to be disclosed in the Registration Statement or the
Prospectus by the Act or the Rules and Regulations, other than those described
therein;
(xvi) To such counsel's knowledge, the Company is not
presently (a) in material violation of its charter or bylaws, or (b) subject to
any material order, writ or decree of any court or governmental agency or body
having jurisdiction over the Company, or over any of its properties or
operations;
(xvii) To such counsel's knowledge, except as set forth in
the Registration Statement and Prospectus, no holders of Common Stock or other
securities of the Company have registration rights with respect to securities of
the Company and, except as set forth in the Registration Statement and
Prospectus, all holders of securities of the Company having rights known to such
counsel to registration of such shares of Common Stock or other securities,
because of the filing of the Registration Statement by the Company have, with
respect to the offering contemplated thereby, waived such rights or such rights
have expired by reason of lapse of time following notification of the Company's
intent to file the Registration Statement;
(xviii) Except as diclosed in the Prospectus under the
caption "Business--Legal Proceedings," to the best of such counsel's knowledge,
the Company has received no notice of any infringement or misappropriation by a
third party of any patent in Section C of the Patent Portfolio attached hereto
as Exhibit 1 (the "Patent Portfolio") or notice of any infringement or
misappropriation by the Company of any patents, trade secrets, trademarks, trade
names, copyrights or other proprietary rights of a third party;
(xix) Except as disclosed in the Prospectus under the
caption "Business--Legal Proceedings," to the best of such counsel's knowledge,
the Company or its licensor is the sole assignee for
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each patent and patent application listed in Section C of the Patent Portfolio.
Except as otherwise noted in Section C of the Patent Portfolio, the assignments
by the named inventors have been submitted to the United States Patent and
Trademark Office ("USPTO") and those assignments have been recorded in the
Patent Office's title records. However, in one or more of the patents and
patent applications listed in Section C of the Patent Portfolio, the United
States government may hold a nonexclusive, royalty free license as a result of
providing research funding;
(xx) To the best of such counsel's knowledge, the
Company's United States patent applications listed in Section C of the Patent
Portfolio have been prepared and filed in the USPTO in a form and with
accompanying papers that are acceptable to the USPTO for the purposes of
according each such application a filing date and serial number, and of placing
each such application in condition for eventual examination on the merits as to
patentability. For each such U.S. application, such counsel is not aware of any
material defect of form in preparation or filing;
(xxi) To the best of such counsel's knowledge, as to each
of the Company's foreign patent applications listed in Section C of the Patent
Portfolio, the applications have either (a) been submitted to patent firms in
the respective foreign countries with instructions to file the applications in
the patent offices of those countries naming the Company as the owner of record,
or (b) as to certain Patent Cooperation Treaty applications, been submitted
directly to the relevant receiving office naming the Company as the owner of
record. To the best of such counsel's knowledge, as to each of such
applications, the Company has not received notice from any foreign filing
authority of any material defect of form in preparation or filing; and
(xxii) The statements contained in the Registration
Statement and Prospectus under the captions "Risk Factors--Uncertainty of
Protection of Patents and Proprietary Rights; Dependence Upon Trade Secrets" and
"Business--Patents and Proprietary Technology" as they pertain to Section C of
the Patent Portfolio, insofar as such statements constitute matters of law, are
a fair and accurate summary of the matters set forth therein, as required under
the Act and applicable Rules and Regulations.
In addition, such counsel shall state that such counsel has
participated in conferences with officials and other representatives of the
Company, the Representatives, Underwriters' Counsel and the independent
certified public accountants of the Company, at which such conferences the
contents of the Registration Statement and Prospectus and related matters were
discussed, and although they have not verified the accuracy or completeness of
the statements contained in the Registration Statement or the Prospectus,
nothing has come to the attention of such counsel which leads such counsel to
believe that, at the time the Registration Statement became effective, and at
all times subsequent thereto up to (unless cured by a Post-Effective Amendment)
and on the Closing Date and on any later date on which Option Shares are to be
purchased, the Registration Statement and any amendment or supplement thereto
(other than (a) the financial statements including supporting schedules and
other financial and statistical information derived therefrom, and (b)
statements with respect to Section A and Section B of the Patent Portfolio, as
to which such counsel need express no comment) contained any untrue statement of
a material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements therein not misleading, or as of its
date and at the Closing Date or any later date on which the Option Shares are
to be purchased, the Prospectus and any amendment or supplement thereto (except
as aforesaid) contained any untrue statement of a material fact or omitted to
state a material fact necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading.
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Counsel rendering the foregoing opinion may rely as to questions of
law not involving the laws of the United States or the States of California and
Delaware upon opinions of local counsel, and as to questions of fact upon
representations or certificates of officers of the Company and of government
officials, in which case their opinion is to state that they are so relying and
that they have no knowledge of any material misstatement or inaccuracy in any
such opinion, representation or certificate. Copies of any opinion,
representation or certificate so relied upon shall be delivered to you, as
Representatives of the Underwriters, and to Underwriters' Counsel.
(e) You shall have received on the Closing Date and on any later
date on which Option Shares are purchased, the following opinion regarding the
patents and patent applications listed in Section A of the Patent Portfolio of
Pennie and Edmonds, patent counsel for the Company as to Section A of the Patent
Portfolio dated the Closing Date or such later date on which Option Shares are
purchased, addressed to the Underwriters and with reproduced copies or signed
counterparts thereof for each of the Underwriters, stating that such counsel has
reviewed Section A of the Patent Portfolio and to the effect that:
(i) To the best of such counsel's knowledge, except as
otherwise disclosed in Exhibit 1 attached to such opinion, the Company is
licensed to use, or owns, each patent and patent application described in the
Prospectus, as listed in Section A of the Patent Portfolio;
(ii) To the best of such counsel's knowledge, except as
otherwise described in Exhibit 1 attached to such opinion, no third party has
any rights to the patents and patent applications listed in Schedule A of the
Patent Portfolio;
(iii) To the best of such counsel's knowledge, there are no
material legal or governmental proceedings, pending or threatened, with respect
to any issued United States patent listed in Section A of the Patent Portfolio;
(iv) To the best of such counsel's knowledge, the Company
has not received any notice with respect to the potential infringement of, or
conflict with, any patents, trademarks, copyrights, trade secrets, or
proprietary rights, of others;
(v) To the best of such counsel's knowledge, no third
parties are infringing any of the United States patents listed in Schedule A of
the Patent Portfolio;
(vi) The Company's United States patent applications
listed in Section A of the Patent Portfolio have been prepared and filed in the
USPTO in a form and with accompanying papers that are acceptable to the USPTO
for the purposes of according each such application a filing date and serial
number, and of placing each such application in condition for eventual
examination on the merits as to patentability. For each such United States
application an Official Filing Receipt has been received from the USPTO. As to
each of such applications, such counsel is not aware of any material defect of
form in preparation or filing; and the patent applications in Section A of the
Patent Portfolio are being diligently pursued;
(vii) The statements contained in the Registration
Statement and Prospectus under the captions "Risk Factors--Uncertainty of
Protection of Patents and Proprietary Rights; Dependence Upon Trade Secrets" and
"Business--Patents and Proprietary Technology" as they pertain to Section A of
the Patent Portfolio and United States patent rights, insofar as such statements
constitute matters of law, are a fair and accurate summary of the matters set
forth therein; and
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In addition such counsel shall state that such counsel has
participated in conferences with officials and other representatives of the
Company, the Representatives, Underwriters' Counsel and the independent
certified public accountants of the Company, at which such conferences the
contents of the Registration Statement and Prospectus and related matters were
discussed, and although they have not verified the accuracy or completeness of
the statements contained in the Registration Statement or the Prospectus,
nothing has come to the attention of such counsel which leads such counsel to
believe that, at the time the Registration Statement became effective and at all
times subsequent thereto up to and on the Closing Date and on any later date on
which Option Shares are to be purchased, the statements relating to United
States patents and patent applications listed in Section A of the Patent
Portfolio in the Registration Statement and any amendment or supplement thereto
(other than financial statements including supporting schedules and other
financial and statistical information derived therefrom, as to which such
counsel need express no comment) contained any untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, or at the Closing Date
or any later date on which Option Shares are to be purchased, as the case may
be, the statements relating to United States patents listed in Section A of
the Patent Portfolio in the Prospectus, and any amendment or supplement thereto,
(except aforesaid) contained any untrue statement of a material fact or omitted
to state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
(f) You shall have received on the Closing Date and on any later
date on which Option Shares are purchased, the following opinion regarding the
patents and patent applications listed in Section B of the Patent Portfolio of
Marshall O'Toole Gerstein Murray & Borun, patent counsel for the Company as to
Section B of the Patent Portfolio, dated the Closing Date or such later date on
which Option Shares are purchased, addressed to the Underwriters and with
reproduced copies or signed counterparts thereof for each of the Underwriters,
stating that such counsel has reviewed Section B of the Patent Portfolio and to
the effect that:
(i) To the best of such counsel's knowledge, such
knowledge is being based upon the files of such firm, except as otherwise
disclosed in Exhibit 1 attached to such opinion, there are no legal or
governmental proceedings relating to patent rights owned, licensed, or used by
the Company pending against the Company or any third party and, except for the
Company's pending patent applications; to the best of such counsel's knowledge,
there are no legal or governmental proceedings relating to patent rights owed,
licensed or used by third parties pending against the Company; and to the best
of such counsel's knowledge, no such proceedings are threatened or contemplated
by governmental authorities or others;
(ii) To the best of such counsel's knowledge, such
knowledge being based upon the files of such firm, the Company has no notice of
any infringement by a third party of any patent owned or used by the Company;
and to the best of such counsel's knowledge, such knowledge being based upon the
files of such firm,, the Company has not received notice of any claims of
infringement by the Company of any patent owned or used by a third party;
(iii) To the best of such counsel's knowledge, such
knowledge is being based upon the files of such firm, the Company or one of its
licensors is the sole assignee for each patent and patent application listed in
Section B of the Patent Portfolio. Except as noted otherwise in Exhibit 1
attached to such opinion, the assignments by the named inventors have been
submitted to the USPTO and those assignments have been recorded in the Patent
Office's title records. However, in one or more of the patents and patent
applications listed in Section B of the Patent Portfolio, the United States
government may hold a nonexclusive, royalty free license as a result of
providing research funding;
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(iv) To the best of such counsel's knowledge, such
knowledge is being based upon the files of such firm, the Company's United
States patent applications listed in Section B of the Patent Portfolio have been
prepared and filed in the USPTO in a form and with accompanying papers that are
acceptable to the USPTO for the purposes of according each such application a
filing date and serial number, and of placing each such application in condition
for eventual examination on the merits as to patentability. For each such
United States application, except as otherwise noted in Exhibit 1 attached to
this opinion, an Official Filing Receipt has been received from the USPTO. As
to each of such applications, such counsel is not aware of any material defect
of form in preparation or filing. However, there is no assurance that patents
will issue from any pending United States application, or that any claims will
be allowed without amendment. Neither is there any assurance that a patent will
issue without appeal to the Board of Patent Appeals and Interferences or to the
Federal Courts;
(v) To the best of such counsel's knowledge, such
knowledge is being based upon the files of such firm, as to each of the
Company's foreign patents and patent applications listed in Section B of the
Patent Portfolio, the applications have either (a) been submitted to patent
firms in the respective foreign countries with instructions to file the
applications in the patent offices of those countries naming the Company as the
owner of record, or (b) as to certain Patent Cooperation Treaty applications,
been submitted directly to the relevant patent examining authority of those
countries naming the Company or one of its licensors as the owner of record. In
each such application, written confirmation has been received that the
application has, in fact, been accepted for filing by such patent authorities.
There is no assurance that the patent offices of the respective countries will
not reject the claims of the foreign patent applications as being unpatentable,
or that any claims will be allowed without amendment, nor is there any assurance
that these patent authorities will ultimately conclude that the foreign patent
applications meet all requirements for patentability. To the best of such
counsel's knowledge, as to each of such applications, such counsel is not aware
of any material defect of form in preparation or filing;
(vi) The patent applications in Section B of the Patent
Portfolio are being diligently pursued;
(vii) The statements contained in the Registration
Statement and Prospectus under the captions "Risk Factors--Uncertainty of
Protection of Patents and Proprietary Rights; Dependence of Trade Secrets" and
"Business--Patents and Proprietary Technology" insofar as such statements
constitute matters of law, are a fair and accurate summary of the matters set
forth therein; and
In addition, such counsel shall state that such counsel has
participated in conferences with officials and other representatives of the
Company, the Representatives, Underwriters' Counsel and the independent
certified public accountants of the Company, at which such conferences the
contents of the Registration Statement and Prospectus and related matters were
discussed, and although they have not verified the accuracy or completeness of
the statements contained in the Registration Statement or the Prospectus,
nothing has come to the attention of such counsel which leads such counsel to
believe that, at the time of the Registration Statement became effective and at
all times subsequent thereto up to and on the Closing Date and on any later date
on which Option Shares are to be purchased, the statements relating to patents
and patent applications listed in Section B of the Patent Portfolio in the
Registration Statement and any amendment or supplement thereto (other than
financial statements including supporting schedules and other financial and
statistical information derived therefrom, as to which such counsel need express
no comment) contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading, or at the Closing Date or any later date on
which Option Shares are to be purchased, as the case may be, the the statements
relating to patents
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and patent applications listed in Section B of the Patent Portfolio in the
Prospectus, and any amendment or supplement thereto, (except aforesaid)
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading.
(g) You shall have received on the Closing Date and on any later
date on which Option Shares are to be purchased, as the case may be, an opinion
of Wilson Sonsini Goodrich & Rosati, in form and substance satisfactory to you,
with respect to the sufficiency of all such corporate proceedings and other
legal matters relating to this Agreement and the transactions contemplated
hereby as you may reasonably require, and the Company shall have furnished to
such counsel such documents as they may have requested for the purpose of
enabling them to pass upon such matters.
(h) You shall have received on the Closing Date and on any later
date on which Option Shares are to be purchased, as the case may be, a letter
from Ernst & Young LLP addressed to the Underwriters, dated the Closing Date or
such later date on which Option Shares are to be purchased, as the case may be,
confirming that they are independent certified public accountants with respect
to the Company within the meaning of the Act and the applicable published Rules
and Regulations and based upon the procedures described in such letter delivered
to you concurrently with the execution of this Agreement (herein called the
"Original Letter"), but carried out to a date not more than five (5) business
days prior to the Closing Date or such later date on which Option Shares are to
be purchased, as the case may be, (i) confirming, to the extent true, that the
statements and conclusions set forth in the Original Letter are accurate as of
the Closing Date or such later date on which Option Shares are to be purchased,
as the case may be, and (ii) setting forth any revisions and additions to the
statements and conclusions set forth in the Original Letter which are necessary
to reflect any changes in the facts described in the Original Letter since the
date of such letter, or to reflect the availability of more recent financial
statements, data or information. The letter shall not disclose any change in
the condition (financial or otherwise), earnings, operations, business or
business prospects of the Company from that set forth in the Registration
Statement or Prospectus, which, in your sole judgment, is material and adverse
and that makes it, in your sole judgment, impracticable or inadvisable to
proceed with the public offering of the Shares as contemplated by the
Prospectus. The Original Letter from Ernst & Young LLP shall be addressed to or
for the use of the Underwriters in form and substance satisfactory to the
Underwriters and shall (i) represent, to the extent true, that they are
independent certified public accountants with respect to the Company within the
meaning of the Act and the applicable published Rules and Regulations, (ii) set
forth their opinion with respect to their examination of the balance sheets of
the Company as of December 31, 1994 and 1995, and related statements of
operations, stockholders' equity, and cash flows for the twelve (12) months
ended December 31, 1993, 1994 and 1995, (iii) state that Ernst & Young, LLP has
performed the procedure set out in Statement on Auditing Standards No. 71 ("SAS
71") for a review of interim financial information and providing the report of
Ernst & Young LLP as described in SAS 71 in the financial statements for each of
the quarters in the three month period ending March 31, 1996 and 1995 (the
"Quarterly Financial Statements"), (iv) state that in the course of such review,
nothing came to their attention that leads them to believe that any material
modifications need be made to any of the Quarterly Financial Statements in order
for them to be in compliance with generally accepted accounting principles
consistently applied across the periods presented and, (v) address other
matters agreed upon by Ernst & Young, LLP and you. In addition, you shall have
received from Ernst & Young LLP, a letter addressed to the Company and made
available to you for the use of the Underwriters stating that their review of
the Company's system of internal accounting controls, to the extent they deemed
necessary in establishing the scope of their examination of the Company's
financial statements as of December 31, 1995, did not disclose any weaknesses in
internal controls that they considered to be material weaknesses.
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(i) You shall have received on the Closing Date and on any later
date on which Option Shares are to be purchased, as the case may be, a
certificate of the Company, dated the Closing Date or such later date on which
Option Shares are to be purchased, as the case may be, signed by the Chief
Executive Officer and Chief Financial Officer and Vice President, Corporate
Development, of the Company, to the effect that, and you shall be satisfied
that:
(i) The representations and warranties of the Company in
this Agreement are true and correct, as if made on and as of the Closing Date or
any later date on which Option Shares are to be purchased, as the case may be,
and the Company has complied with all the agreements and satisfied all the
conditions on its part to be performed or satisfied at or prior to the Closing
Date or any later date on which Option Shares are to be purchased, as the case
may be;
(ii) No stop order suspending the effectiveness of the
Registration Statement has been issued and no proceedings for that purpose have
been instituted or are pending or threatened under the Act;
(iii) When the Registration Statement became effective and
at all times subsequent thereto up to the delivery of such certificate, the
Registration Statement and the Prospectus, and any amendments or supplements
thereto, contained all material information required to be included therein by
the Act and the Rules and Regulations and in all material respects conformed to
the requirements of the Act and the Rules and Regulations, the Registration
Statement, and any amendment or supplement thereto, did not and does not include
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading (unless cured by a Post-Effective Amendment), the Prospectus, and any
amendment or supplement thereto, did not and does not include any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements therein, in the light of the circumstances under which they were
made, not misleading, and, since the effective date of the Registration
Statement, there has occurred no event required to be set forth in an amended or
supplemented Prospectus which has not been so set forth;
(iv) Subsequent to the respective dates as of which
information is given in the Registration Statement and Prospectus, there has not
been (a) any material adverse change in the condition (financial or otherwise),
earnings, operations, business or business prospects of the Company, (b) any
transaction that is material to the Company, except transactions entered into in
the ordinary course of business, (c) any obligation, direct or contingent, that
is material to the Company incurred by the Company, except obligations incurred
in the ordinary course of business, (d) any change in the capital stock or
outstanding indebtedness of the Company that is material to the Company, (e) any
dividend or distribution of any kind declared, paid or made on the capital stock
of the Company, or (f) any loss or damage (whether or not insured) to the
property of the Company which has been sustained which has a material adverse
effect on the condition (financial or otherwise), earnings, operations, business
or business prospects of the Company; and
(v) All material patents and patent applications are
listed in Exhibit 1 attached hereto.
(j) The Company shall have obtained and delivered to you an
agreement from each officer and director of the Company, and each beneficial
owner of one percent or more of the Company's outstanding shares of capital
stock as of the date of this Agreement in writing prior to the date hereof that
such person will not, during the Lock-up Period, effect the Disposition of any
Securities now owned or hereafter acquired directly by such person or with
respect to which such person has or hereafter acquires the power of disposition,
otherwise than (i) as a bona fide gift or gifts, provided the donee or donees
thereof agree in
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writing to be bound by this restriction, (ii) as a distribution to partners or
stockholders of such person, provided that the distributees thereof agree in
writing to be bound by the terms of this restriction, or (iii) with the prior
written consent of Robertson, Stephens & Company LLC. The foregoing restriction
shall have been expressly agreed to preclude the holder of the Securities from
engaging in any hedging or other transaction which is designed to or reasonably
expected to lead to or result in a Disposition of Securities during the Lock-up
Period, even if such Securities would be disposed of by someone other than the
such holder. Such prohibited hedging or other transactions would including,
without limitation, any short sale (whether or not against the box) or any
purchase, sale or grant of any right (including, without limitation, any put or
call option) with respect to any Securities or with respect to any security
(other than a broad-based market basket or index) that includes, relates to or
derives any significant part of its value from Securities. Furthermore, such
person will have also agreed and consented to the entry of stop transfer
instructions with the Company's transfer agent against the transfer of the
Securities held by such person, except in compliance with this restriction.
(k) The Company shall have furnished to you such further
certificates and documents as you shall reasonably request (including
certificates of officers of the Company as to the accuracy of the
representations and warranties of the Company herein, as to the performance by
the Company of its obligations hereunder and as to the other conditions
concurrent and precedent to the obligations of the Underwriters hereunder.
(l) Concurrent with the issuance of the Shares pursuant to this
Agreement, the Company shall sell to Sang-A Pharm Co., Ltd. ("Sang-A") in a
private placement and at the initial public offering price set forth in the
fourth paragraph of Section 3 hereof, a number of shares of Common Stock of the
Company equal to 10% of the aggregate number of Shares sold to the Underwriters
pursuant to this Agreement and in such private placement; provided, however,
that the total number of shares purchased by Sang-A shall not exceed $5,000,000
divided by the initial public offering price. Furthermore, such sale of shares
of Common Stock to Sang-A shall not require a filing with the Federal Trade
Commission and shall not violate the Hart-Scott-Rodino Act.
All such opinions, certificates, letters and documents will be in
compliance with the provisions hereof only if they are reasonably satisfactory
to Underwriters' Counsel. The Company will furnish you with such number of
conformed copies of such opinions, certificates, letters and documents as you
shall reasonably request.
7. OPTION SHARES.
(a) On the basis of the representations, warranties and agreements
herein contained, but subject to the terms and conditions herein set forth, the
Company hereby grants to the several Underwriters, for the purpose of covering
over-allotments in connection with the distribution and sale of the Firm Shares
only, a nontransferable option to purchase up to an aggregate of 450,000 Option
Shares at the purchase price per share for the Firm Shares set forth in Section
3 hereof. Such option may be exercised by the Representatives on behalf of the
several Underwriters on one (1) or more occasions in whole or in part during the
period of thirty (30) days after the date on which the Firm Shares are initially
offered to the public, by giving written notice to the Company. The number of
Option Shares to be purchased by each Underwriter upon the exercise of such
option shall be the same proportion of the total number of Option Shares to be
purchased by the several Underwriters pursuant to the exercise of such option as
the number of Firm Shares purchased by such Underwriter (set forth in Schedule A
hereto) bears to the total number of Firm Shares
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<PAGE>
purchased by the several Underwriters (set forth in Schedule A hereto), adjusted
by the Representatives in such manner as to avoid fractional shares.
Delivery of definitive certificates for the Option Shares to
be purchased by the several Underwriters pursuant to the exercise of the option
granted by this Section 7 shall be made against payment of the purchase price
therefor by the several Underwriters by wire transfer of same-day funds paid to
an account designated by the Company in writing. Such delivery and payment
shall take place at the offices of Cooley Godward Castro Huddleson & Tatum, Five
Palo Alto Square, 3000 El Camino Real, Palo Alto, California 94306-2155, or at
such other place as may be agreed upon among the Representatives and the Company
(i) on the Closing Date, if written notice of the exercise of such option is
received by the Company at least two (2) full business days prior to the Closing
Date, or (ii) on a date which shall not be later than the third (3rd) full
business day following the date the Company receives written notice of the
exercise of such option, if such notice is received by the Company less than two
(2) full business days prior to the Closing Date.
The certificates for the Option Shares to be so delivered will
be made available to you at such office or such other location including,
without limitation, in New York City, as you may reasonably request for checking
at least one (1) full business day prior to the date of payment and delivery and
will be in such names and denominations as you may request, such request to be
made at least two (2) full business days prior to such date of payment and
delivery. If the Representatives so elect, delivery of the Option Shares may be
made by credit through full fast transfer to the accounts at The Depository
Trust Company designated by the Representatives.
It is understood that you, individually, and not as the
Representatives of the several Underwriters, may (but shall not be obligated to)
make payment of the purchase price on behalf of any Underwriter or Underwriters
whose check or checks shall not have been received by you prior to the date of
payment and delivery for the Option Shares to be purchased by such Underwriter
or Underwriters. Any such payment by you shall not relieve any such Underwriter
or Underwriters of any of its or their obligations hereunder.
(b) Upon exercise of any option provided for in Section 7(a)
hereof, the obligations of the several Underwriters to purchase such Option
Shares will be subject (as of the date hereof and as of the date of payment and
delivery for such Option Shares) to the accuracy of and compliance with the
representations, warranties and agreements of the Company herein, to the
accuracy of the statements of the Company and officers of the Company made
pursuant to the provisions hereof, to the performance by the Company of its
obligations hereunder, to the conditions set forth in Section 6 hereof, and to
the condition that all proceedings taken at or prior to the payment date in
connection with the sale and transfer of such Option Shares shall be
satisfactory in form and substance to you and to Underwriters' Counsel, and you
shall have been furnished with all such documents, certificates and opinions as
you may request in order to evidence the accuracy and completeness of any of the
representations, warranties or statements, the performance of any of the
covenants or agreements of the Company or the satisfaction of any of the
conditions herein contained.
8. INDEMNIFICATION AND CONTRIBUTION.
(a) The Company agrees to indemnify and hold harmless each
Underwriter against any losses, claims, damages or liabilities, joint or
several, to which such Underwriter may become subject (including, without
limitation, in its capacity as an Underwriter or as a "qualified independent
underwriter" within the meaning of Schedule E of the Bylaws of the NASD), under
the Act, the Exchange Act or
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<PAGE>
otherwise, specifically including, but not limited to, losses, claims, damages
or liabilities (or actions in respect thereof) arising out of or based upon (i)
any breach of any representation, warranty, agreement or covenant of the Company
herein contained, (ii) any untrue statement or alleged untrue statement of any
material fact contained in the Registration Statement or any amendment or
supplement thereto, or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, or (iii) any untrue statement or alleged untrue
statement of any material fact contained in any Preliminary Prospectus or the
Prospectus or any amendment or supplement thereto, or the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading, and agrees to reimburse each
Underwriter for any legal or other expenses reasonably incurred by it in
connection with investigating or defending any such loss, claim, damage,
liability or action; PROVIDED, HOWEVER, that the Company shall not be liable in
any such case to the extent that any such loss, claim, damage, liability or
action arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in the Registration Statement,
such Preliminary Prospectus or the Prospectus, or any such amendment or
supplement thereto, in reliance upon, and in conformity with, written
information relating to any Underwriter furnished to the Company by such
Underwriter, directly or through you, specifically for use in the preparation
thereof and, PROVIDED FURTHER, that the indemnity agreement provided in this
Section 8(a) with respect to any Preliminary Prospectus shall not inure to the
benefit of any Underwriter from whom the person asserting any losses, claims,
damages, liabilities or actions based upon any untrue statement or alleged
untrue statement of material fact or omission or alleged omission to state
therein a material fact purchased Shares, if a copy of the Prospectus in which
such untrue statement or alleged untrue statement or omission or alleged
omission was corrected had not been sent or given to such person within the time
required by the Act and the Rules and Regulations, unless such failure is the
result of noncompliance by the Company with Section 4(d) hereof.
The indemnity agreement in this Section 8(a) shall extend upon
the same terms and conditions to, and shall inure to the benefit of, each
person, if any, who controls any Underwriter within the meaning of the Act or
the Exchange Act. This indemnity agreement shall be in addition to any
liabilities which the Company may otherwise have.
(b) Each Underwriter, severally and not jointly, agrees to
indemnify and hold harmless the Company against any losses, claims, damages or
liabilities, joint or several, to which the Company may become subject under the
Act, the Exchange Act or otherwise, specifically including, but not limited to,
losses, claims, damages or liabilities (or actions in respect thereof) arising
out of or based upon (i) any breach of any representation, warranty, agreement
or covenant of such Underwriter herein contained, (ii) any untrue statement or
alleged untrue statement of any material fact contained in the Registration
Statement or any amendment or supplement thereto, or the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, or (iii) any untrue
statement or alleged untrue statement of any material fact contained in any
Preliminary Prospectus or the Prospectus or any amendment or supplement thereto,
or the omission or alleged omission to state therein a material fact necessary
to make the statements therein, in light of the circumstances under which they
were made, not misleading, in the case of subparagraphs (ii) and (iii) of this
Section 8(b) to the extent, but only to the extent, that such untrue statement
or alleged untrue statement or omission or alleged omission was made in reliance
upon and in conformity with written information furnished to the Company by such
Underwriter, directly or through you, specifically for use in the preparation
thereof, and agrees to reimburse the Company for any legal or other expenses
reasonably incurred by the Company in connection with investigating or defending
any such loss, claim, damage, liability or action.
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<PAGE>
The indemnity agreement in this Section 8(b) shall extend upon
the same terms and conditions to, and shall inure to the benefit of, each
officer of the Company who signed the Registration Statement and each director
of the Company, and each person, if any, who controls the Company within the
meaning of the Act or the Exchange Act. This indemnity agreement shall be in
addition to any liabilities which each Underwriter may otherwise have.
(c) Promptly after receipt by an indemnified party under this
Section 8 of notice of the commencement of any action, such indemnified party
shall, if a claim in respect thereof is to be made against any indemnifying
party under this Section 8, notify the indemnifying party in writing of the
commencement thereof but the omission so to notify the indemnifying party will
not relieve it from any liability which it may have to any indemnified party
otherwise than under this Section 8. In case any such action is brought against
any indemnified party, and it notified the indemnifying party of the
commencement thereof, the indemnifying party will be entitled to participate
therein and, to the extent that it shall elect by written notice delivered to
the indemnified party promptly after receiving the aforesaid notice from such
indemnified party, to assume the defense thereof, with counsel reasonably
satisfactory to such indemnified party; PROVIDED, HOWEVER, that if the
defendants in any such action include both the indemnified party and the
indemnifying party and the indemnified party shall have reasonably concluded
that there may be legal defenses available to it and/or other indemnified
parties which are different from or additional to those available to the
indemnifying party, the indemnified party or parties shall have the right to
select separate counsel to assume such legal defenses and to otherwise
participate in the defense of such action on behalf of such indemnified party or
parties. Upon receipt of notice from the indemnifying party to such indemnified
party of the indemnifying party's election so to assume the defense of such
action and approval by the indemnified party of counsel, the indemnifying party
will not be liable to such indemnified party under this Section 8 for any legal
or other expenses subsequently incurred by such indemnified party in connection
with the defense thereof unless (i) the indemnified party shall have employed
separate counsel in accordance with the proviso to the next preceding sentence
(it being understood, however, that the indemnifying party shall not be liable
for the expenses of more than one separate counsel (together with appropriate
local counsel) approved by the indemnifying party representing all the
indemnified parties under Section 8(a) or 8(b) hereof who are parties to such
action), (ii) the indemnifying party shall not have employed counsel
satisfactory to the indemnified party to represent the indemnified party within
a reasonable time after notice of commencement of the action or (iii) the
indemnifying party has authorized the employment of counsel for the indemnified
party at the expense of the indemnifying party. In no event shall any
indemnifying party be liable in respect of any amounts paid in settlement of any
action unless the indemnifying party shall have approved the terms of such
settlement; PROVIDED that such consent shall not be unreasonably withheld. No
indemnifying party shall, without the prior written consent of the indemnified
party, effect any settlement of any pending or threatened proceeding in respect
of which any indemnified party is or could have been a party and indemnification
could have been sought hereunder by such indemnified party, unless such
settlement includes an unconditional release of such indemnified party from all
liability on all claims that are the subject matter of such proceeding.
(d) In order to provide for just and equitable contribution in any
action in which a claim for indemnification is made pursuant to this Section 8
but it is judicially determined (by the entry of a final judgment or decree by a
court of competent jurisdiction and the expiration of time to appeal or the
denial of the last right of appeal) that such indemnification may not be
enforced in such case notwithstanding the fact that this Section 8 provides for
indemnification in such case, all the parties hereto shall contribute to the
aggregate losses, claims, damages or liabilities to which they may be subject
(after contribution from others) in such proportion so that the Underwriters
severally and not jointly are responsible pro rata for the portion represented
by the percentage that the underwriting discount bears to the initial public
offering price, and the
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Company is responsible for the remaining portion, PROVIDED, HOWEVER, that (i) no
Underwriter shall be required to contribute any amount in excess of the amount
by which the underwriting discount applicable to the Shares purchased by such
Underwriter exceeds the amount of damages which such Underwriter has otherwise
required to pay and (ii) no person guilty of a fraudulent misrepresentation
(within the meaning of Section 11(f) of the Act) shall be entitled to
contribution from any person who is not guilty of such fraudulent
misrepresentation. The contribution agreement in this Section 8(d) shall extend
upon the same terms and conditions to, and shall inure to the benefit of, each
person, if any, who controls any Underwriter, the Company within the meaning of
the Act or the Exchange Act and each officer of the Company who signed the
Registration Statement and each director of the Company.
(e) The parties to this Agreement hereby acknowledge that they are
sophisticated business persons who were represented by counsel during the
negotiations regarding the provisions hereof including, without limitation, the
provisions of this Section 8, and are fully informed regarding said provisions.
They further acknowledge that the provisions of this Section 8 fairly allocate
the risks in light of the ability of the parties to investigate the Company and
its business in order to assure that adequate disclosure is made in the
Registration Statement and Prospectus as required by the Act and the Exchange
Act.
9. REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS TO SURVIVE
DELIVERY. All representations, warranties, covenants and agreements of the
Company and the Underwriters herein or in certificates delivered pursuant
hereto, and the indemnity and contribution agreements contained in Section 8
hereof shall remain operative and in full force and effect regardless of any
investigation made by or on behalf of any Underwriter or any person controlling
any Underwriter within the meaning of the Act or the Exchange Act, or by or on
behalf of the Company or any of its officers, directors or controlling persons
within the meaning of the Act or the Exchange Act, and shall survive the
delivery of the Shares to the several Underwriters hereunder or termination of
this Agreement.
10. SUBSTITUTION OF UNDERWRITERS. If any Underwriter or Underwriters
shall fail to take up and pay for the number of Firm Shares agreed by such
Underwriter or Underwriters to be purchased hereunder upon tender of such Firm
Shares in accordance with the terms hereof, and if the aggregate number of Firm
Shares which such defaulting Underwriter or Underwriters so agreed but failed to
purchase does not exceed 10% of the Firm Shares, the remaining Underwriters
shall be obligated, severally in proportion to their respective commitments
hereunder, to take up and pay for the Firm Shares of such defaulting Underwriter
or Underwriters.
If any Underwriter or Underwriters so defaults and the aggregate
number of Firm Shares which such defaulting Underwriter or Underwriters agreed
but failed to take up and pay for exceeds 10% of the Firm Shares, the remaining
Underwriters shall have the right, but shall not be obligated, to take up and
pay for (in such proportions as may be agreed upon among them) the Firm Shares
which the defaulting Underwriter or Underwriters so agreed but failed to
purchase. If such remaining Underwriters do not, at the Closing Date, take up
and pay for the Firm Shares which the defaulting Underwriter or Underwriters so
agreed but failed to purchase, the Closing Date shall be postponed for twenty-
four (24) hours to allow the several Underwriters the privilege of substituting
within twenty-four (24) hours (including non-business hours) another underwriter
or underwriters (which may include any nondefaulting Underwriter) satisfactory
to the Company. If no such underwriter or underwriters shall have been
substituted as aforesaid by such postponed Closing Date, the Closing Date may,
at the option of the Company, be postponed for a further twenty-four (24) hours,
if necessary, to allow the Company the privilege of finding another underwriter
or underwriters, satisfactory to you, to purchase the Firm Shares which the
defaulting Underwriter or Underwriters so agreed but failed to purchase. If it
shall be arranged for the remaining Underwriters or
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<PAGE>
substituted underwriter or underwriters to take up the Firm Shares of the
defaulting Underwriter or Underwriters as provided in this Section 10, (i) the
Company shall have the right to postpone the time of delivery for a period of
not more than seven (7) full business days, in order to effect whatever changes
may thereby be made necessary in the Registration Statement or the Prospectus,
or in any other documents or arrangements, and the Company agrees promptly to
file any amendments to the Registration Statement, supplements to the Prospectus
or other such documents which may thereby be made necessary, and (ii) the
respective number of Firm Shares to be purchased by the remaining Underwriters
and substituted underwriter or underwriters shall be taken as the basis of their
underwriting obligation. If the remaining Underwriters shall not take up and
pay for all such Firm Shares so agreed to be purchased by the defaulting
Underwriter or Underwriters or substitute another underwriter or underwriters as
aforesaid and the Company shall not find or shall not elect to seek another
underwriter or underwriters for such Firm Shares as aforesaid, then this
Agreement shall terminate.
In the event of any termination of this Agreement pursuant to the
preceding paragraph of this Section 10, neither the Company shall be liable to
any Underwriter (except as provided in Sections 5 and 8 hereof) nor shall any
Underwriter (other than an Underwriter who shall have failed, otherwise than for
some reason permitted under this Agreement, to purchase the number of Firm
Shares agreed by such Underwriter to be purchased hereunder, which Underwriter
shall remain liable to the Company and the other Underwriters for damages, if
any, resulting from such default) be liable to the Company (except to the extent
provided in Sections 5 and 8 hereof).
The term "Underwriter" in this Agreement shall include any person
substituted for an Underwriter under this Section 10.
11. EFFECTIVE DATE OF THIS AGREEMENT AND TERMINATION.
(a) This Agreement shall become effective at the earlier of (i)
6:30 A.M., San Francisco time, on the first full business day following the
effective date of the Registration Statement, or (ii) the time of the initial
public offering of any of the Shares by the Underwriters after the Registration
Statement becomes effective. The time of the initial public offering shall mean
the time of the release by you, for publication, of the first newspaper
advertisement relating to the Shares, or the time at which the Shares are first
generally offered by the Underwriters to the public by letter, telephone,
telegram or telecopy, whichever shall first occur. By giving notice as set
forth in Section 12 before the time this Agreement becomes effective, you, as
Representatives of the several Underwriters, or the Company, may prevent this
Agreement from becoming effective without liability of any party to any other
party, except as provided in Sections 4(i), 5 and 8 hereof.
(b) You, as Representatives of the several Underwriters, shall
have the right to terminate this Agreement by giving notice as hereinafter
specified at any time on or prior to the Closing Date or on or prior to any
later date on which Option Shares are to be purchased, as the case may be, (i)
if the Company shall have failed, refused or been unable to perform any
agreement on its part to be performed, or because any other condition to the
Underwriters' obligations hereunder required to be fulfilled is not fulfilled,
including, without limitation, any change in the condition (financial or
otherwise), earnings, operations, business or business prospects of the Company
from that set forth in the Registration Statement or Prospectus, which, in your
sole judgment, is material and adverse, or (ii) if additional material
governmental restrictions, not in force and effect on the date hereof, shall
have been imposed upon trading in securities generally or minimum or maximum
prices shall have been generally established on the New York Stock Exchange or
on the American Stock Exchange or in the over the counter market by the NASD, or
trading in
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<PAGE>
securities generally shall have been suspended on either such exchange or in the
over the counter market by the NASD, or if a banking moratorium shall have been
declared by federal, New York or California authorities, or (iii) if the Company
shall have sustained a loss by strike, fire, flood, earthquake, accident or
other calamity of such character as to interfere materially with the conduct of
the business and operations of the Company regardless of whether or not such
loss shall have been insured, or (iv) if there shall have been a material
adverse change in the general political or economic conditions or financial
markets as in your reasonable judgment makes it inadvisable or impracticable to
proceed with the offering, sale and delivery of the Shares, or (v) if there
shall have been an outbreak or escalation of hostilities or of any other
insurrection or armed conflict or the declaration by the United States of a
national emergency which, in the reasonable opinion of the Representatives,
makes it impracticable or inadvisable to proceed with the public offering of the
Shares as contemplated by the Prospectus. In the event of termination pursuant
to subparagraph (i) above, the Company shall remain obligated to pay costs and
expenses pursuant to Sections 4(i), 5 and 8 hereof. Any termination pursuant to
any of subparagraphs (ii) through (v) above shall be without liability of any
party to any other party except as provided in Sections 5 and 8 hereof.
If you elect to prevent this Agreement from becoming effective or to
terminate this Agreement as provided in this Section 11, you shall promptly
notify the Company by telephone, telecopy or telegram, in each case confirmed by
letter. If the Company shall elect to prevent this Agreement from becoming
effective, the Company shall promptly notify you by telephone, telecopy or
telegram, in each case, confirmed by letter.
12. NOTICES. All notices or communications hereunder, except as herein
otherwise specifically provided, shall be in writing and if sent to you shall be
mailed, delivered, telegraphed (and confirmed by letter) or telecopied (and
confirmed by letter) to you c/o Robertson, Stephens & Company LLC, 555
California Street, Suite 2600, San Francisco, California 94104, telecopier
number (415) 781-0278, Attention: General Counsel with a copy to Wilson Sonsini
Goodrich & Rosati, 650 Page Mill Road, Palo Alto, California 94304-1050,
telecopier number (415) 493-6811, Attention: Alan K. Austin; if sent to the
Company, such notice shall be mailed, delivered, telegraphed (and confirmed by
letter) or telecopied (and confirmed by letter) to Aviron, 297 North Bernardo
Avenue, Mountain View, California 94043, telecopier number (415) 919-6610,
Attention: J. Leighton Read, M.D., Chief Executive Officer with a copy to Cooley
Godward Castro Huddleson & Tatum, Five Palo Alto Square, 3000 El Camino Real,
Palo Alto, California 94306-2155 , telecopier number (415) 857-0663, Attention:
Alan C. Mendelson.
13. PARTIES. This Agreement shall inure to the benefit of and be
binding upon the several Underwriters and the Company and its executors,
administrators, successors and assigns. Nothing expressed or mentioned in this
Agreement is intended or shall be construed to give any person or entity, other
than the parties hereto and their respective executors, administrators,
successors and assigns, and the controlling persons within the meaning of the
Act or the Exchange Act, officers and directors referred to in Section 8 hereof,
any legal or equitable right, remedy or claim in respect of this Agreement or
any provisions herein contained, this Agreement and all conditions and
provisions hereof being intended to be and being for the sole and exclusive
benefit of the parties hereto and their respective executors, administrators,
successors and assigns and said controlling persons and said officers and
directors, and for the benefit of no other person or entity. No purchaser of
any of the Shares from any Underwriter shall be construed a successor or assign
by reason merely of such purchase.
In all dealings with the Company under this Agreement, you shall act
on behalf of each of the several Underwriters, and the Company shall be entitled
to act and rely upon any statement, request, notice or agreement made or given
by you jointly or by Robertson, Stephens & Company LLC, on behalf of you.
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<PAGE>
14. APPLICABLE LAW. This Agreement shall be governed by, and construed
in accordance with, the laws of the State of California.
15. COUNTERPARTS. This Agreement may be signed in several counterparts,
each of which will constitute an original.
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<PAGE>
If the foregoing correctly sets forth the understanding among the
Company and the several Underwriters, please so indicate in the space provided
below for that purpose, whereupon this letter shall constitute a binding
agreement among the Company and the several Underwriters.
Very truly yours,
AVIRON
By:
------------------------------
Name:
------------------------------
Title:
------------------------------
Accepted as of the date first above written:
ROBERTSON, STEPHENS & COMPANY LLC
BEAR STEARNS & CO.
HAMBRECHT & QUIST LLC
On their behalf and on behalf of each of the
several Underwriters named in Schedule A hereto.
By ROBERTSON, STEPHENS & COMPANY LLC
By ROBERTSON, STEPHENS & COMPANY GROUP, L.L.C.
By
--------------------------------
Authorized Signatory
<PAGE>
SCHEDULE A
Number of Firm
Shares To Be
Underwriters Purchased
- ------------------------------ ----------------
ROBERTSON, STEPHENS & COMPANY LLC. . . . . . . . . . . . .
BEAR STEARNS & CO. . . . . . . . . . . . . . . . . . . . .
HAMBRECHT & QUIST LLC. . . . . . . . . . . . . . . . . . .
---------
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . 3,000,000
---------
---------
<PAGE>
EXHIBIT 1
SECTION A - (PENNIE & EDMONDS)
AVIRON REFERENCE NO. AVIRON REFERENCE NO.
- -------------------------------------- ---------------------------------------
5009B 5010B
5009F 5011A
5009G 5011A-DIV
5009G/DIV 5013
5010
5010/DIV
-2-
<PAGE>
EXHIBIT 1
SECTION B - (MARSHALL O'TOOLE)
AVIRON REFERENCE NO. AVIRON REFERENCE NO.
- -------------------------------------- ---------------------------------------
5001 5005
5001-CA 5005-AU
5001-EP 5005-CA
5002-CA 5005-JP
5002-JP 5005-EP
5002-JP/DIV 5005A
5002EP 5006-AU
5002B 5006-CA
5002C 5006-EP
5002C-AU 5006-JP
5002C-CA 5006A
5002C-EP 5006B
5002C-JP 5006C
5002C-ZA 5007-PCT
5002E 5007-KR
5003A 5007-EP
5004A 5007A
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<PAGE>
EXHIBIT 1
SECTION C - (COOLEY GODWARD CASTRO HUDDLESON & TATUM)
AVIRON REFERENCE NO.
- --------------------------------------------------------------------------------
5015
5015-PCT
5015-TW
5015-MY
5015-ID
5016
5016-PCT
5017
5017-PCT
5018
5018-MY
5018-PCT
5019
5021
5022
5023
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<PAGE>
CERTIFICATE OF INCORPORATION OF
AVIRON MERGER CORPORATION
The undersigned, a natural person (the "Sole Incorporator"), for the
purpose of organizing a corporation to conduct the business and promote the
purposes hereinafter stated, under the provisions and subject to the
requirements of the laws of the State of Delaware hereby certifies that:
I.
The name of this Corporation is Aviron Merger Corporation.
II.
The address, including street, number, city, and county, of the registered
office of the Corporation in the State of Delaware is 1013 Centre Road, City of
Wilmington, 19805, County of New Castle; and the name of the registered agent of
the corporation in the State of Delaware at such address is The Prentice-Hall
Corporation System, Inc.
III.
The purpose of this Corporation is to engage in any lawful act or activity
for which a corporation may be organized under the General Corporation Law of
Delaware.
IV.
A. This Corporation is authorized to issue two classes of stock, par
value $.001 per share, to be designated, respectively, "Common Stock" and
"Preferred Stock." The total number of shares which the Corporation is
authorized to issue is Ninety Six Million (96,000,000) shares. Fifty Three
Million (53,000,000) shares shall be Common Stock. Forty Three Million
(43,000,000) shares shall be Preferred Stock.
The Preferred Stock may be issued from time to time in one or more
series. Subject to the protective provisions set forth in Section 5 below, the
Board of Directors is hereby authorized to fix or alter the dividend rights,
dividend rate, conversion rights, voting rights, rights and terms of redemption
(including sinking fund provisions), redemption price or prices, and the
liquidation preferences of any wholly unissued series of Preferred Stock, and
the number of shares constituting any such series and the designation thereof,
or any of them; and to
<PAGE>
increase or decrease the number of shares of any series subsequent to the
issuance of shares of that series, but not below the number of shares of such
series then outstanding. In case the number of shares of any series shall be so
decreased, the shares constituting such decrease shall resume the status that
they had prior to the adoption of the resolution originally fixing the number of
shares of such series.
B. Five Million Two Hundred Twenty Five Thousand (5,225,000) of the
authorized shares of Preferred Stock are hereby designated "Series A Preferred
Stock." Eighteen Million Six Hundred Fifty Thousand (18,650,000) of the
authorized shares of Preferred Stock are hereby designated "Series B Preferred
Stock," and Eighteen Million (18,000,000) of the authorized shares of Preferred
Stock are hereby designated "Series C Preferred Stock." The Series A Preferred
Stock, Series B Preferred Stock and Series C Preferred Stock are collectively
referred to as the "Preferred Stock."
C. The respective rights, preferences, privileges, restrictions and other
matters relating to the Preferred Stock are as follows:
1. DIVIDENDS. The holders of the Preferred Stock shall be entitled
to receive, payable in preference and priority to the holders of Common Stock,
when and as declared by the Board of Directors, out of any assets at the time
legally available therefor, dividends at the rate of:
(a) with respect to the Series A Preferred Stock, $.05 per share
per annum (as appropriately adjusted for any combination, consolidation, stock
distribution, stock dividend, stock split or similar event with respect to such
shares (a "Recapitalization"));
(b) with respect to the Series B Preferred Stock, $.09 per share
per annum (as adjusted for any Recapitalization); and
(c) with respect to the Series C Preferred Stock, $.135 per
share per annum (as adjusted for any Recapitalization).
Such dividends shall not be cumulative and no right to such dividends shall
accrue to holders of Preferred Stock unless declared by the Board of Directors.
No dividends shall be declared or paid with respect to the Common Stock (other
than a dividend payable solely in Common Stock of the Corporation) unless a
dividend of equal or greater amount per share (on an as-if-converted to Common
Stock basis) is first declared and paid with respect to the Preferred Stock.
Each share of Preferred Stock shall rank on parity with every other share of
Preferred Stock, irrespective of series, with regard to dividends, and no
dividends shall be paid, declared or set apart for payment on the shares of any
series of Preferred Stock unless at the same time a dividend for the same
2
<PAGE>
percentage of the respective dividend rates shall also be paid, declared or set
apart for payment, as the case may be, on the shares of Preferred Stock or each
other series then outstanding.
So long as any shares of Preferred Stock shall be outstanding, no dividend,
whether in cash or property, shall be paid or declared, nor shall any other
distribution be made, on any Common Stock, nor shall any shares of the Common
Stock of the Corporation be purchased, redeemed, or otherwise acquired for value
by the Corporation (except for acquisitions of Common Stock by the Corporation
from the founders, directors, employees or consultants of the Corporation
pursuant to agreements which permit the Corporation to repurchase such shares
upon termination of an employment or consulting relationship or in exercise of
the Corporation's right of first refusal upon a proposed transfer) until all
accrued but unpaid dividends on the Preferred Stock shall have been paid or
declared and set apart. In the event dividends are paid on any share of Common
Stock, an additional dividend shall be paid with respect to all outstanding
shares of Preferred Stock in an amount for each such share of Preferred Stock
equal to the aggregate amount of such dividends for all shares of Common Stock
into which each such share of Preferred Stock could then be converted. The
provisions of this Section 1(b) shall not, however, apply to (i) a dividend
payable in Common Stock, (ii) the acquisition of shares of any Common Stock in
exchange for shares of any other Common Stock, or (iii) any repurchase of any
outstanding securities of the Corporation that is approved by the Corporation's
Board of Directors.
2. LIQUIDATION PREFERENCE.
(a) In the event of any liquidation, dissolution or winding up
of the Corporation, either voluntary or involuntary, the holders of the Series
A Preferred Stock, Series B Preferred Stock, and Series C Preferred Stock shall
be entitled to receive, prior and in preference to any distribution of any of
the assets or surplus funds of the Corporation to the holders of Common Stock by
reason of their ownership thereof, the amount of $.50, $.90, and $1.35 per
share, respectively (appropriately adjusted for any Recapitalization), plus all
declared but unpaid dividends on such share for each share of Series A Preferred
Stock, Series B Preferred Stock, or Series C Preferred Stock then held by them.
If upon the occurrence of such event, the assets and funds thus distributed
among the holders of the Preferred Stock shall be insufficient to permit the
payment to such holders of the full aforesaid preferential amount, then the
entire assets and funds of the Corporation legally available for distribution
shall be distributed among the holders of the Preferred Stock in proportion to
the full amounts to which they would otherwise be entitled and in proportion to
the number of shares of Preferred Stock then held by them.
(b) After payment to the holders of Preferred Stock of the
amount set forth in subparagraph (a) above, the entire remaining assets and
funds of the Corporation legally available for distribution, if any, shall be
distributed among the holders of the Preferred
3
<PAGE>
Stock and Common Stock pro rata based on the number of shares of Common Stock
held by them (assuming conversion of all Preferred Stock).
(c) A consolidation or merger of the Corporation with or into
any other corporation or corporations, or a sale of all or substantially all of
the assets of the Corporation, other transaction or series of related
transactions resulting in a change of voting control shall be deemed a
liquidation, dissolution or winding up within the meaning of this Section 2 if
(a) more than 50% of the outstanding securities of each class of the surviving
entity, or (b) an interest in equity securities representing at least 50% of the
voting power or at least 50% of the equity interest in the surviving entity, is
not owned by persons who were holders of capital stock or securities convertible
into capital stock of the Corporation immediately prior to such merger,
consolidation or sale; provided, however, that the sale of Preferred Stock to
private investors pursuant to a Preferred Stock Purchase Agreement shall not
constitute a liquidation, dissolution or winding up within the meaning of this
section.
3. VOTING RIGHTS. Except as otherwise expressly provided herein or
as required by law, the holder of each share of Preferred Stock shall be
entitled to the number of votes equal to the number of shares of Common Stock
into which such share of Preferred Stock could be converted on the record date
for the vote or the date of the solicitation of any written consent of
shareholders and shall have voting rights and powers equal to the voting rights
and powers of the Common Stock (except as otherwise expressly provided herein or
as required by law, voting together with the Common Stock as a single class) and
shall be entitled to notice of any stockholders' meeting in accordance with the
Bylaws of the Corporation. Fractional votes shall not, however, be permitted
and any fractional voting rights resulting from the above formula (after
aggregating all shares into which shares of Preferred Stock held by each holder
could be converted) shall be rounded to the nearest whole number (with one-half
being rounded upward).
4. CONVERSION. The holders of Preferred Stock shall have conversion
rights as follows (the "Conversion Rights"):
(a) RIGHT TO CONVERT. Each share of Preferred Stock shall be
convertible, at the option of the holder thereof, at any time after the date of
issuance of such share, at the office of the Corporation or any transfer agent
for such stock. The number of fully paid and nonassessable shares of Common
Stock to which a holder of Series A Preferred Stock shall be entitled upon
conversion shall be the product obtained by multiplying the "Series A Conversion
Rate" then in effect (determined as provided in Section 4(b)) by the number of
shares of Series A Preferred Stock being converted. The number of fully paid
and nonassessable shares of Common Stock to which a holder of Series B Preferred
Stock shall be entitled upon conversion shall be the product obtained by
multiplying the "Series B Conversion Rate" then in effect (determined as
provided in Section 4(c)) by the number of shares of Series B Preferred being
4
<PAGE>
converted. The number of fully paid and nonassessable shares of Common Stock to
which a holder of Series C Preferred Stock shall be entitled upon conversion
shall be the product obtained by multiplying the "Series C Conversion Rate" then
in effect (determined as provided in Section 4(d)) by the number of shares of
Series C Preferred being converted.
(b) SERIES A CONVERSION RATE. The conversion rate in effect at
any time for conversion of the Series A Preferred Stock (the "Series A
Conversion Rate") shall be the quotient obtained by dividing $.50 by the "Series
A Conversion Price," calculated as provided in Section 4(e).
(c) SERIES B CONVERSION RATE. The conversion rate in effect at
any time for conversion of the Series B Preferred Stock (the "Series B
Conversion Rate") shall be the quotient obtained by dividing $.90 by the "Series
B Conversion Price," calculated as provided in Section 4(e).
(d) SERIES C CONVERSION RATE. The conversion rate in effect at
any time for conversion of the Series C Preferred Stock (the "Series C
Conversion Rate") shall be the quotient obtained by dividing $1.35 by the
"Series C Conversion Price," calculated as provided in Section 4(e).
(e) CONVERSION PRICE. The conversion price for the Series A
Preferred Stock shall initially be $2.50 (the "Series A Conversion Price"). The
conversion price of the Series B Preferred Stock shall initially be $4.50 (the
"Series B Conversion Price"). The conversion price of the Series C Preferred
Stock shall initially be $6.75 (the "Series C Conversion Price"). Such initial
Series A Conversion Price, Series B Conversion Price and Series C Conversion
Price (the "Conversion Prices") shall be adjusted from time to time in
accordance with this Section 4. All references to the Conversion Prices herein
shall mean the Conversion Prices as so adjusted.
(f) AUTOMATIC CONVERSION. Each share of Preferred Stock shall
automatically be converted into shares of Common Stock at the then effective
Conversion Price immediately upon (i) the closing of the sale of the
Corporation's Common Stock in a firm commitment, underwritten public offering
registered under the Securities Act of 1933, as amended (other than a
registration relating solely to a transaction under Rule 145 under such Act (or
any successor thereto) or to an employee benefit plan of the Company), with
aggregate proceeds to the Corporation (before deduction of underwriter
commissions and expenses relating to the issuance including without limitation
fees of the Corporation's counsel) which equal or exceed $10,000,000, or (ii)
upon receipt by the Corporation of the affirmative vote at a duly noticed
5
<PAGE>
shareholders meeting or pursuant to a duly solicited written consent of approval
of the holders of at least a majority of the then outstanding shares of the
Series A Preferred Stock, the Series B Preferred Stock, and the Series C
Preferred Stock, voting together as a single class in favor of the conversion of
all of the shares of Preferred Stock into Common Stock.
(g) MECHANICS OF CONVERSION. Before any holder of Preferred
Stock shall be entitled to convert the same into shares of Common Stock, the
holder shall surrender the certificate or certificates thereof, duly endorsed,
at the office of the Corporation or of any transfer agent for such stock, and
shall give written notice to the Corporation at such office that he elects to
convert the same and shall state therein the name or names in which he wishes
the certificate or certificates for shares of Common Stock to be issued. The
Corporation shall, as soon as practicable thereafter, issue and deliver at such
office to such holder of Preferred Stock, a certificate or certificates for the
number of shares of Common Stock to which he shall be entitled as aforesaid.
Such conversion shall be deemed to have been made immediately prior to the close
of business on the date of surrender of the shares of Preferred Stock to be
converted, except that in the case of an automatic conversion pursuant to
Section 4(f) hereof, such conversion shall be deemed to have been made (i)
immediately prior to the closing of the offering referred to in Section 4(f)(i)
or (ii) immediately upon the approval by vote or written consent referred to in
Section 4(f)(ii) above, and the person or persons entitled to receive the shares
of Common Stock issuable upon such conversion shall be treated for all purposes
as the record holder or holders of such shares of Common Stock on such date.
(h) ADJUSTMENTS TO CONVERSION PRICE.
(i) SPECIAL DEFINITIONS. For purposes of this Section 4(h)
`ORIGINAL ISSUE DATE' shall mean the date on which a share of Preferred Stock
was first issued.
(ii) ADJUSTMENTS FOR COMBINATIONS OR SUBDIVISIONS OF COMMON
STOCK. In the event the Corporation at any time or from time to time after the
Original Issue Date shall declare or pay any dividend on the Common Stock
payable in Common Stock or in any right to acquire Common Stock, or shall effect
a subdivision of the outstanding shares of Common Stock into a greater number of
shares of Common Stock (by stock split, reclassification or otherwise), or in
the event the outstanding shares of Common Stock shall be combined or
consolidated, by reclassification or otherwise, into a lesser number of shares
of Common Stock, then the respective Conversion Prices of the Series A Preferred
Stock, Series B Preferred Stock and Series C Preferred Stock in effect
immediately prior to such event shall, concurrently with the effectiveness of
such event, be proportionately decreased or increased, as appropriate.
(i) OTHER DISTRIBUTIONS. In the event the Corporation shall at
any time or from time to time make or issue, or fix a record date for the
determination of holders of
6
<PAGE>
Common Stock entitled to receive, a dividend or other distribution payable in
securities of the Corporation or any of its subsidiaries, then in each such
event provision shall be made so that the holders of Preferred Stock shall
receive, upon the conversion thereof, the securities of the Corporation or any
of its subsidiaries which they would have received had their stock been
converted into Common Stock on the date of such event.
(j) NO IMPAIRMENT. The Corporation will not, by amendment of
its Articles of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed hereunder by the Corporation, but will at
all times in good faith assist in the carrying out of all the provisions of this
Section 4 and in the taking of all such action as may be necessary or
appropriate in order to protect the Conversion Rights of the holders of the
Preferred Stock against impairment.
(k) CERTIFICATES AS TO ADJUSTMENTS. Upon the occurrence of each
adjustment or readjustment of the Conversion Price pursuant to this Section 4,
the Corporation at its expense shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and cause independent public
accountants selected by the Corporation to verify such computation and prepare
and furnish to each holder of Preferred Stock a certificate setting forth such
adjustment or readjustment and showing in detail the facts upon which such
adjustment or readjustment is based. The Corporation shall, upon the written
request at any time of any holder of Preferred Stock, furnish or cause to be
furnished to such holder a like certificate setting forth (i) such adjustments
and readjustments, (ii) the Conversion Price at the time in effect, and (iii)
the number of shares of Common Stock and the amount, if any, of other property
which at the time would be received upon the conversion of Preferred Stock.
(l) NOTICES OF RECORD DATE. In the event of any taking by the
Corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend) or other distribution, any security or
right convertible into or entitling the holder thereof to receive shares of
Common Stock, or any right to subscribe for, purchase or otherwise acquire any
shares of stock of any class or any other securities or property, or to receive
any other right, the Corporation shall mail to each holder of Preferred Stock at
least 20 days prior to the date specified therein, a notice specifying the date
on which any such record is to be taken for the purpose of such dividend,
distribution, security or right, and the amount and character of such dividend,
distribution, security or right.
(m) ISSUE TAXES. The Corporation shall pay any and all issue
and other taxes, excluding federal, state or local income taxes, that may be
payable in respect of any
7
<PAGE>
issue or delivery of shares of Common Stock on conversion of shares of Preferred
Stock pursuant hereto; provided, however, that the Corporation shall not be
obligated to pay any transfer taxes resulting from any transfer requested by any
holder in connection with any such conversion.
(n) RESERVATION OF STOCK ISSUABLE UPON CONVERSION. The
Corporation shall at all times reserve and keep available out of its authorized
but unissued shares of Common Stock, solely for the purpose of effecting the
conversion of the shares of the Preferred Stock, such number of its shares of
Common Stock as shall from time to time be sufficient to effect the conversion
of all outstanding shares of the Preferred Stock; and if at any time the number
of authorized but unissued shares of Common Stock shall not be sufficient to
effect the conversion of all then outstanding shares of the Preferred Stock, the
Corporation will take such corporate action as may, in the opinion of its
counsel, be necessary to increase its authorized but unissued shares of Common
Stock to such number of shares as shall be sufficient for such purpose,
including, without limitation, engaging in best efforts to obtain the requisite
shareholder approval of any necessary amendment to this Articles of
Incorporation.
(o) CONSENT TO CERTAIN DISTRIBUTIONS. Each holder of
Preferred Stock shall be deemed to have consented to distributions and payments
made by the Corporation and approved by the Board of Directors of the
Corporation in connection with the repurchases of shares of Common Stock issued
or to held by directors, board advisors and employees of, or consultants to, the
Corporation upon termination of their employment or services.
(p) FRACTIONAL SHARES. No fractional share shall be issued upon
the conversion of any share or shares of Preferred Stock. All shares of Common
Stock (including fractions thereof) issuable upon conversion of more than one
share of Preferred Stock by a holder thereof shall be aggregated for purposes of
determining whether the conversion would result in the issuance of any
fractional share. If, after the aforementioned aggregation, the conversion
would result in the issuance of a fraction of a share of Common Stock, the
Corporation shall, in lieu of issuing any fractional share, pay the holder
otherwise entitled to such fraction a sum in cash equal to the fair market value
of such fraction on the date of conversion (as determined in good faith by the
Board of Directors of the Corporation).
(q) NOTICES. Any notice required by the provisions of this
Section 4 to be given to the holders of shares of Preferred Stock shall be
deemed given if deposited in the United States mail, postage prepaid, and
addressed to each holder of record at its address appearing on the books of the
Corporation. Notwithstanding the above, any notice or communication to an
address outside the United States shall be sent by telecopy and confirmed in
writing sent by courier guaranteeing delivery in no more than two (2) business
days.
8
<PAGE>
(r) ADJUSTMENTS. In case of any reorganization or any
reclassification of the capital stock of the Corporation, any consolidation or
merger of the Corporation with or into another corporation or corporations, or
the conveyance of all or substantially all of the assets of the Corporation to
another corporation, each share of Preferred Stock shall thereafter be
convertible into the number of shares of stock or other securities or property
(including cash) to which a holder of the number of shares of Common Stock
deliverable upon conversion of such share of Preferred Stock would have been
entitled upon the record date of (or date of, if no record date is fixed) such
reorganization, reclassification, consolidation, merger or conveyance; and, in
any case, appropriate adjustment (as determined by the Board of Directors) shall
be made in the application of the provisions herein set forth with respect to
the rights and interests thereafter of the holders of such Preferred Stock, to
the end that the provisions set forth herein shall thereafter be applicable, as
nearly as equivalent as is practicable, in relation to any shares of stock or
the securities or property (including cash) thereafter deliverable upon the
conversion of the shares of such Preferred Stock.
5. RESTRICTIONS AND LIMITATIONS. So long as at least 5,000,000 of
the authorized shares of Preferred Stock remain outstanding, the Corporation
shall not, without the vote or written consent by the holders of majority of the
then outstanding shares of Series A Preferred Stock, Series B Preferred Stock,
and Series C Preferred Stock, voting together as a single class on an as-
converted basis:
(a) Amend, repeal or waive any provision of, or add any
provision to, the Corporation's Articles of Incorporation if such action would
alter or change in an adverse manner the preferences, rights, privileges or
powers of, or the restrictions provided for the benefit of, the Preferred Stock;
(b) Increase the total number of authorized shares of Common
Stock or Preferred Stock of the Corporation or the number of shares designated
as any series of Preferred Stock;
(c) Authorize or issue, or obligate itself to issue, any other
equity security senior to the Series A Preferred Stock Series B Preferred Stock
or Series C Preferred Stock as to dividend or redemption rights, liquidation
preferences, conversion rights, voting rights or otherwise, or create any
obligation or security convertible into or exchangeable for, or having any
option rights to purchase, any such equity security which is senior to the
Series A Preferred Stock, Series B Preferred Stock or Series C Preferred Stock;
provided, however, that an equity security issued subsequent to the issuance of
the Series A Preferred Stock, Series B Preferred Stock or Series C Preferred
Stock for a share price and corresponding liquidation price higher than that of
the Series A Preferred Stock, Series B Preferred Stock, or Series C Preferred
Stock
9
<PAGE>
shall not be deemed senior to the Series A Preferred Stock, Series B Preferred
Stock or Series C Preferred Stock solely by reason of such share price and
liquidation price;
(d) Do any act or thing which would result in taxation of the
holders of shares of the Preferred Stock under Section 305 of the Internal
Revenue Code of 1968, as amended (the "Code") (or any comparable provision of
the Code as hereafter from time to time amended);
(e) Effect any sale or other conveyance of all or substantially
all of the assets of the Corporation or any of its subsidiaries, or any
consolidation or merger involving the Corporation or any of its subsidiaries
with or into any other corporation, if more than 50% of the surviving entity is
not owned by persons who were holders of capital stock or securities convertible
into capital stock of the Corporation immediately prior to such merger,
consolidation or sale; or
(f) Set aside any amounts for or purchase, or declare or pay any
dividend or make any other distribution on, any shares of capital stock other
than the Series A Preferred Stock, Series B Preferred Stock or Series C
Preferred Stock, except for repurchases required by current agreements with
directors, consultants or employees.
6. NO REISSUANCE OF PREFERRED STOCK. No share or shares of
Preferred Stock acquired by the Corporation by reason of redemption, purchase,
conversion or otherwise shall be reissued, and all such shares shall be returned
to the status of undesignated shares of Preferred Stock.
V.
A. For the management of the business and for the conduct of the affairs
of the Corporation, and in further definition, limitation and regulation of the
powers of the Corporation, of its directors and of its stockholders or any class
thereof, as the case may be, it is further provided that:
1. The management of the business and the conduct of the affairs of
the Corporation shall be vested in its Board of Directors. The number of
directors which shall constitute the whole Board of Directors shall be fixed
exclusively by one or more resolutions adopted by the Board of Directors.
2. Subject to the rights of the holders of any series of Preferred
Stock to elect additional directors under specified circumstances, following the
closing of the initial public offering pursuant to an effective registration
statement under the Securities Act of 1933, as
10
<PAGE>
amended, covering the offer and sale of Common Stock to the public (the "Initial
Public Offering"), the directors shall be divided into three classes designated
as Class I, Class II and Class III, respectively. Directors shall be assigned
to each class in accordance with a resolution or resolutions adopted by the
Board of Directors. At the first annual meeting of stockholders following the
closing of the Initial Public Offering, the term of office of the Class I
directors shall expire and Class I directors shall be elected for a full term of
three years. At the second annual meeting of stockholders following the Closing
of the Initial Public Offering, the term of office of the Class II directors
shall expire and Class II directors shall be elected for a full term of three
years. At the third annual meeting of stockholders following the Closing of the
Initial Public Offering, the term of office of the Class III directors shall
expire and Class III directors shall be elected for a full term of three years.
At each succeeding annual meeting of stockholders, directors shall be elected
for a full term of three years to succeed the directors of the class whose terms
expire at such annual meeting.
Notwithstanding the foregoing provisions of this Article, 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.
3. Subject to the rights of the holders of any series of Preferred
Stock, 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 a
majority of the voting power of all the then-outstanding shares of voting stock
of the Corporation, entitled to vote at an election of directors (the "Voting
Stock") or (ii) without cause by the affirmative vote of the holders of at least
sixty-six and two-thirds percent (66 2/3%) of the voting power of all the then-
outstanding shares of the Voting Stock.
4. Subject to the rights of the holders of any series of Preferred
Stock, any vacancies on the Board of Directors resulting from death,
resignation, disqualification, removal or other causes and any newly created
directorships resulting from any increase in the number of directors, shall,
unless the Board of Directors determines by resolution that any such vacancies
or newly created directorships shall be filled by the stockholders, except as
otherwise provided by law, be filled only by the affirmative vote of a majority
of the directors then in office, even though less than a quorum of the Board of
Directors, and not by the stockholders. Any director elected in accordance with
the preceding sentence shall hold office for the remainder of the full term of
the director for which the vacancy was created or occurred and until such
director's successor shall have been elected and qualified.
B. 1. 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-
11
<PAGE>
thirds percent (66-2/3%) of the voting power of all of the then-outstanding
shares of the Voting Stock. The Board of Directors shall also have the power to
adopt, amend, or repeal Bylaws.
2. The directors of the Corporation need not be elected by written
ballot unless the Bylaws so provide.
3. No action shall be taken by the stockholders of the Corporation
except at an annual or special meeting of stockholders called in accordance with
the Bylaws and following the closing of the Initial Public Offering no action
shall be taken by the stockholders by written consent.
4. Advance notice of stockholder nominations for the election of
directors and of business to be brought by stockholders before any meeting of
the stockholders of the Corporation shall be given in the manner provided in the
Bylaws of the Corporation.
5. 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 President, (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) or (iv) by the holders of the shares entitled to cast not less that
ten percent (10%) of the votes at the meeting, and shall be held at such place,
on such date, and at such time as the Board of Directors shall fix.
VI.
A. A director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for any breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the Delaware General Corporation
Law, or (iv) for any transaction from which the director derived an improper
personal benefit. If the Delaware General Corporation Law is amended after
approval by the stockholders of this Article to authorize corporate action
further eliminating or limiting the personal liability of directors, then the
liability of a director shall be eliminated or limited to the fullest extent
permitted by the Delaware General corporation Law, as so amended.
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<PAGE>
B. Any repeal or modification of this Article VI shall be prospective and
shall not affect the rights under this Article VI in effect at the time of the
alleged occurrence of any act or omission to act giving rise to liability or
indemnification.
VII.
A. The Corporation reserves the right to amend, alter, change or repeal
any provision contained in this Certificate of Incorporation, in the manner now
or hereafter prescribed by statute, except as provided in paragraph B. of this
Article VII, and all rights conferred upon the stockholders herein are granted
subject to this reservation.
B. Notwithstanding any other provisions of this Certificate of
Incorporation or any provision of law which might otherwise permit a lesser vote
or no vote, but in addition to any affirmative vote of the holders of any
particular class or series of the Voting Stock required by law, this Certificate
of Incorporation or any Preferred Stock Designation, the affirmative vote of the
holders 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, voting together
as a single class, shall be required to alter, amend or repeal Articles V, VI,
and VII.
VIII.
The name and mailing address of the Sole Incorporator is as follows:
Paula Holm Jensen
Cooley Godward Castro Huddleson & Tatum
3000 El Camino Real
5 Palo Alto Square
Palo Alto, CA 94306-2155
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<PAGE>
BYLAWS
OF
AVIRON MERGER CORPORATION
(A DELAWARE CORPORATION)
<PAGE>
BYLAWS
OF
AVIRON MERGER CORPORATION
(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 Dover, County of
Kent.
SECTION 2. OTHER OFFICES. The corporation shall also have and
maintain an office or principal place of business 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
1.
<PAGE>
on such date and at such time as may be designated from time to time by the
Board of Directors.
(b) At an annual meeting of the stockholders, only such
business shall be conducted as shall have been properly brought before the
meeting. To be properly brought before an annual meeting, business must be:
(A) specified in the notice of meeting (or any supplement thereto) given by or
at the direction of the Board of Directors, (B) otherwise properly brought
before the meeting by or at the direction of the Board of Directors, or (C)
otherwise properly brought before the meeting by a stockholder. For business to
be properly brought before an annual meeting by a stockholder, the stockholder
must have given timely notice thereof in writing to the Secretary of the
corporation. To be timely, a stockholder's notice must be delivered to or
mailed and received at the principal executive offices of the corporation not
later than the close of business on the sixtieth (60th) day nor earlier than the
close of business on the ninetieth (90th) day prior to the first anniversary of
the preceding year's annual meeting; PROVIDED, HOWEVER, that in the event that
no annual meeting was held in the previous year or the date of the annual
meeting has been changed by more than thirty (30) days from the date
contemplated at the time of the previous year's proxy statement, notice by the
stockholder to be timely must be so received not earlier than the close of
business on the ninetieth (90th) day prior to such annual meeting and not later
than the close of business on the later of the sixtieth (60th) day prior to such
annual meeting or, in the event public announcement of the date of such annual
meeting is first made by the corporation fewer than seventy (70) days prior to
the date of such annual meeting, the close of business on the tenth (10th) day
following the day on which public announcement of the date of such meeting is
first made by the corporation. A stockholder's notice to the Secretary shall set
forth as to each matter the stockholder proposes to bring before the annual
meeting: (i) a brief description of the business desired to be brought before
the annual meeting and the reasons for conducting such business at the annual
meeting, (ii) the name and address, as they appear on the corporation's books,
of the stockholder proposing such business, (iii) the class and number of shares
of the corporation which are beneficially owned by the stockholder, (iv) any
material interest of the stockholder in such business and (v) any other
information that is required to be provided by the stockholder pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as amended (the "1934
Act"), in his capacity as a proponent to a stockholder proposal.
Notwithstanding the foregoing, 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. Notwithstanding anything in these
Bylaws to the contrary, no business shall be conducted at any annual meeting
except in accordance with the procedures set forth in this paragraph (b). The
chairman of the annual meeting shall, if the facts warrant, determine and
declare at the meeting that business was not properly brought before the meeting
and in accordance with the provisions of this paragraph (b), and, if he should
so determine, he shall so declare at the meeting that any such business not
properly brought before the meeting shall not be transacted.
(c) Only persons who are nominated in accordance with the
procedures set forth in this paragraph (c) shall be eligible for election as
directors. Nominations of persons for election to the Board of Directors of the
corporation may be made at a meeting of stockholders
2.
<PAGE>
by or at the direction of the Board of Directors or by any stockholder of the
corporation entitled to vote in the election of directors at the meeting who
complies with the notice procedures set forth in this paragraph (c). Such
nominations, other than those made by or at the direction of the Board of
Directors, shall be made pursuant to timely notice in writing to the Secretary
of the corporation in accordance with the provisions of paragraph (b) of this
Section 5. Such stockholder's notice shall set forth (i) as to each person, if
any, whom the stockholder proposes to nominate for election or re-election as a
director: (A) the name, age, business address and residence address of such
person, (B) the principal occupation or employment of such person, (C) the class
and number of shares of the corporation which are beneficially owned by such
person, (D) a description of all arrangements or understandings between the
stockholder and each nominee and any other person or persons (naming such person
or persons) pursuant to which the nominations are to be made by the stockholder,
and (E) any other information relating to such person that is required to be
disclosed in solicitations of proxies for election of directors, or is otherwise
required, in each case pursuant to Regulation 14A under the 1934 Act (including
without limitation such person's written consent to being named in the proxy
statement, if any, as a nominee and to serving as a director if elected); and
(ii) as to such stockholder giving notice, the information required to be
provided pursuant to paragraph (b) of this Section 5. At the request of the
Board of Directors, any person nominated by a stockholder for election as a
director shall furnish to the Secretary of the corporation that information
required to be set forth in the stockholder's notice of nomination which
pertains to the nominee. No person shall be eligible for election as a director
of the corporation unless nominated in accordance with the procedures set forth
in this paragraph (c). The chairman of the meeting shall, if the facts warrant,
determine and declare at the meeting that a nomination was not made in
accordance with the procedures prescribed by these Bylaws, and if he should so
determine, he shall so declare at the meeting, and the defective nomination
shall be disregarded.
(d) 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 Exchange 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, (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) or (iv) by the holders of shares entitled to cast not
less than ten percent (10%) of the votes at the meeting, and shall be held at
such place, on such date, and at such time as the Board of Directors, shall fix.
(b) If a special meeting is 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
3.
<PAGE>
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 sixty (60) days after the receipt of
the request, the person or persons 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.
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.
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 law, the Certificate of Incorporation
or these Bylaws, all action taken by the holders of a majority of the vote cast,
excluding abstentions, at any meeting at which a quorum is present shall be
valid and binding upon the corporation; PROVIDED, HOWEVER, that 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
4.
<PAGE>
majority (plurality, in the case of the election of directors) of the votes
cast, including abstentions, by the holders of shares of such 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, excluding abstentions. 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. Every
person entitled to vote or execute consents (if such consents are allowed
pursuant to these Bylaws) 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) 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 General Corporation Law of Delaware,
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
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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.
(a) Unless otherwise provided in the Certificate of
Incorporation, any action required by statute to be taken at any annual or
special meeting of the stockholders, or any action which may be taken at any
annual or special meeting of the stockholders, may be taken without a meeting,
without prior notice and without a vote, if a consent in writing, setting forth
the action so taken, shall be signed by the holders of outstanding stock having
not less than the minimum number of votes that would be necessary to authorize
or take such action at a meeting at which all shares entitled to vote thereon
were present and voted.
(b) Every written consent shall bear the date of signature of
each stockholder who signs the consent, and no written consent shall be
effective to take the corporate action referred to therein unless, within sixty
(60) days of the earliest dated consent delivered to the corporation in the
manner herein required, written consents signed by a sufficient number of
stockholders to take action are delivered to the corporation by delivery to its
registered office in the State of Delaware, its principal place of business or
an officer or agent of the corporation having custody of the book in which
proceedings of meetings of stockholders are recorded. Delivery made to a
corporation's registered office shall be by hand or by certified or registered
mail, return receipt requested.
(c) Prompt notice of the taking of the corporate action without
a meeting by less than unanimous written consent shall be given to those
stockholders who have not consented in writing. If the action which is
consented to is such as would have required the filing of a certificate under
any section of the General Corporation Law of the State of Delaware if such
action had been voted on by stockholders at a meeting thereof, then the
certificate filed under such section shall state, in lieu of any statement
required by such section concerning any vote of stockholders, that written
notice and written consent have been given as provided in Section 228 of the
General Corporation Law of Delaware.
(d) Notwithstanding the foregoing, no such action by written
consent may be taken following the closing of the initial public offering
pursuant to an effective registration statement under the Securities Act of
1933, As amended (the "1933 Act"), covering the offer and sale of Common Stock
of the corporation (the "Initial Public Offering").
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 Chief
Executive Officer, or, if the Chief
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Executive Officer 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 Chairman, 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 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. CLASSES OF DIRECTORS. Subject to the rights of the holders
of any series of Preferred Stock to elect additional directors under specified
circumstances, following the closing of the Initial Public Offering, the
directors shall be divided into three classes designated as Class I, Class II
and Class III, respectively. Directors shall be assigned to each class in
accordance with a resolution or resolutions adopted by the Board of Directors.
At the first annual meeting of stockholders following the closing of the Initial
Public Offering, the term of office of the Class I directors shall expire and
Class I directors shall be elected for a full term of three years. At the
second annual meeting of stockholders following the Closing of the Initial
Public Offering,
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the term of office of the Class II directors shall expire and Class II directors
shall be elected for a full term of three years. At the third annual meeting of
stockholders following the Closing of the Initial Public Offering, the term of
office of the Class III directors shall expire and Class III directors shall be
elected for a full term of three years. At each succeeding annual meeting of
stockholders, directors shall be elected for a full term of three years to
succeed the directors of the class whose terms expire at such annual meeting.
Notwithstanding the foregoing provisions of this Article, 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 and any newly created
directorships resulting from any increase in the number of directors, shall
unless the Board of Directors determines by resolution that any such vacancies
or newly created directorships shall be filled by stockholders, be filled only
by the affirmative vote of a majority 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 director for which the vacancy was created or 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.
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 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 the rights of the holders of any
series of Preferred Stock, 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 a majority of the voting power of all the then-outstanding shares of
voting stock of the corporation, entitled to vote at an election of directors
(the "Voting Stock") or (ii) without cause by the affirmative vote of the
holders of at least sixty-six and two-thirds percent (66 2/3%) of the voting
power of all the then-outstanding shares of the Voting Stock.
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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. Except as hereinafter otherwise
provided, regular meetings of the Board of Directors shall be held in the office
of the corporation required to be maintained pursuant to Section 2 hereof.
Unless otherwise restricted by the Certificate of Incorporation, regular
meetings of the Board of Directors may also be held at any place within or
without the State of Delaware which has been designated by resolution of the
Board of Directors or the written consent of all 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 Chief Executive Officer 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, facsimile, telegraph or telex, 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
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.
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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 by
resolution passed by a majority of the whole Board of Directors 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 the management of the business
and affairs of the corporation, including without limitation the power or
authority to declare a dividend, to authorize the issuance of stock and to adopt
a certificate of ownership and merger, 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 amending the
Certificate of Incorporation (except that a committee may, to the extent
authorized in the resolution or
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resolutions providing for the issuance of shares of stock adopted by the Board
of Directors fix the designations and any of the preferences or rights of such
shares relating to dividends, redemption, dissolution, any distribution of
assets of the corporation or the conversion into, or the exchange of such shares
for, shares of any other class or classes or any other series of the same or any
other class or classes of stock of the corporation or fix the number of shares
of any series of stock or authorize the increase or decrease of the shares of
any series), adopting an agreement of merger or consolidation, recommending to
the stockholders the sale, lease or exchange of all or substantially all of the
corporation's property and assets, recommending to the stockholders a
dissolution of the corporation or a revocation of a dissolution, or amending the
bylaws of the corporation.
(b) OTHER COMMITTEES. The Board of Directors may, by
resolution passed by a majority of the whole Board of Directors, 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 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 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 25 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
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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 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 Chief Executive Officer, or if the Chief Executive Officer is
absent, the President, or, in the absence of any such officer, a chairman of the
meeting chosen by a majority of the directors present, shall preside over the
meeting. The Secretary, or in his absence, an Assistant Secretary directed to
do so by the Chief Executive Officer, 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, the
Controller, all of whom shall be elected at the annual organizational meeting of
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
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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.
(c) DUTIES OF CHIEF EXECUTIVE OFFICER. The Chief Executive
Officer 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. The Chief Executive Officer 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 Chief Executive
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 shall designate from time to time.
(d) DUTIES OF PRESIDENT. The President may assume and perform
the duties of the Chief Executive Officer in the absence or disability of the
Chief Executive Officer or whenever the office of Chief Executive Officer is
vacant. 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 or the Chief Executive Officer shall designate from time
to time.
(e) 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,
the Chief Executive Officer or the President shall designate from time to time.
(f) 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 Chief Executive Officer 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 Chief Executive Officer shall designate from time to time.
(g) 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 Chief Executive Officer. 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 Chief Executive
Officer shall designate from time to time. The Chief Executive
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Officer 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 Chief Executive Officer 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 Chief Executive Officer 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
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.
Unless otherwise specifically determined by the Board of Directors or
otherwise required by law, promissory notes, deeds of trust, mortgages and other
evidences of indebtedness of the corporation, and other corporate instruments or
documents requiring the corporate seal, and certificates of shares of stock
owned by the corporation, shall be executed, signed or endorsed by the Chairman
of the Board of Directors, or the President or any Vice President, and by the
Secretary or Treasurer or any Assistant Secretary or Assistant Treasurer. All
other instruments
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and documents requiring the corporate signature, but not requiring the corporate
seal, may be executed as aforesaid or in such other manner as may be directed by
the Board of Directors.
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 or 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 of 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
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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. 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 advertise the same 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 General Corporation Law of Delaware.
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 record
date shall 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) Prior to the Initial Public Offering, in order that the
corporation may determine the stockholders entitled to consent to corporate
action in writing without a meeting, the Board of Directors may fix 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 date
shall not
16.
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be more than 10 days after the date upon which the resolution fixing the record
date is adopted by the Board of Directors. Any stockholder of record seeking to
have the stockholders authorize or take corporate action by written consent
shall, by written notice to the Secretary, request the Board of Directors to fix
a record date. The Board of Directors shall promptly, but in all events within
10 days after the date on which such a request is received, adopt a resolution
fixing the record date. If no record date has been fixed by the Board of
Directors within 10 days of the date on which such a request is received, the
record date for determining stockholders entitled to consent to corporate action
in writing without a meeting, when no prior action by the Board of Directors is
required by applicable law, shall be the first date on which a signed written
consent setting forth the action taken or proposed to be taken is delivered to
the corporation by delivery to its registered office in the State of Delaware,
its principal place of business or an officer or agent of the corporation having
custody of the book in which proceedings of meetings of stockholders are
recorded. Delivery made to the corporation's registered office shall be by hand
or by certified or registered mail, return receipt requested. If no record date
has been fixed by the Board of Directors and prior action by the Board of
Directors is required by law, the record date for determining stockholders
entitled to consent to corporate action in writing without a meeting shall be at
the close of business on the day on which the Board of Directors adopts the
resolution taking such prior action.
(c) 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 Chief Executive Officer, 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
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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 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, 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.
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.
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ARTICLE XI
INDEMNIFICATION
SECTION 43. INDEMNIFICATION OF DIRECTORS, EXECUTIVE OFFICERS, OTHER
OFFICERS, EMPLOYEES AND OTHER AGENTS.
(a) DIRECTORS AND OFFICERS. The corporation shall indemnify
its directors and officers to the fullest extent not prohibited by the Delaware
General Corporation 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 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 (iv) such
indemnification is required to be made under subsection (d).
(b) EMPLOYEES AND OTHER AGENTS. The corporation shall have
power to indemnify its employees and other agents as set forth in the Delaware
General Corporation 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 officer,
of the corporation, or is or was serving at the request of the corporation as a
director or 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 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
(e) of this Bylaw, no advance shall be made by the corporation to an officer of
the corporation (except by reason of the fact that such 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.
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(d) ENFORCEMENT. Without the necessity of entering into an
express contract, all rights to indemnification and advances to directors and
officers and 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 officer. Any right to indemnification or
advances granted by this Bylaw to a director or 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 for the corporation to indemnify the claimant
for the amount claimed. In connection with any claim by an officer of the
corporation (except in any action, suit or proceeding, whether civil, criminal,
administrative or investigative, by reason of the fact that such 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 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, 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.
(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 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.
(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, 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.
20.
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(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 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.
(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
21.
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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 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
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, 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
22.
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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 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. The
Board of Directors shall also have the power to adopt, amend, or repeal Bylaws.
ARTICLE XIV
23.
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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.
ARTICLE XV
MISCELLANEOUS
SECTION 47. ANNUAL REPORT.
(a) Subject to the provisions of paragraph (b) of this Bylaw,
the Board of Directors shall cause an annual report to be sent to each
stockholder of the corporation not later than one hundred twenty (120) days
after the close of the corporation's fiscal year. Such report shall include a
balance sheet as of the end of such fiscal year and an income statement and
statement of changes in financial position for such fiscal year, accompanied by
any report thereon of independent accounts or, if there is no such report, the
certificate of an authorized officer of the corporation that such statements
were prepared without audit from the books and records of the corporation. When
there are more than 100 stockholders of record of the corporation's shares, as
determined by Section 605 of the California Corporations Code, additional
information as required by Section 1501(b) of the California Corporations Code
shall also be contained in such report, provided that if the corporation has a
class of securities registered under Section 12 of the 1934 Act, that Act shall
take precedence. Such report shall be sent to stockholders at least fifteen
(15) days prior to the next annual meeting of stockholders after the end of the
fiscal year to which it relates.
(b) If and so long as there are fewer than 100 holders of
record of the corporation's shares, the requirement of sending of an annual
report to the stockholders of the corporation is hereby expressly waived.
24.
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TABLE OF CONTENTS
PAGE
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.................................................. 4
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.................................... 5
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 17. Classes of Directors.................................... 7
Section 18. Vacancies............................................... 8
Section 19. Resignation............................................. 8
Section 20. Removal................................................. 8
Section 21. Meetings................................................ 8
(a) Annual Meetings......................................... 8
(b) Regular Meetings........................................ 9
(c) Special Meetings........................................ 9
(d) Telephone Meetings...................................... 9
i.
<PAGE>
TABLE OF CONTENTS
(continued)
(e) Notice of Meetings...................................... 9
(f) Waiver of Notice........................................ 9
Section 22. Quorum and Voting....................................... 9
Section 23. Action Without Meeting.................................. 10
Section 24. Fees and Compensation................................... 10
Section 25. Committees.............................................. 10
(a) Executive Committee..................................... 10
(b) Other Committees........................................ 11
(c) Term.................................................... 11
(d) Meetings................................................ 11
Section 26. Organization............................................ 12
ARTICLE V
OFFICERS.................................................................... 12
Section 27. Officers Designated..................................... 12
Section 28. Tenure and Duties of Officers........................... 12
(a) General................................................. 12
(b) Duties of Chairman of the Board of Directors............ 12
(c) Duties of Chief Executive Officer....................... 12
(d) Duties of President..................................... 13
(e) Duties of Vice Presidents............................... 13
(f) Duties of Secretary..................................... 13
(g) Duties of Chief Financial Officer....................... 13
Section 29. Delegation of Authority................................. 14
Section 30. Resignations............................................ 14
Section 31. Removal................................................. 14
ARTICLE VI
EXECUTION OF CORPORATE INSTRUMENTS AND VOTING
OF SECURITIES OWNED BY THE CORPORATION...................................... 14
Section 32. Execution of Corporate Instruments...................... 14
Section 33. Voting of Securities Owned by the Corporation........... 15
ARTICLE VII
SHARES OF STOCK............................................................. 15
ii.
<PAGE>
TABLE OF CONTENTS
(continued)
Section 34. Form and Execution of Certificates...................... 15
Section 35. Lost Certificates....................................... 15
Section 36. Transfers............................................... 17
Section 37. Fixing Record Dates..................................... 17
Section 38. Registered Stockholders................................. 18
ARTICLE VIII
OTHER SECURITIES OF THE CORPORATION......................................... 18
Section 39. Execution of Other Securities........................... 18
ARTICLE IX
DIVIDENDS................................................................... 19
Section 40. Declaration of Dividends................................ 19
Section 41. Dividend Reserve........................................ 19
ARTICLE X
FISCAL YEAR................................................................. 19
Section 42. Fiscal Year............................................. 19
ARTICLE XI
INDEMNIFICATION............................................................. 19
Section 43. Indemnification of Directors, Executive Officers, Other
Officers, Employees and Other Agents.................... 19
(a) Directors and Officers.................................. 19
(b) Employees and Other Agents.............................. 20
(c) Expenses................................................ 20
(d) Enforcement............................................. 20
(e) Non-Exclusivity of Rights............................... 21
(f) Survival of Rights...................................... 21
(g) Insurance............................................... 21
(h) Amendments.............................................. 21
(i) Saving Clause........................................... 21
(j) Certain Definitions..................................... 21
iii.
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TABLE OF CONTENTS
(continued)
ARTICLE XII
NOTICES..................................................................... 22
Section 44. Notices................................................. 22
(a) Notice to Stockholders.................................. 22
(b) Notice to directors..................................... 23
(c) Affidavit of Mailing.................................... 23
(d) Time Notices Deemed Given............................... 23
(e) Methods of Notice....................................... 23
(f) Failure to Receive Notice............................... 23
(g) Notice to Person with Whom Communication Is Unlawful.... 23
(h) Notice to Person with Undeliverable Address............. 23
ARTICLE XIII
AMENDMENTS.................................................................. 24
Section 45. Amendments.............................................. 24
ARTICLE XIV
LOANS TO OFFICERS........................................................... 24
Section 46. Loans to Officers....................................... 24
ARTICLE XV
MISCELLANEOUS............................................................... 24
Section 47. Annual Report........................................... 24
iv.
<PAGE>
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
AVIRON
AVIRON, a corporation organized and existing under the laws of the state
of Delaware (the "Corporation") hereby certifies that:
1. The name of the Corporation is Aviron. The corporation was
originally incorporated under the name Aviron Merger Corporation.
2. The date of filing of the Corporation's original Certificate of
Incorporation was _________________, 1996.
3. The Amended and Restated Certificate of Incorporation of the
Corporation as provided in Exhibit A hereto was duly adopted in accordance with
the provisions of Section 242 and Section 245 of the General Corporation Law of
the State of Delaware by the Board of Directors of the corporation.
4. Pursuant to Section 245 of the Delaware General Corporation Law,
approval of the stockholders of the corporation has been obtained.
5. The Amended and Restated Certificate of Incorporation so adopted
reads in full as set forth in Exhibit A attached hereto and is hereby
incorporated by reference.
IN WITNESS WHEREOF, the undersigned have signed this certificate this
____ day of ________________, 1996, and hereby affirm and acknowledge under
penalty of perjury that the filing of this Restated Certificate of Incorporation
is the act and deed of Aviron.
AVIRON
By
------------------------------------
J. Leighton Read
Chief Executive Officer
ATTEST:
- --------------------------
Alan C. Mendelson
Secretary
<PAGE>
AMENDED AND RESTATED EXHIBIT A
CERTIFICATE OF INCORPORATION
OF
AVIRON
I.
The name of this corporation is Aviron.
II.
The address of the registered office of the corporation in the State of
Delaware is 32 Loockermen Square, Suite L-100, City of Dover, County of Kent,
and the name of the registered agent of the corporation in the State of Delaware
at such address is The Prentice-Hall Corporation System, Inc.
III.
The purpose of this corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law of the State of Delaware.
IV.
This corporation is authorized to issue two classes of stock to be
designated, respectively, "Common Stock" and "Preferred Stock." The total
number of shares which the corporation is authorized to issue is Thirty Five
Million (35,000,000) shares. Thirty Million (30,000,000) shares shall be Common
Stock, each having a par value of one tenth of one cent ($.001). Five Million
(5,000,000) shares shall be Preferred Stock, each having a par value of one
tenth of one cent ($.001).
The Preferred Stock may be issued from time to time in one or more
series. The Board of Directors is hereby authorized, by filing a certificate (a
"Preferred Stock Designation") pursuant to the Delaware General Corporation Law,
to fix or alter from time to time the designation, powers, preferences and
rights of the shares of each such series and the qualifications, limitations or
restrictions of any wholly unissued series of Preferred Stock, and to establish
from time to time the number of shares constituting any such series or any of
them; and to increase or decrease the number of shares of any series subsequent
to the issuance of shares of that series, but not below the number of shares of
such series then outstanding. In case the number of shares of any series shall
be decreased in accordance with the foregoing sentence, the shares constituting
such decrease shall resume the status that they had prior to the adoption of the
resolution originally fixing the number of shares of such series.
1.
<PAGE>
V.
A. For the management of the business and for the conduct of the
affairs of the Corporation, and in further definition, limitation and regulation
of the powers of the Corporation, of its directors and of its stockholders or
any class thereof, as the case may be, it is further provided that:
(1) The management of the business and the conduct of the
affairs of the Corporation shall be vested in its Board of Directors. The
number of directors which shall constitute the whole Board of Directors shall be
fixed exclusively by one or more resolutions adopted by the Board of Directors.
(2) Subject to the rights of the holders of any series of
Preferred Stock to elect additional directors under specified circumstances,
following the closing of the initial public offering pursuant to an effective
registration statement under the Securities Act of 1933, as amended, covering
the offer and sale of Common Stock to the public (the "Initial Public
Offering"), the directors shall be divided into three classes designated as
Class I, Class II and Class III, respectively. Directors shall be assigned to
each class in accordance with a resolution or resolutions adopted by the Board
of Directors. At the first annual meeting of stockholders following the closing
of the Initial Public Offering, the term of office of the Class I directors
shall expire and Class I directors shall be elected for a full term of three
years. At the second annual meeting of stockholders following the Closing of
the Initial Public Offering, the term of office of the Class II directors shall
expire and Class II directors shall be elected for a full term of three years.
At the third annual meeting of stockholders following the Closing of the Initial
Public Offering, the term of office of the Class III directors shall expire and
Class III directors shall be elected for a full term of three years. At each
succeeding annual meeting of stockholders, directors shall be elected for a full
term of three years to succeed the directors of the class whose terms expire at
such annual meeting.
Notwithstanding the foregoing provisions of this Article, 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.
(3) Subject to the rights of the holders of any series of
Preferred Stock, 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 a majority of the voting power of all the then-outstanding shares of
voting stock of the Corporation, entitled to vote at an election of directors
(the "Voting Stock") or (ii) without cause by the affirmative vote of the
holders of at least sixty-six and two-thirds percent (66 2/3%) of the voting
power of all the then-outstanding shares of the Voting Stock.
(4) Subject to the rights of the holders of any series of
Preferred Stock, any vacancies on the Board of Directors resulting from death,
resignation, disqualification, removal
2.
<PAGE>
or other causes and any newly created directorships resulting from any increase
in the number of directors, shall, unless the Board of Directors determines by
resolution that any such vacancies or newly created directorships shall be
filled by the stockholders, except as otherwise provided by law, be filled only
by the affirmative vote of a majority of the directors then in office, even
though less than a quorum of the Board of Directors, and not by the
stockholders. Any director elected in accordance with the preceding sentence
shall hold office for the remainder of the full term of the director for which
the vacancy was created or occurred and until such director's successor shall
have been elected and qualified.
B. (1) 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. The Board of Directors
shall also have the power to adopt, amend, or repeal Bylaws.
(2) The directors of the Corporation need not be elected by
written ballot unless the Bylaws so provide.
(3) No action shall be taken by the stockholders of the
Corporation except at an annual or special meeting of stockholders called in
accordance with the Bylaws and following the closing of the Initial Public
Offering no action shall be taken by the stockholders by written consent.
(4) Advance notice of stockholder nominations for the election
of directors and of business to be brought by stockholders before any meeting of
the stockholders of the Corporation shall be given in the manner provided in the
Bylaws of the Corporation.
(5) 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 President, (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) or (iv) by the holders of the shares entitled to cast not less that
ten percent (10%) of the votes at the meeting, and shall be held at such place,
on such date, and at such time as the Board of Directors shall fix.
VI.
A. A director of the Corporation shall not be personally liable to
the Corporation or its stockholders for monetary damages for any breach of
fiduciary duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to the Corporation or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the Delaware General
Corporation Law, or (iv) for any transaction from which the director derived an
improper personal benefit. If the Delaware
3.
<PAGE>
General Corporation Law is amended after approval by the stockholders of this
Article to authorize corporate action further eliminating or limiting the
personal liability of directors, then the liability of a director shall be
eliminated or limited to the fullest extent permitted by the Delaware General
corporation Law, as so amended.
B. Any repeal or modification of this Article VI shall be prospective
and shall not affect the rights under this Article VI in effect at the time of
the alleged occurrence of any act or omission to act giving rise to liability or
indemnification.
VII.
A. The Corporation reserves the right to amend, alter, change or
repeal any provision contained in this Certificate of Incorporation, in the
manner now or hereafter prescribed by statute, except as provided in paragraph
B. of this Article VII, and all rights conferred upon the stockholders herein
are granted subject to this reservation.
B. Notwithstanding any other provisions of this Certificate of
Incorporation or any provision of law which might otherwise permit a lesser vote
or no vote, but in addition to any affirmative vote of the holders of any
particular class or series of the Voting Stock required by law, this Certificate
of Incorporation or any Preferred Stock Designation, the affirmative vote of the
holders 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, voting together
as a single class, shall be required to alter, amend or repeal Articles V, VI,
and VII.
4.
<PAGE>
EXHIBIT 4.2
[CERTIFICATE OF STOCK]
[AVIRON LOGO]
NUMBER SHARES
AVIR COMMON STOCK
CUSIP 053762 10 0
AVIRON
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
THIS CERTIFICATE IS TRANSFERABLE IN BOSTON, MA OR NEW YORK, NY
SEE REVERSE FOR CERTAIN DEFINITIONS
THIS CERTIFIES THAT
IS THE RECORD HOLDER OF
FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK, $0.001 PAR VALUE, OF
AVIRON TRANSFERABLE ON THE BOOKS OF THE CORPORATION IN PERSON OR BY DULY
AUTHORIZED ATTORNEY ON SURRENDER OF THIS CERTIFICATE PROPERLY ENDORSED. THIS
CERTIFICATE IS NOT VALID UNTIL COUNTERSIGNED AND REGISTERED BY THE TRANSFER
AGENT AND REGISTRAR. WITNESS THE SIGNATURES OF THE CORPORATION'S DULY
AUTHORIZED OFFICERS.
DATED:
COUNTERSIGNED AND REGISTERED:
THE FIRST NATIONAL BANK OF BOSTON
/s/ L. READ
CHIEF EXECUTIVE OFFICER
TRANSFER AGENT AND REGISTRAR
BY: [ILLEGIBLE SIGNATURE] /s/ ALAN C. MENDELSON
AUTHORIZED SIGNATURE SECRETARY
<PAGE>
AVIRON
A statement of the powers, designations, preferences and relative,
participating, optional or other special rights of each class of stock or
series thereof and the qualifications, limitations or restrictions of such
preferences and/or rights as established, from time to time, by the
Certificate of Incorporation of the Corporation and by any certificate of
determination, the number of shares constituting each class and series, and
the designations thereof, may be obtained by the holder hereof upon request
and without charge at the principal office of the Corporation.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations.
TEN COM -- as tenants in common
TEN ENT -- as tenants by the entireties
JT TEN -- as joint tenants with right
of survivorship and not as tenants
in common
UNIF GIFT MIN ACT -- ............Custodian................
(Cust) (Minor)
under Uniform Gifts to Minors
Act..................................
(State)
UNIF TRF MIN ACT -- ...........Custodian (until age......)
(Cust)
...............under Uniform Transfers
(Minor)
to Minors Act.........................
(State)
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, HEREBY SELL, ASSIGN AND
--------------------------
TRANSFER UNTO
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- ---------------------------------------
- ---------------------------------------
- -------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- ------------------------------------------------------------------------ SHARES
OF THE CAPITAL STOCK REPRESENTED BY THE WITHIN CERTIFICATE, AND DO HEREBY
IRREVOCABLY CONSTITUTE AND APPOINT
- ---------------------------------------------------------------------- ATTORNEY
TO TRANSFER THE SAID STOCK ON THE BOOKS OF THE WITHIN NAMED CORPORATION WITH
FULL POWER OF SUBSTITUTION IN THE PREMISES.
DATED
--------------------------------
X
---------------------------------------
X
---------------------------------------
NOTICE: THE SIGNATURE(S) TO THIS ASSIGNMENT MUST CORRESPOND
WITH THE NAME(S) AS WRITTEN UPON THE FACE OF THE
CERTIFICATE IN EVERY PARTICULAR, WITHOUT
ALTERATION OR ENLARGEMENT OR ANY CHANGE
WHATEVER.
Signature(S) Guaranteed
BY
--------------------------------------
THE SIGNATURE(S) SHOULD BE GUARANTEED BY
AN ELIGIBLE GUARANTOR INSTITUTION (BANKS,
STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS
AND CREDIT UNIONS WITH MEMBERSHIP IN AN
APPROVED SIGNATURE GUARANTEE MEDALLION
PROGRAM), PURSUANT TO S.E.C. RULE 17Ad-15.
<PAGE>
EXHIBIT 11.1
STATEMENT OF COMPUTATION OF NET LOSS PER SHARE
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------------------- --------------------------
1993 1994 1995 1995 1996
------------ ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net loss....................................... $ (3,772,000) $ (6,502,000) $ (11,403,000) $ (3,757,000) $ (3,736,000)
------------ ------------ ------------- ------------ ------------
------------ ------------ ------------- ------------ ------------
Weighted average shares of Common Stock
outstanding: 673,007 687,474 697,288 696,645 697,520
Shares related to staff accounting bulletin
topic 4D:
Stock options and warrants................... 270,351 270,351 270,351 270,351 270,351
Common Stock................................. 421,503 421,503 421,503 421,503 421,503
Convertible Preferred Stock (Series C)....... 3,235,579 3,235,579 3,235,579 3,235,579 3,235,579
------------ ------------ ------------- ------------ ------------
Shares used in computing net loss per share.... 4,600,440 4,614,907 4,624,721 4,624,078 4,624,953
------------ ------------ ------------- ------------ ------------
------------ ------------ ------------- ------------ ------------
Net loss per share............................. $ (0.82) $ (1.41) $ (2.47) $ (0.81) $ (0.81)
------------ ------------ ------------- ------------ ------------
------------ ------------ ------------- ------------ ------------
Calculation of shares outstanding for computing
pro forma net loss per share:
Shares used in computing net loss
per share................................... 4,624,721 4,624,953
Adjusted to reflect the effect of the assumed
conversion of Preferred Stock from the date
of issuance (1)............................. 4,557,921 4,598,080
------------- ------------
Shares used in computing pro forma net loss per
share......................................... 9,182,642 9,223,033
------------- ------------
------------- ------------
Pro forma net loss per share................... $ (1.24) $ (0.41)
------------- ------------
------------- ------------
</TABLE>
- ---------------------
(1) Series A and B shares
<PAGE>
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Selected
Financial Data" and "Experts" and to the use of our report dated January 26,
1996 (except as to the first paragraph of Note 1 and Note 10 as to which the
date is May 30, 1996), in Amendment No. 2 to the the Registration Statement
(Form S-1 No. 333-05209) and related Prospectus of Aviron for the registration
of 3,450,000 shares of its Common Stock.
/s/ Ernst & Young LLP
Palo Alto, California
July 15, 1996
