-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, DsoFo56wTIyu1WUY/aRg/5Y1RrRmoDf4wqQkWtKZYcZQcIc49gmpWAIl8I7EClnX 0xDslnUSy1LyHxHWepUCVg== 0000891618-98-004971.txt : 19981118 0000891618-98-004971.hdr.sgml : 19981118 ACCESSION NUMBER: 0000891618-98-004971 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981116 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ANERGEN INC CENTRAL INDEX KEY: 0000877929 STANDARD INDUSTRIAL CLASSIFICATION: BIOLOGICAL PRODUCTS (NO DIAGNOSTIC SUBSTANCES) [2836] IRS NUMBER: 770183594 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-19454 FILM NUMBER: 98751006 BUSINESS ADDRESS: STREET 1: 301 PENOBSCOT DR CITY: REDWOOD CITY STATE: CA ZIP: 94063 BUSINESS PHONE: 4153618901 MAIL ADDRESS: STREET 1: 301 PENOBSCOT DRIVE CITY: REDWOOD CITY STATE: CA ZIP: 94063 10-Q 1 FORM 10-Q FOR THE PERIOD ENDED SEPTEMBER 9, 1998 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) [X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended September 30, 1998 or [ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 COMMISSION FILE NUMBER: 0-19454 ANERGEN, INC. (Exact name of registrant as specified in its charter) DELAWARE 77-0183594 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 301 PENOBSCOT DRIVE, 94063 REDWOOD CITY, CALIFORNIA (Zip Code) (Address of principal executive offices)
Telephone number: (650) 361-8901 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] At November 6, 1998, Registrant had outstanding 18,924,000 shares of Common Stock. 2 ANERGEN, INC. INDEX
Page No. PART I - FINANCIAL INFORMATION ITEM 1. Financial Statements Condensed balance sheets - September 30, 1998 and December 31, 1997 ........................................... 3 Condensed statements of operations - three month and nine months ended September 30, 1998 and 1997 ............................... 4 Condensed statements of cash flows - nine months ended September 30, 1998 and 1997 ............................... 5 Notes to condensed financial statements ........................... 6 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations ................... 8 PART II - OTHER INFORMATION ITEM 6. Exhibits and Reports on Form 8-K .................................. 20 Signatures ........................................................ 21
2 3 PART I - FINANCIAL INFORMATION ANERGEN, INC. CONDENSED BALANCE SHEETS (IN THOUSANDS EXCEPT SHARE AMOUNTS)
SEPTEMBER 30, DECEMBER 31, ASSETS 1998 1997 ------------- ------------ (UNAUDITED) Current assets: Cash and cash equivalents ....................................... $ 1,868 $ 1,412 Short-term investments .......................................... 502 6,991 Contract receivables ............................................ -- 836 Prepaid expenses ................................................ 50 78 --------- --------- Total current assets .............................. 2,420 9.317 Property and equipment, net .......................................... 1,173 1,703 Other assets ......................................................... 36 36 --------- --------- $ 3,629 $ 11,056 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable and accrued liabilities $ 730 $ 1,281 Deferred revenue................................................. -- 502 Current portion of capital lease obligations and debt 1,003 616 --------- --------- Total current liabilities ......................... 1,733 2,399 Long-term portion of capital lease obligations and debt -- 870 Commitments Shareholders' equity: Preferred stock, no par value; 10,000,000 shares authorized; none issued and outstanding ............................. -- -- Common stock, no par value; 60,000,000 shares authorized; 18,892,000 shares issued and outstanding (18,846,264 at December 31, 1997) ......................... 57,705 57,670 Additional paid-in-capital....................................... 659 659 Accumulated other comprehensive income -- (6) Accumulated deficit ............................................. (56,468) (50,536) --------- --------- Total shareholders' equity ........................ 1,896 7,787 --------- --------- $ 3,629 $ 11,056 ========= =========
Note: The balance sheet at September 30, 1998 is derived from unaudited financial statements. The December 31, 1997 information is derived from audited financial statements. See accompanying notes. 3 4 ANERGEN, INC. CONDENSED STATEMENTS OF OPERATIONS (IN THOUSANDS EXCEPT PER SHARE AMOUNTS) (UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ---------------------- ---------------------- 1998 1997 1998 1997 -------- -------- -------- -------- Revenues: Contract Revenue related party $ 250 $ 696 $ 923 $ 1,797 Contract Revenue........................... 156 606 2,198 2,667 Interest income............................ 104 161 300 460 -------- -------- -------- -------- 510 1,463 3,421 4,924 Expenses: Research and development................... 1,842 2,902 6,374 8,611 General and administrative................. 1,014 587 2,873 2,180 Interest expense........................... 29 70 106 174 -------- -------- -------- -------- 2,885 3,559 9,353 10,965 -------- -------- -------- -------- Net loss........................................ $ (2,375) $ (2,096) $ (5,932) $ (6,041) ======== ======== ======== ======== Basic net loss per share........................ $ (0.13) $ (0.11) $ (0.31) $ (0.32) ======== ======== ======== ======== Shares used in calculating per share data ...... 18,891 18,820 18,878 18,807 ======== ======== ======== ========
See accompanying notes. 4 5 ANERGEN, INC. CONDENSED STATEMENTS OF CASH FLOWS (IN THOUSANDS) (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, 1998 1997 --------- --------- Cash flows provided by (used in) operating activities: Net loss..................................................... $ (5,932) $ (6,041) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization.............................. 625 633 Changes in operating assets and liabilities: Contract receivables - related party ...................... 333 (889) Prepaid expenses .......................................... 29 118 Accounts payable and accrued liabilities .................. (551) (18) --------- --------- Net cash used in operating activities .......................... (5,496) (6,197) Cash flows provided by (used in) investing activities: Purchase of investments available-for-sale .................. (7,285) (20,946) Sale of investments available-for-sale ...................... 13,779 29,201 Purchase of property and equipment .......................... (94) (1,021) --------- --------- Net cash provided by investing activities ...................... 6,400 7,234 --------- --------- Cash flows provided by (used in) financing activities: Proceeds from facility and equipment debt financing ......... 0 659 Repayments of capital lease obligations and debt ............ (483) (452) Issuance of common stock, net................................ 35 102 --------- --------- Net cash provided by (used in) financing activities ............ (448) 309 Net increase (decrease) in cash ................................ 456 1,346 Cash and cash equivalents at beginning of period ............... 1,412 3,963 --------- --------- Cash and cash equivalents at end of period ..................... 1,868 5,309 Short-term investments at end of period ........................ 502 4,219 --------- --------- Cash, cash equivalents and short-term investments at end of period ............................................... $ 2,370 $ 9,528 ========= =========
See accompanying notes. 5 6 ANERGEN, INC. NOTES TO CONDENSED FINANCIAL STATEMENTS SEPTEMBER 30, 1998 (UNAUDITED) 1. NATURE OF BUSINESS Anergen, Inc. ( the "Company") was incorporated on April 26, 1988 for the purpose of developing therapies using biopharmaceutical compounds for the treatment of autoimmune diseases. The Company devotes its efforts to research and development on its own behalf and also on behalf of its corporate partners. At September 30, 1998 the Company had cash, cash equivalents and short-term investments of approximately $2,370,000 which at historical cash consumption rates is not sufficient to fund operations through the end of the year. In October 1998 the Company announced that it was restructuring operations due to an inability to secure financing. The Company plans to focus on the clinical development of AnergiX for rheumatoid arthritis, in collaboration with N.V. Organon and partnering and merger opportunities. The Company is also seeking to raise additional capital through equity or debt financing. If the Company is unsuccessful in these efforts it may be required to further reduce or cease operations. 2. BASIS OF PRESENTATION The interim financial statements included herein have been prepared by the Company and have not been audited, pursuant to the rules and regulations promulgated by the Securities and Exchange Commission (the "Commission"). Certain information and footnote disclosures, normally included in financial statements prepared in accordance with generally accepted accounting principles, have been omitted pursuant to Commission rules and regulations; nevertheless, the Company believes that the disclosures are adequate to make the information presented not misleading. These condensed financial statements should be read in conjunction with the audited financial statements and notes thereto contained in the Company's Annual Report on Form 10-K for the year ended December 31, 1997. In the opinion of management, all adjustments, consisting only of normal recurring adjustments, necessary to present fairly the financial position of the Company (subject to year-end adjustments) with respect to the interim financial statements, and of the results of its operations and cash flows for the interim periods then ended, have been included. The results of operations for the interim periods are not necessarily indicative of the results for the full year. Net Loss Per Share Effective December 31, 1997, the Company adopted Statement of Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS 128"). SFAS 128 requires the presentation of basic earnings (loss) per share and diluted earnings (loss) per share, if more diluted. Basic net loss per share is computed using the weighted average number of shares of common stock outstanding during the period. Diluted net loss per share has not been presented as stock options and other common stock equivalents are antidilutive. Comprehensive Income (Loss) As of January 1, 1998, the Company adopted the provisions of SFAS No. 130, "Reporting Comprehensive Income" ("SFAS 130"). SFAS 130 establishes new rules for the reporting and presentation of comprehensive income and its components; however, the adoption of SFAS 130 had no impact on the Company's net loss or shareholders' equity. SFAS 130 requires unrealized gains or losses on the Company's available-for-sale securities, which prior to adoption were reported separately in shareholders' equity, to be included in other comprehensive income (loss). 6 7 The table below shows comprehensive loss for the periods presented:
SEPTEMBER 30, SEPTEMBER 30, 1998 1997 ------------ ------------ (UNAUDITED) Net loss ...................................................... $ (5,932,000) $ (6,041,000) Net unrealized gain (loss) on securities available for sale ... (6,000) (37,000) ------------ ------------ Comprehensive loss ............................................ $ (5,926,000) $ (6,004,000) ============ ============
Reclassification Certain prior year amounts have been reclassified to conform to the current periods presentation. 3. DEBT OBLIGATION On December 27, 1996 the Company entered into an agreement with Silicon Valley Bank of California ("SVB") which provided $1,500,000 in financing available through December 31, 1997, all of which is secured by equipment and leasehold improvements purchased by the Company. At September 30, 1998, the Company had net borrowings of $1,003,000 under the original loan agreements. As of the end of the third quarter ended September 30, 1998, the Company was no longer in compliance with certain covenants related to its outstanding loan with SVB. As a result, the Company has reclassified the long term portion of the debt obligation into the current portion of the debt obligation. SVB has the right to demand full repayment of the loan while the Company is out of compliance with the covenants. Immediate repayment of the loan would have material adverse effect on the Company's operating cash flow. 7 8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Management's Discussion and Analysis of Financial Condition and Results of Operations contains certain forward-looking statements which involve risks and uncertainties including but not limited to the adequacy of capital resources, the nature of the Company's capital requirements, the availability and timing of financing, the progress of the Company's clinical trials, and research and development programs, the likelihood of development of potential products, if any, from such research and the effect of Year 2000 problems, if any. The Company's actual results could differ materially from the results anticipated in these forward-looking statements as a result of certain factors set forth hereunder and in the Company's Annual Report as filed on Form 10-K filed with the Securities and Exchange Commission for the year ended December 31, 1997. LIQUIDITY AND CAPITAL RESOURCES To date, the Company has financed its operations primarily through private placements of its equity securities with venture capitalists (which raised an aggregate of approximately $7.6 million in net proceeds), through the sale of its Common Stock to Novo Nordisk A/S (which raised approximately $8 million in net proceeds), through the issuance of its Common Stock and Warrants to purchase shares of Common Stock through a private placement in exchange for $1.5 million in proceeds, and through public offerings of its Common Stock which have raised an aggregate of $38.8 million in net proceeds, including $9.4 million in net proceeds from the sale of 3.5 million shares of Common Stock to the public in August 1996 and approximately $500,000 from the underwriters' exercise of the over-allotment option in September 1996. The Company's cash, cash equivalents and short-term investments at September 30, 1998 were approximately $2.4 million. Accounts payable and accrued liabilities decreased to $730,000 at September 30, 1998 from $1,281,000 at December 31, 1997. Long-term debt decreased from $870,000 at December 31, 1997 to zero at September 30, 1998 due to repayment of loans and the need to reclassify the remaining long term debt to short term as the Company is out of compliance with the loan convenants. The Company had shareholders' equity at September 30, 1998 of approximately $1.9 million which decreased from $7.8 million at December 31, 1997 due to the net loss from operations During October of 1998, the Company announced a restructuring pursuant to which it took a number of steps to reduce expenses including the termination of 33 employees. The Company has also ceased its research efforts and is focusing on clinical development on AnergiX for rheumatoid arthritis in collaboration with N.V. Organon. It is also seeking partnering and merger opportunities. The Company restructured its operations due to an inability to date to secure financing. As a result of the restructuring, the Company believes that its current capital resources are likely to be sufficient to continue to fund the Company's operations through December 31, 1998, assuming Silicon Valley Bank does not require immediate repayment of its loan. See note 3 of the "Notes to condensed Financial Statements." Thereafter, the Company will require substantial additional funds to continue its operations. The Company is currently in negotiations with certain existing investors to obtain bridge financing which may allow the Company to continue its operations into 1999. There is no assurance that the bridge financing will be completed. There is also no assurance that its partnering and merger efforts will be successful. These foregoing forward-looking statements regarding the Company's capital requirements involve risks and uncertainties that could cause actual results to differ materially. The Company's capital requirements will vary depending on numerous factors, many of which are outside the Company's control. These factors include the progress of the Company's development programs, the results and progress of the Company's clinical programs, the size and complexity of these programs, the scope and results of laboratory testing and clinical trials, the time and cost required to seek regulatory approvals to commence clinical trials for the Company's initial products, the need to obtain licenses to other proprietary rights, any required adjustments to the Company's operating plan to respond to competitive pressures or technological advances, developments with respect to the Company's existing or future collaborative arrangements, and the availability of various methods of financing. In addition, The Nasdaq Stock Market notified the Company in November 1998 that it would be delisted from the Nasdaq National Market. While the Company is appealing the notice of delisting, there is no assurance the Company will remain listed on the Nasdaq National Market, and such delisting could impair the Company's inability to raise additional capital. Any additional equity financing may be dilutive to shareholders, and debt financing, if available, may involve restrictions on 8 9 stock dividends and other restrictions on the Company. Adequate funds for the Company's operations, whether from equity or debt, collaborative or other arrangements with corporate partners or from other sources, may not be available when needed or on terms attractive to the Company. Insufficient funds may require the Company to delay, scale back or eliminate some or all of its research and product development programs, to license third parties to commercialize products or technologies that the Company would otherwise seek to develop itself, or to cease its operations. The Company's liquidity will be reduced as amounts are expended for continuing development. RESULTS OF OPERATIONS The Company's net loss increased by 13% to $2,375,000 in the fiscal quarter ended September 30, 1998 compared to a $2,097,000 loss in the corresponding period in the previous year. The increase was due to revenues that decreased 65% to $510,000 in the fiscal quarter ended September 30, 1998 compared to $1,465,000 in the corresponding period in the previous year, and by a decrease in expenses of 18% to $2,885,000 in the fiscal quarter ended September 30, 1998 compared to $3,559,000 in the corresponding period in the previous year. The decrease in revenue was primarily due to decreasing revenue from the Company's previous collaborative agreement with Novo Nordisk as the phase I clinical trial of AnergiX for the treatment of multiple sclerosis completed in August 1998. On February 26, 1998, the Company announced that it and Novo Nordisk had agreed to terminate the collaboration on AnergiX for Multiple Sclerosis (MS), Myasthenia Gravis (MG), and Insulin Dependent Diabetes Mellitus (IDDM). Pursuant to the termination, Novo Nordisk paid the Company $1,000,000, the estimated costs to complete the AnergiX for multiple sclerosis phase I study. In addition, revenue from the Company's collaborative partner, N.V. Organon, has decreased as the Company moved from reimbursement of manufacturing expenses in 1997 to reimbursement of phase I clinical trial expenses for AnergiX for the treatment of rheumatoid arthritis in 1998. Research and development expenses decreased 37% to $1,842,000 for the quarter ended September 30, 1998 from $2,902,000 in the corresponding period in the previous year. A contributing factor relates to a decrease in year over year of manufacturing for clinical trial material in 1997 for the AnergiX RA phase I clinical trial. The Company's net loss decreased by 2% for the nine months ended September 30, 1998 compared to the corresponding period in the previous fiscal year. The decrease was due to revenues that decreased 31% to $3,421,000 in the nine months ended September 30, 1998 compared to $4,924,000 in the corresponding period in the previous year. The revenue decrease was offset by a decrease in expenses of 14% to $9,247,000 for the nine months ended September 30, 1998 compared to $10,791,000 in the corresponding period in the previous year. A contributing factor is the decrease in revenue from the Company's current collaborative partner, N.V. Organon and the Company's previous collaborative partner Novo Nordisk. Research and development expenses decreased 26% to $6,374,000 for the nine months ended September 30, 1998 from $8,611,000 in the corresponding period in the previous year. A contributing factor is the decrease in expenses related to the Company's on-going clinical trials of AnergiX RA compared to expenses related to the clinical trials for AnervaX MS in 1997. General and administrative expenses increased 73% to $1,014,000 for the quarter ended September 30, 1998 compared to $587,000 in the corresponding period in the previous year primarily due to increased personnel expenses associated with additional officer headcount and related expenses in 1998 compared to 1997. General and administrative expenses increased 32% to $2,873,125 for the nine months ended September 30, 1998 compared to $2,180,000 in the corresponding period in the previous year. Interest income decreased to $104,000 for the quarter ended September 30, 1998 as compared to $161,000 in the corresponding period in the previous year. Interest income decreased 35% to 300,000 for the nine months ended September 30, 1998 as compared to $460,000 in the corresponding period in the previous year. The decreases in interest income are due to lower average cash balances in 1998. Interest income is expected to decline gradually over future periods as invested capital is used for operating activities. Interest expense decreased 58% to $29,000 for the quarter ended September 30, 1998 as compared to $70,000 in the corresponding period in the previous year due to lower debt balances. 9 10 The Company's losses on a quarter-by-quarter basis may vary depending upon a variety of factors, any of which may fluctuate, including the level of development activities, the timing of hiring of scientific and management personnel, the retention of consultants, the purchase or leasing of laboratory equipment, the licensing of any required technology and other factors. Accordingly, the Company believes that quarter-by-quarter losses will not be a useful indicator of the performance of the Company. IMPACT OF YEAR 2000 The Company has established a committee consisting of its Chief Financial Officer, controller, information systems manager and the facilities manager to ensure that its information technology (IT) and non-IT systems are Year 2000 compliant. Based on its identification and assessment efforts to date, the committee has determined that most of the systems it currently uses (including computer equipment and software) will not need to be replaced or modified in order to make them Year 2000 compliant. Those systems that are not compliant are old and will need to be replaced in the normal course of business over the next year. The Company currently anticipates that its Year 2000 identification, assessment, remediation and testing efforts, which began in March 1998, will be completed by July 1999. The Company believes, but cannot at this time guarantee, that such efforts will be completed before any currently anticipated impact on its computer equipment and software. As of November 10, 1998, the Company has completed approximately 40% of its Year 2000 project plan. The following is a breakdown by phase of the progress the Company has made to date on its project plan.
PHASE TIME FRAME PERCENT COMPLETE ---------------------------------------------------------------------------- Initial identification and assessment 3/98 - 8/98 100% Remediation 3/98 - 3/99 50% Testing 12/98 - 3/99 0% Contingency planning 1/99 - 6/99 0% Implementation 1/99 - 3/99 0% Post-2000 audit 5/99 - 7/99 0% ----------------------------------------------------------------------------
The Company is reliant upon third parties to provide Year 2000 compliant systems sufficiently before December 31, 1999. The Company has surveyed all of the Company's key suppliers, partners, banks, computer hardware and software providers and its clinical sites ("Third Parties") to determine whether they are Year 2000 compliant. The Company has discovered that certain of the Third Parties use systems that are not Year 2000 compliant, but all of the Third Parties have programs in place to address these Year 2000 issues. The Company cannot guarantee that all of the Third Parties will achieve Year 2000 compliance in a timely manner. The failure of Third Parties to successfully address the Year 2000 issue could have a material adverse effect on the Company's business, financial condition and results of operations. The Company expects that the total costs associated with addressing and solving the Year 2000 issue will not exceed $50,000. These funds will be provided from contract revenues. As of November 10, 1998, the Company has spent less than $500 on addressing the Year 2000 issue. The Company is heavily reliant on its clinical sites to perform clinical trials on a timely basis in order to meet certain performance milestones. Failure to correct material Year 2000 problems in such clinical sites could result in a delay in or disruption of the clinical trial process. This delay or disruption could cause the Company to miss its performance milestones, which would result in a loss of contract revenues. The Company has received assurances from all of its clinical trial sites that they are either Year 2000 compliant or are actively addressing the Year 2000 issue. Failure of the Company's (or Third Parties') computer systems could materially adversely affect the Company's results of operations, liquidity and financial condition. Due to the general uncertainty of the Year 2000 readiness of Third Parties, the Company is unable to determine at this time whether the consequences of Year 2000 failures will have a material impact on the Company's results of operations, liquidity and financial condition. 10 11 The Company has not currently completed its contingency planning but intends to implement a contingency plan in the future. The costs of the Company's Year 2000 project plan, the dates on which the Company believes it will complete each phase of its Year 2000 project plan and the Company's contingency planning are forward-looking statements and are based on management's best estimates, which are derived from assumptions regarding future events, including the continued availability of certain resources, Third Party remediation plans and other factors. There can be no assurance that these estimates and plans will prove to be accurate, and actual results could differ materially from those currently anticipated. RESTRUCTURING The Company announced in October that, as a result of the inability to raise sufficient funds to support its operations and programs at its current operating level, it was reducing its staff approximately 65% (by 33 people) and is focusing its efforts on clinical and business development including a possible merger of the Company. The Company is continuing its phase I clinical trial of its AnergiX technology for rheumatoid arthritis, which is expected to be complete in the first half of 1999. Further clinical development for AnervaX for RA and preclinical development of DiavaX for type I diabetes will depend upon corporate partnering. Anergen has discontinued all discovery research programs. The Company expects to take a charge of approximately $657,000 in the fourth quarter ended December 31, 1998. The charge includes the cost of severance payments to the employees affected by the reduction. The Company is currently in negotiation with certain current investors to obtain bridge financing, which may allow the Company to continue operations into 1999. There is no assurance that this bridge financing will be completed, nor that it will be sufficient to fund operations. The Company believes that it will be delisted from the NASDAQ National Market and will trade on the over-the-counter market. RISK FACTORS THAT MAY AFFECT FUTURE OPERATING PERFORMANCE FUTURE REQUIREMENT FOR SIGNIFICANT ADDITIONAL CAPITAL During October of 1998, the Company announced a restructuring pursuant to which it took a number of steps to reduce expenses including the termination of 33 employees. The Company has also ceased its research efforts and is focusing on clinical development on AnergiX for rheumatoid arthritis in collaboration with N.V. Organon. It is also seeking partnering and merger opportunities. The Company restructured its operations due to an inability to date to secure financing. As a result of the restructuring, the Company believes that its current capital resources are likely to be sufficient to continue to fund the Company's operations through December 31, 1998, assuming Silicon Valley Bank does not require immediate repayment of its loan. See note 3 of the "Notes to condensed Financial Statements." Thereafter, the Company will require substantial additional funds to continue its operations. The Company is currently in negotiations with certain existing investors to obtain bridge financing which may allow the Company to continue its operations into 1999. There is no assurance that the bridge financing will be completed. There is also no assurance that its partnering and merger efforts will be successful. These foregoing forward-looking statements regarding the Company's capital requirements involve risks and uncertainties that could cause actual results to differ materially. The Company's capital requirements will vary depending on numerous factors, many of which are outside the Company's control. These factors include the progress of the Company's development programs, the results and progress of the Company's clinical programs, the size and complexity of these programs, the scope and results of laboratory testing and clinical trials, the time and cost required to seek regulatory approvals to commence clinical trials for the Company's initial products, the need to obtain licenses to other proprietary rights, any required adjustments to the Company's operating plan to respond to competitive pressures or technological advances, developments with respect to the Company's existing or future collaborative arrangements, and the availability of various methods of financing. In addition, The Nasdaq Stock Market notified the Company in November 1998 that it 11 12 would be delisted from the Nasdaq National Market. While the Company is appealing the notice of delisting, there is no assurance the Company will remain listed on the Nasdaq National Market, and such delisting could impair the Company's inability to raise additional capital. Any additional equity financing may be dilutive to shareholders, and debt financing, if available, may involve restrictions on stock dividends and other restrictions on the Company. Adequate funds for the Company's operations, whether from equity or debt, collaborative or other arrangements with corporate partners or from other sources, may not be available when needed or on terms attractive to the Company. Insufficient funds may require the Company to delay, scale back or eliminate some or all of its research and product development programs, to license third parties to commercialize products or technologies that the Company would otherwise seek to develop itself, or to cease its operations. The Company's liquidity will be reduced as amounts are expended for continuing development. EARLY STAGE OF PRODUCT DEVELOPMENT; LACK OF COMMERCIAL PRODUCTS; NO ASSURANCE OF SUCCESSFUL PRODUCT DEVELOPMENT The Company was founded in 1988 to discover and develop biopharmaceutical compounds for the treatment of autoimmune diseases. To achieve profitable operations, the Company, alone or with others, must successfully develop, obtain regulatory approval for, manufacture and market products. The Company does not have any products available for sale nor does it expect to have any products commercially available for at least several years, if at all. The Company's potential products are at the early stages of research and development, with only limited human testing of certain of the Company's products undertaken to date. The products currently under development by the Company will require significant additional research, laboratory testing and clinical trials and investment of capital prior to their commercialization. There can be no assurance that any potential products will be successfully developed, prove to be safe and efficacious in clinical trials, meet applicable regulatory ly standards, be capable of being produced in commercial quantities at acceptable costs or be successfully marketed. LIMITED OPERATING HISTORY; HISTORY OF LOSSES The Company has experienced significant net losses every year since its inception in 1988. Net losses for the quarters ended September 30, 1998 and 1997 were approximately $2.4 million and $2.1 million, respectively, and the Company had an accumulated deficit of approximately $56.5 million as of September 30, 1998. The Company expects to incur substantial and increasing operating losses for at least the next several years. The amount of net losses and the time required by the Company to reach profitability are highly uncertain. There can be no assurance that the Company will ever be able to generate product revenue or achieve profitability on a substantial basis or at all. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." UNCERTAINTIES RELATED TO PRECLINICAL AND CLINICAL TRIALS Before obtaining regulatory approvals for the commercial sale of any of its products under development, the Company must demonstrate through preclinical studies and clinical trials that the product is safe and efficacious for use in each target indication. The results from preclinical studies and early clinical trials may not be predictive of results that will be obtained in large-scale testing, and there can be no assurance that the Company's clinical trials will demonstrate the safety and ch efficacy of any products or will result in any marketable products. A number of companies in the biotechnology industry have suffered significant setbacks in advanced clinical trials, even after promising results in earlier trials. The failure to adequately demonstrate the safety and efficacy of a therapeutic product under development could delay or prevent regulatory approval of the product and could have a material adverse effect on the Company. The rate of completion of the Company's clinical trials is dependent upon, among other factors, the Food and Drug Administration's willingness to allow Anergen to proceed; the results of Anergen's continued research and development, including test results and success in producing the epitopes and HLA molecules for each AnergiX compound; the number of skilled scientists, clinicians, and consultants the Company is able to employ in its efforts and the general interest in the medical community in a therapeutic using the Company's approach for treatment of the diseases targeted by the Company and the ability of the Company to secure additional financing. Currently, the Company does not anticipate establishing its own clinical trials facility. The rate of completion of clinical trials is also dependent on patient enrollment, which is a function of many factors, including the size of 12 13 the patient population, the proximity of patients to clinical sites and the existence of competitive trials. If the Company is unable to successfully complete its clinical trials, its business, financial condition and results of operations could be materially and adversely affected. UNCERTAINTY OF MARKET ACCEPTANCE Even if the requisite regulatory approvals are obtained for the Company's potential products or for products developed in collaboration with the Company, uncertainty exists as to whether such products will be accepted by the market. A number of factors also may limit the market acceptance of a product which may be developed by, or discovered through collaboration with, the Company, including the rate of adoption by health care practitioners, the indications for which the product is approved, the rate of the product's acceptance by the target population, the timing of market entry relative to competitive products, the availability of alternative therapies, the price of the Company's product relative to alternative therapies, the availability of third-party reimbursement and the extent of marketing efforts by the Company and third-party distributors or agents retained by the Company. Side effects or unfavorable publicity concerning a Company product or any similar product could have an adverse effect on the Company's ability to obtain physician, patient or third-party payor acceptance and on efforts to sell that product. There can be no assurance of the Company's ability, or the length of time required, to achieve commercialization of the Company's products or that physicians, patients or third party payors will accept any of the Company's products as readily as alternative therapies, or at all. GOVERNMENT REGULATION; NO ASSURANCE OF OBTAINING PRODUCT APPROVALS The Company's research and development activities are subject to regulation by numerous governmental authorities in the United States and other countries. Further, the future production and marketing of any products developed by the Company would also be regulated, particularly as to safety and efficacy. In the United States, vaccines, drugs and biologics are subject to rigorous FDA review. The Federal Food, Drug, and Cosmetic Act, the Public Health Service Act and other federal statutes and regulations govern or influence the testing, manufacture, safety, labeling, storage, record keeping, approval, advertising and promotion of such products. Noncompliance with applicable requirements can result in fines, recall or seizure of products, clinical study holds, total or partial suspension of production, refusal of the government to approve NDAs, PLAs, ELAs or allow the Company to enter into supply contracts and criminal prosecution. The FDA also has the authority to revoke PLAs and ELAs previously granted. In order to obtain FDA approval of a new biological product, the Company must submit proof of safety, purity, potency and efficacy. In most cases such proof entails extensive pre-clinical, laboratory, and clinical tests. The testing, preparation of necessary marketing applications and processing of those applications by the FDA is expensive and time consuming, can vary based on the type of product, and may take several years to complete. There is no assurance that the FDA will act favorably or quickly in making such reviews, and significant difficulties or costs may be encountered by the Company in its efforts to obtain FDA approvals that could delay or preclude the Company from marketing any products it may develop or furnish an advantage to competitors. The FDA may also require post-marketing testing and surveillance to monitor the effects of approved products or place conditions on any approvals that could restrict the commercial applications of such products. Product ly approvals may be withdrawn if compliance with regulatory standards is not maintained or if problems occur following initial marketing. In addition, delays imposed by the governmental approval process may materially reduce the period during which the Company may have the exclusive right to exploit patented products or technologies. The FDA approval process for a new biological drug involves completion of pre-clinical studies which include laboratory tests and animal studies to assess safety and effectiveness of the drug. Among other things, the results of these studies as well as how the product will be manufactured, are submitted to the FDA in an IND and, unless the FDA objects, the IND becomes effective 30 days following receipt by the FDA. FDA cleared human clinical trials may then be conducted. The results of the clinical trials are submitted to the FDA as part of a PLA. In addition to obtaining FDA approval for each AnergiX indication, an ELA must be filed and the FDA must approve the manufacturing facilities for the product. Product sales may commence only if the PLA and ELA are approved. Regulatory requirements for obtaining such FDA approvals are rigorous and there can be no assurance that such approvals will be obtained on a timely basis or at all. Sales of pharmaceutical products outside the United States are subject to foreign regulatory requirements that 13 14 vary widely from country to country. The time required to obtain approvals required by foreign countries may be longer or shorter than that required for FDA approval, and requirements for licensing may differ from FDA requirements. If FDA approval is obtained, the Company will be subject to continuing FDA obligations. When manufacturing biologics, the Company will be required to adhere to regulations setting forth current Good Manufacturing Practices ("GMP"), which require that the Company manufacture its products and maintain its records in a prescribed manner with respect to manufacturing, testing and quality control activities. Further, the Company must pass a preapproval inspection of its manufacturing facilities by the FDA before obtaining approval. Satisfaction of these FDA requirements, or similar requirements by foreign regulatory agencies, typically takes several years and the time needed to satisfy them may vary substantially, based upon the type, complexity and novelty of the pharmaceutical product. The effect of government regulation may be to delay or to prevent marketing of potential products for a considerable period of time and to impose costly procedures upon the Company's activities. There can be no assurance that the FDA or any other regulatory agency will grant approval for any products or indications being developed by the Company on a timely basis, or at all. Success in preclinical or early stage clinical trials does not assure success in later stage clinical trials. Data obtained from preclinical and clinical activities are susceptible to varying interpretations which could delay, limit or prevent regulatory approval. If regulatory approval of a product is granted, such approval may impose limitations on the indicated uses for which a product may be marketed. Further, even if regulatory approval is obtained, later discovery of previously unknown problems with a product may result in restrictions on the product, including withdrawal of the product from the market. Delay in obtaining or failure to obtain regulatory approvals would have a material adverse effect on the Company's business, financial condition and results of operations. DEPENDENCE UPON COLLABORATIVE PARTNERS The Company's strategy for the development, clinical trials, manufacturing and commercialization of its products includes maintaining and entering into various collaborations with corporate partners, licensors, licensees and others. The Company has entered into collaborative arrangements with Novo Nordisk with respect to the Company's AnergiX compounds for the treatment of MS, MG and IDDM, and with Organon with respect to an AnergiX compound for the treatment of RA. In February 1998, the he Company announced that it and Novo Nordisk had agreed to terminate the collaboration in AnergiX for MS, MG and IDDM effective February 9, 1998 with all rights returning to the Company. There can be no assurance that the interests and motivations of the Company's collaborators are, or will remain, aligned with those of the Company or that such collaborators will successfully perform their development, regulatory compliance, manufacturing or marketing functions or that such collaborations in he whole or in part will continue. There can also be no assurance that the Company will be able to negotiate additional 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 such activities at its own expense, which would significantly increase the Company's capital requirements and he limit the programs the Company is able to pursue. 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. The Company cannot control the amount and timing of resources which its collaborative partners devote to the Company's program or potential products, which can vary because of factors unrelated to the potential product. Collaborator participation will depend not only on the achievement of research objectives by the Company and its collaborators, which cannot be assured, but also on each collaborator's own financial, competitive, marketing and strategic considerations, which are outside the he Company's control. Such strategic considerations may include the relative advantages of alternative products being marketed or developed by others, including relevant patent and proprietary positions. The Company'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, either developed by the collaborative partners or to which the collaborative partners have rights, 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. If Organon or any future collaborative partner breaches or terminates their agreements with the Company or otherwise fails to conduct their collaborative activities in a timely manner, the preclinical or clinical development or commercialization of product candidates or research programs in will be delayed, and the Company will be required 14 15 to devote additional resources to product development and commercialization or terminate certain development programs. 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 and commercialization of certain product candidates or could require or result in litigation or arbitration, which would be time consuming and expensive, and would have a material adverse effect on the Company's business, financial condition and results of operations. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources". UNCERTAINTY RELATING TO PATENTS AND PROPRIETARY RIGHTS The Company's success will depend in significant part on its ability to maintain patent protection for its therapeutic approach and for any developed products, to preserve its trade secrets and to operate without infringing the proprietary rights of third parties. Although the Company has obtained patents covering certain aspects of its technology, no assurance can be given that additional patents will be issued or, if issued, that the scope of any patent protection will be significant, or that the patents will be held valid if subsequently challenged. Moreover, the Company cannot ascertain with certainty that no patent conflict will exist with other products or processes which could compete with the Company's approaches. Because of the length of time and expense associated with bringing new products through development and to the marketplace, and the length of time required for the governmental approval process, the pharmaceutical industry has traditionally placed considerable importance on obtaining and maintaining patent and trade secret protection for significant new technologies, products and processes. The Company and other biotechnology and pharmaceutical firms have applied, and are applying, for patents for their products and certain aspects of their technologies. The enforceability of patents issued to biotechnology and pharmaceutical firms is highly uncertain. Federal court decisions indicating legal considerations surrounding the validity of patents in the field are in transition, and there can be no assurance that the historical legal standards surrounding questions of validity will continue to be applied or that current defenses as to issued patents in the field will offer protection in the future. In addition, there can be no assurance as to the degree and range of protection any patents will afford, whether patents will be issued or the extent to which the Company will be successful in not infringing patents granted to others. While the Company pursues patent protection for products and processes where appropriate, it also relies on trade secrets, know-how and continuing technological advancement to develop and maintain its competitive position. The Company's policy is to have each employee enter into an agreement that contains provisions prohibiting the disclosure of confidential information to anyone outside the Company. Research and development contracts and relationships between the Company and its scientific n consultants provide access to aspects of the Company's know-how that is protected generally under confidentiality agreements with the parties involved. There can be no assurance, however, that these confidentiality agreements will be honored or that the Company can effectively protect its rights to its unpatented trade secrets. Moreover, there can be no assurance that others will not independently develop substantially equivalent proprietary information and techniques or otherwise gain access to the Company's trade secrets. The Company may be required to obtain licenses to patents or other proprietary rights from third parties. There can be no assurance that any licenses required under any patents or proprietary rights will be made available on terms acceptable to the Company, if at all. If the Company does not obtain required licenses, it could encounter delays in product development while it attempts to redesign products or methods or it could find that the development, manufacture or sale of products requiring such licenses could be foreclosed. The Company is aware of a European patent and corresponding U.S. and Australian patents which contain claims that relate to certain of the Company's proposed products and their uses. In accordance with European Patent Office ("EPO") procedures, third parties can oppose an EPO patent grant by presenting information which they believe justifies narrowing or revoking the grant of the patent. The Company is opposing the aforementioned grant in the EPO. There can, however, be no assurance that the granted EPO claims will be revoked or significantly narrowed in scope as a result of the opposition proceeding. If valid claims in these patents are found to be infringed by the Company's products, the Company's ability to make, use, offer to sell, or sell, such products could be materially and adversely affected. 15 16 In addition, the Company could incur substantial costs in defending any patent litigation brought against it or in asserting the Company's patent rights, including those licensed to the Company by others, in a suit against another party. The United States Patent and Trademark Office (the "USPTO") could institute interference proceedings in connection with one or more of the Company's patents or patent applications which proceedings could result in an adverse decision as to priority of an he invention. The USPTO also could institute reexamination proceedings in connection with one or more of the Company's patents or patent applications, which could result in an adverse decision as to the patents' validity or scope. NEED TO DEVELOP MANUFACTURING CAPABILITIES The Company has no volume manufacturing capacity or experience in volume manufacturing of pharmaceutical or other biological products. Establishing its own volume manufacturing capabilities would require significant scale-up expenses and additions to facilities and personnel. In addition, the Company must successfully develop the process required for volume manufacturing. The pharmaceutical products under development by the Company have never been manufactured on a commercial scale and there can be no assurance that such products can be manufactured at a cost or in quantities to make them commercially viable. The Company will be required to establish arrangements with contract manufacturers to supply a portion of its compounds for subsequent clinical trials as well as the manufacture, packaging, labeling and distribution of finished products. If the Company is unable to contract for sufficient supply of a portion of its compounds on acceptable terms, and it is unable to develop e the capability to produce the epitopes internally, the Company's human clinical testing schedule would be delayed, resulting in the delay of submission of products for regulatory approval and initiation of new development programs, which would have a material adverse effect on the Company. If the Company should encounter delays or difficulties in establishing relationships with manufacturers to produce, package and distribute its finished products, market introduction and subsequent sales of e such products would be adversely affected. Moreover, contract manufacturers that the Company may use must adhere to current GMP regulations enforced by the FDA through its facilities inspection program. If these facilities cannot pass a pre-approval plant inspection, the FDA pre-market approval of the products will be adversely affected. LACK OF MARKETING EXPERIENCE; DEPENDENCE ON THIRD PARTIES The Company currently has no sales, marketing or distribution capability. The Company intends to rely on relationships with one or more pharmaceutical companies with established distribution systems and direct sales forces to market its products. In the event that the Company is unable to reach agreement with one or more pharmaceutical companies to market its products, it may be required to market its products directly and to develop a marketing and sales force with technical expertise and supporting distribution capability. There can be no assurance that the Company will be able to establish in-house sales and distribution capabilities or relationships with third parties, or that it will be successful in gaining market acceptance for its products. To the extent that the Company decides to utilize existing or future co-promotion or other licensing arrangements, the Company must develop its own sales, marketing or distribution capability, and there can be no assurance that such efforts will be successful. COMPETITION AND TECHNOLOGICAL CHANGE The biotechnology and pharmaceutical industries are characterized by rapidly evolving technology and intense competition. The Company's competitors include major pharmaceutical, chemical and specialized biotechnology companies, most of which have financial, technical, research and development, manufacturing, clinical and marketing resources significantly greater than those of the Company. The Company believes that these other entities recognize the need for effective therapies for the h autoimmune diseases targeted by the Company and are highly motivated to develop such therapies. In addition, many specialized biotechnology companies have formed collaborations with large, established companies to support research, development and commercialization of products that may be competitive with those of the Company. Academic institutions, governmental agencies and other public and private research organizations are also conducting research activities and seeking patent protection and may commercialize products on their own or through joint ventures. The Company is aware of certain products in development by competitors that are intended to be used for the prevention or treatment of certain diseases the Company has targeted for product development. The existence of these products, or other products or treatments of which the Company is not aware, or products or treatments that may be developed in the future which may be more effective, may adversely affect the 16 17 commercialization or marketability of products which may be developed by the Company or potentially render the Company's technology obsolete or non-competitive. The Company's competitive position will depend on its ability to attract and retain qualified scientific and other personnel, develop effective proprietary products, implement production and marketing plans, obtain patent protection and secure adequate capital resources. In addition, the first pharmaceutical product to reach the market in a therapeutic or preventive area is often at a significant competitive advantage relative to later entrants to the market. The Company expects its products, if approved for sale, to compete primarily on the basis of product efficacy, safety, patent position, reliability, price and patient convenience rather than on speed to market. 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. Initiatives to reduce the federal deficit and to reform health care delivery are increasing these 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 existing and potential partners of the Company to limit or eliminate spending on collaborative development projects. Legislative debate is expected to continue in the future, market forces are expected to demand reduced costs and Anergen cannot predict what s 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 products will depend in part upon the availability of reimbursement from third-party payors, such as government health administration authorities, 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 potential products or products discovered in collaboration with the Company will be considered cost-effective or that adequate third-party reimbursement will be available to enable Anergen to maintain price levels sufficient to realize an appropriate return on its significant investment in product research and 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. DEPENDENCE ON AND NEED FOR ADDITIONAL KEY PERSONNEL; RELIANCE ON ACADEMIC COLLABORATORS As part of the Company's restructuring efforts, the Company announced in October 1998 that it reduced its staff approximately 65% (by 33 people). The success of the Company and of its business strategy is dependent in large part on the ability of the Company to retain key management and operating personnel and to obtain additional funds to fulfill its personnel needs as they arise. The Company's current employees are in high demand and are often subject to competing offers. The Company will s need to develop expertise or retain consultants in such areas as development, clinical testing, government approvals, marketing and manufacturing in the future. There can be no assurance that the Company will be able to attract and retain the qualified personnel or develop the expertise needed for its business. The loss of the services of one or more of the Company's officers or other members of the research or management group or the inability to hire additional personnel and develop expertise as needed would have a material adverse effect on the Company. A significant portion of the Company's research and development and clinical trials is conducted under sponsored research programs with several universities. The Company depends on the availability of the 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 or clinical trials. The Company's academic collaborators are not employees of the Company. As a result, the s Company has limited control over their activities and can expect that only limited amounts of their time will be dedicated to Company activities. In addition, the Company's academic collaborators are employed by major institutions which have collaborative relationships 17 18 with other parties, some of which may be competitors of the Company. Accordingly, there can be no assurance that research and development, preclinical and clinical testing performed by these collaborators will be completed in a timely manner, if at all, and any inability to do so could have a material adverse effect on the Company. POTENTIAL PRODUCT LIABILITY The testing, marketing and sale of human health care products entail an inherent risk of exposure to product liability claims in the event that the use of the Company's technology or prospective products is alleged to have resulted in adverse effects. While the Company has taken, and will continue to take, what it believes are appropriate precautions to minimize exposure to product liability, there can be no assurance that it will avoid significant liability. The Company possesses limited a general liability and product liability insurance related to its clinical trials of AnervaX for RA and AnergiX for MS and RA and certain other types of insurance customarily obtained by business organizations. There can be no assurance that the existing insurance coverage is adequate or that it will avoid liability. The Company intends to seek insurance against product liability risks associated with the testing, manufacturing or marketing of its products. However, there can be no assurance that it will be able to obtain such insurance in the future, or that if obtained, such insurance will be sufficient in amount. Consequently, a product liability claim or other claims with respect to uninsured liabilities or in excess of insured liabilities could have a material adverse effect on the business or financial condition of the Company. HAZARDOUS MATERIALS; ENVIRONMENTAL MATTERS The Company is subject to regulation by the Occupational Safety and Health Administration ("OSHA") and the Environmental Protection Agency ("EPA") and to regulation under the Toxic Substances Control Act, the Resource Conservation and Recovery Act and other regulatory statutes, and may in the future be subject to other federal, state or local regulations. Although the Company believes that it has complied with these laws, regulations and policies in all material respects and has not been ce required to take any significant action to correct any material noncompliance, there can be no assurance that the Company will not be required to incur significant costs to comply with environmental and health and safety regulations in the future. The Company's research and development involves the controlled use of hazardous materials, including but not limited to certain hazardous chemicals and radioactive materials. 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 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. In addition, regulations may be promulgated governing biotechnology that may affect the Company's research and development programs. The Company is unable to predict whether any agency will adopt any regulation which would have a material adverse effect on the Company's business, financial condition and results of operations. VOLATILITY OF STOCK PRICE The market price of the Company's Common Stock, similar to the securities of other biotechnology companies, has been and is likely to continue to be highly volatile. Announcements regarding the results of regulatory approval filings, clinical trials or other testing, technological innovations or new commercial products by the Company or its competitors, patents and intellectual property rights by the Company or its competitors, developments as to current or future collaborations by the Company or its competitors, government regulations, the status of health care reform initiatives, fluctuations in operating results, changes in recommendations by financial analysts, and general market conditions for biotechnology stocks could have a significant impact on the future price of the Common Stock. Trading volume of the Company's Common Stock has been relatively limited and sales of substantial amounts of Common Stock could have an adverse effect on the price of the Common Stock. In addition, the Company received notice from the Nasdaq Stock Market that its Common Stock will be delisted from the Nasdaq National Market. Such delisting will result in the Company's stock to be traded on the over-the-counter market which may result in great volatility in the trading price. CONTROL BY EXISTING STOCKHOLDERS The Company's officers, directors and principal shareholders, namely Warburg, Pincus Ventures, L.P. ("Warburg"), International Biotechnology Trust PLC ("IBT"), and Novo Nordisk, collectively beneficially own 18 19 approximately 48% of the Company's outstanding Common Stock. Under a March 1995 common stock purchase agreement with Warburg and IBT ("Warburg/IBT Purchase Agreement"), the Company is currently obligated to include in the slate of nominees recommended by the Company's Board of Directors and management, at each election of directors, two candidates selected by Warburg, one candidate selected by IBT and one candidate mutually agreed to by IBT and Warburg. Additionally, while not obligated to do so, since 1993, the Company has included a representative of Novo Nordisk in its slate of nominees for the Board of Directors. The ownership of the Company's Common Stock, and the ability to designate candidates for the Company's recommended slate of nominees for the Board of Directors, of Warburg, IBT and Novo Nordisk will enable such shareholders to have significant influence over major corporate transactions as well as the election of directors of the Company and control over board decisions and could have the effect of delaying, deterring or preventing a change in control of the Company. ANTI-TAKEOVER PROVISIONS; POSSIBLE ISSUANCE OF PREFERRED STOCK OR ACCELERATION OF OPTION VESTING The Board of Directors has authority, without further action by shareholders, to issue up to 10,000,000 shares of Preferred Stock with rights, preferences and privileges designated by the Board of Directors. This Preferred Stock could be issued quickly with terms calculated to delay or prevent a change in control of the Company or to make removal of management more difficult. In certain circumstances, such issuance could have the effect of decreasing the market price of the Common Stock or of delaying, deterring or preventing a change in control of the Company. The Company has no present plan to issue any shares of Preferred Stock. Further, pursuant to the Company's option plans, in the event of certain mergers of the Company with other entities, transfers of voting control of the Company's capital stock or sale of all or substantially all of the Company's assets, the Company's Board of Directors has the right under certain circumstances to cause all outstanding options to become fully vested prior to the event causing such acceleration and all unexercised options will terminate upon completion of such event. SECTION 203 OF THE DELAWARE CORPORATION LAW Generally, Section 203 of the DGCL prohibits a publicly held Delaware corporation from engaging in a broad range of "business combinations" with an "interested stockholder" (defined generally as a person owning 15% or more of a corporation's outstanding voting stock) for three years following the date such person became an interested stockholder unless (i) before the person becomes an interested stockholder, the transaction resulting in such person becoming an interested stockholder or the e business combination is approved by the board of directors of the corporation, (ii) upon consummation of the transaction that resulted in the stockholder becoming an interested stockholder, the interested stockholder owns at least 85% of the outstanding voting stock of the corporation (excluding shares owned by directors who are also officers of the corporation or shares held by employee stock plans that do not provide employees with the right to determine confidentially whether shares held e subject to the plan will be tendered in a tender offer or exchange offer), or (iii) on or after such date on which such person became an interested stockholder the business combination is approved by the board of directors and authorized at an annual or special meeting, and not by written consent by the affirmative vote of at least 66.6% of the outstanding voting stock excluding shares owned by the interested stockholders. The restrictions of Section 203 do not apply, among other reasons, if a corporation, by actions of its shareholders, adopts an amendment to its certificate of incorporation or bylaws expressly electing not to be governed by Section 203, provided that, in addition to any other vote required by law, such amendment to the certificate of incorporation or bylaws must be approved by the affirmative vote of a majority of the shares entitled to vote. Moreover, an amendment so adopted is not effective until twelve months after its adoption and does not apply to any business combination between the corporation and any person who became an interested stockholder of such corporation on or prior to such adoption. The Certificate of Incorporation and Bylaws of the Company do not currently contain any provisions electing not to be governed by Section 203 of the DGCL. Section 203 of the DGCL may discourage persons from making a tender offer for or acquisitions of substantial amounts of the Common Stock. This could have the effect of inhibiting changes in management and may also prevent temporary fluctuations in the Common Stock that often result from takeover attempts. 19 20 ANERGEN, INC. PART II - OTHER INFORMATION Item 1. Legal Proceedings None Item 2. Changes in Securities None Item 3. Defaults upon Senior Securities On December 27, 1996 the Company entered into an agreement with Silicon Valley Bank of California ("SVB") which provided $1,500,000 in financing available through December 31, 1997, all of which is secured by equipment and leasehold improvements purchased by the Company. At September 30, 1998, the Company had net borrowing of $1,003,000 under the original loan agreements. As of the end of the third quarter ended September 30, 1998, the Company was no longer in compliance with certain convenants related to its outstanding loan with SVB. As a result, the Company has reclassified the long term portion of the debt obligation into the current portion of the debt obligation. SVB has the right to demand full repayment of the loan while the Company is out of compliance with the convenants. Immediate repayment of the loan would have material effect on the Company's operating cash flow. Item 4. Submission of Matters to a Vote of Security Holders None Item 5. Other Information None Item 6. Exhibits and reports on Form 8-K a) Exhibits
Exhibit Description ------- ----------- 3.1(1) Certificate of Incorporation. 3.2 Bylaws, as amended. 4.1(2) Form of Common Stock Certificate. 27.1 Financial Data Schedule
(1) Incorporated by reference to the exhibit filed with the Form 8-K on July 27, 1998. (2) Incorporated by reference to the exhibit filed with Registrant's Registration Statement on Form S-1 (No. 33-42107), as amended. b) Reports on Form 8-K. No reports on Form 8-K were filed by the Company during the quarter ended September 30, 1998. 20 21 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. ANERGEN, INC. Date: November 12, 1998 By: /s/ DAVID V. SMITH ---------------------------------- David V. Smith Vice President, Finance and Chief Financial Officer on behalf of the Company and as principal financial and chief accounting officer 21 22 INDEX TO EXHIBITS
Exhibit Number Description - ------ ----------- 3.1(1) Certificate of Incorporation. 3.2 Bylaws, as amended. 4.1(2) Form of Common Stock Certificate. 27.1 Financial Data Schedule
(1) Incorporated by reference to the exhibit filed with the Form 8-K on July 27, 1998. (2) Incorporated by reference to the exhibit filed with Registrant's Registration Statement on Form S-1 (No. 33-42107), as amended. EX-3.2 2 BYLAWS, AS AMENDED 1 BYLAWS OF ANERGEN, INC. ARTICLE I CORPORATE OFFICES 1.1 REGISTERED OFFICE The registered office of the corporation shall be in the city of Wilmington, County of New Castle, State of Delaware. 1.2 OTHER OFFICES The board of directors may at any time establish other offices at any place or places where the corporation is qualified to do business. ARTICLE II MEETINGS OF STOCKHOLDERS 2.1 PLACE OF MEETINGS Meetings of stockholders shall be held at any place, within or outside the State of Delaware, designated by the board of directors. In the absence of any such designation, stockholders' meetings shall be held at the principal executive office of the corporation. 2.2 ANNUAL MEETING The annual meeting of stockholders shall be held each year on a date and at a time designated by the board of directors. At the meeting, directors shall be elected and any other proper business may be transacted. 2.3 SPECIAL MEETING A special meeting of the stockholders may be called at any time by the board of directors, the chairman of the board, the chief executive officer, the president or by one or more stockholders 2 BYLAWS OF ANERGEN, INC. 3 TABLE OF CONTENTS
Page ---- ARTICLE I - CORPORATE OFFICES....................................................................1 1.1 REGISTERED OFFICE.................................................................1 1.2 OTHER OFFICES.....................................................................1 ARTICLE II - MEETINGS OF STOCKHOLDERS............................................................1 2.1 PLACE OF MEETINGS.................................................................1 2.2 ANNUAL MEETING....................................................................1 2.3 SPECIAL MEETING...................................................................1 2.4 NOTICE OF STOCKHOLDERS' MEETINGS..................................................2 2.5 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE......................................2 2.6 QUORUM............................................................................2 2.7 ADJOURNED MEETING; NOTICE.........................................................3 2.8 VOTING............................................................................3 2.9 VALIDATION OF MEETING; WAIVER OF NOTICE...........................................4 2.10 STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING...........................4 2.11 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING........................................4 2.12 PROXIES...........................................................................5 2.13 INSPECTORS OF ELECTION............................................................5 2.14 LIST OF STOCKHOLDERS ENTITLED TO VOTE.............................................5 ARTICLE III - DIRECTORS..........................................................................6 3.1 POWERS............................................................................6 3.2 NUMBER OF DIRECTORS...............................................................6 3.3 ELECTION, QUALIFICATION AND TERM OF OFFICE OF DIRECTORS...........................6 3.4 RESIGNATION AND VACANCIES.........................................................6 3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE..........................................7 3.6 FIRST MEETINGS....................................................................8 3.7 REGULAR MEETINGS..................................................................8 3.8 SPECIAL MEETINGS; NOTICE..........................................................8 3.9 QUORUM............................................................................8 3.10 WAIVER OF NOTICE..................................................................9 3.11 ADJOURNMENT.......................................................................9 3.12 NOTICE OF ADJOURNMENT.............................................................9 3.13 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING.................................9 3.14 FEES AND COMPENSATION OF DIRECTORS................................................9 3.15 APPROVAL OF LOANS TO OFFICERS....................................................10 3.16 REMOVAL OF DIRECTORS.............................................................10
-i- 4 TABLE OF CONTENTS (continued)
Page ---- ARTICLE IV - COMMITTEES.........................................................................10 4.1 COMMITTEES OF DIRECTORS..........................................................10 4.2 COMMITTEE MINUTES................................................................11 4.3 MEETINGS AND ACTION OF COMMITTEES................................................11 ARTICLE V - OFFICERS............................................................................11 5.1 OFFICERS.........................................................................11 5.2 ELECTION OF OFFICERS.............................................................12 5.3 SUBORDINATE OFFICERS.............................................................12 5.4 REMOVAL AND RESIGNATION OF OFFICERS..............................................12 5.5 VACANCIES IN OFFICES.............................................................12 5.6 CHAIRMAN OF THE BOARD............................................................12 5.7 CHIEF EXECUTIVE OFFICER..........................................................13 5.8 PRESIDENT........................................................................13 5.9 CHIEF OPERATING OFFICER..........................................................13 5.10 CORPORATE VICE PRESIDENTS........................................................13 5.11 SECRETARY........................................................................13 5.12 CHIEF FINANCIAL OFFICER..........................................................14 5.13 TREASURER........................................................................14 5.14 ADMINISTRATIVE VICE PRESIDENTS...................................................14 5.15 AUTHORITY AND DUTIES OF OFFICERS.................................................15 ARTICLE VI - INDEMNITY..........................................................................15 6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS........................................15 6.2 INDEMNIFICATION OF OTHERS........................................................16 6.3 PAYMENT OF EXPENSES IN ADVANCE...................................................16 6.4 INDEMNITY NOT EXCLUSIVE..........................................................16 6.5 INSURANCE INDEMNIFICATION........................................................16 ARTICLE VII - RECORDS AND REPORTS...............................................................17 7.1 MAINTENANCE AND INSPECTION OF RECORDS............................................17 7.2 MAINTENANCE AND INSPECTION OF BYLAWS.............................................18 7.3 MAINTENANCE AND INSPECTION OF OTHER CORPORATE RECORDS............................18 7.4 INSPECTION BY DIRECTORS..........................................................18 7.5 REPRESENTATION OF SHARES OF OTHER CORPORATIONS...................................19
-ii- 5 TABLE OF CONTENTS (continued)
Page ---- ARTICLE VIII - GENERAL MATTERS..................................................................19 8.1 RECORD DATE FOR PURPOSES OTHER THAN NOTICE AND VOTING............................19 8.2 CHECKS...........................................................................19 8.3 EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS.................................20 8.4 STOCK CERTIFICATES; PARTLY PAID SHARES...........................................20 8.5 SPECIAL DESIGNATION ON CERTIFICATES..............................................20 8.6 LOST CERTIFICATES................................................................21 8.7 CONSTRUCTION; DEFINITIONS........................................................21 8.8 DIVIDENDS........................................................................21 8.9 FISCAL YEAR......................................................................21 8.10 TRANSFER OF STOCK................................................................22 8.11 STOCK TRANSFER AGREEMENTS........................................................22 8.12 REGISTERED STOCKHOLDERS..........................................................22 ARTICLE IX - AMENDMENTS.........................................................................22 ARTICLE X - DISSOLUTION.........................................................................22 ARTICLE XI - CUSTODIAN..........................................................................23 11.1 APPOINTMENT OF A CUSTODIAN IN CERTAIN CASES......................................23 11.2 DUTIES OF CUSTODIAN..............................................................24
-iii- 6 holding shares in the aggregate entitled to cast not less than ten percent (10%) of the votes at that meeting. If a special meeting is called by any person or persons other than the board of directors, then the request shall be in writing, specifying the time of such meeting and the general nature of the business proposed to be transacted, and shall be delivered personally or sent by registered mail or by telegraphic or other facsimile transmission to the chairman of the board, the chief executive officer, the president, the chief operating officer, any corporate vice president or the secretary of the corporation. The officer receiving the request shall cause notice to be promptly given to the stockholders entitled to vote, in accordance with the provisions of Sections 2.4 and 2.5 of these bylaws, that a meeting will be held at the time requested by the person or persons calling the meeting, so long as that time is not less than thirty-five (35) nor more than sixty (60) days after the receipt of the request. If the notice is not given within twenty (20) days after receipt of the request, then the person or persons requesting the meeting may give the notice. Nothing contained in this paragraph of this Section 2.3 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. 2.4 NOTICE OF STOCKHOLDERS' MEETINGS All notices of meetings with stockholders shall be in writing and shall be sent or otherwise given in accordance with Section 2.5 of these bylaws 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. The notice shall specify the place, date, and hour of the meeting, and (i) in the case of a special meeting, the general nature of the business to be transacted (no business other than that specified in the notice may be transacted) or (ii) in the case of the annual meeting, those matters which the board of directors, at the time of giving the notice, intends to present for action by the stockholders (but any proper matter may be presented at the meeting for such action). The notice of any meeting at which directors are to be elected shall include the name of any nominee or nominees who, at the time of the notice, management intends to present for election. 2.5 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE Written notice of any meeting of stockholders, if mailed, is given when deposited in the United States mail, postage prepaid, directed to the stockholder at his address as it appears on the records of the corporation. An affidavit of the secretary or an assistant secretary of the transfer agent of the corporation that the notice has been given shall, in the absence of fraud, be prima facie evidence of the facts stated therein. 2.6 QUORUM The holders of a majority of the shares entitled to vote, present in person or represented by proxy, shall constitute a quorum for the transaction of business at all meetings of stockholders, except as otherwise provided by statute or by the certificate of incorporation. The stockholders present at a duly called or held meeting at which a quorum is present may continue to do business -2- 7 until adjournment, notwithstanding the withdrawal of enough stockholders to leave less than a quorum, if any action taken (other than adjournment) is approved by at least a majority of the shares required to constitute a quorum. When a quorum is present at any meeting, the affirmative vote of holders of a the majority of the stock having voting power present in person or represented by proxy shall decide any question brought before such meeting, unless the question is one upon which, by express provision of the laws of the State of Delaware or of the certificate of incorporation or these bylaws, a different vote is required, in which case such express provision shall govern and control the decision of the question. 2.7 ADJOURNED MEETING; NOTICE Any stockholders' meeting, annual or special, whether or not a quorum is present, may be adjourned from time to time by the vote of the majority of the shares represented at that meeting, either in person or by proxy, but in the absence of a quorum, no other business may be transacted at that meeting, except as provided in Section 2.6 of these bylaws. When any meeting of stockholders, either annual or special, is adjourned to another time or place, unless these bylaws otherwise require, 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 that 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 adjourned meeting in accordance with the provisions of Sections 2.4 and 2.5 of these bylaws. 2.8 VOTING The stockholders entitled to vote at any meeting of stockholders shall be determined in accordance with the provisions of Section 2.11 of these bylaws, subject to the provisions of Sections 217 and 218 of the General Corporation Law of Delaware (relating to voting rights of fiduciaries, pledgers and joint owners of stock and to voting trusts and other voting agreements). Except as provided in the last paragraph of this Section 2.8, or as may be otherwise provided in the certificate of incorporation, each stockholder shall be entitled to one vote for each share of capital stock held by such stockholder. On any matter other than the election of directors, any stockholder may vote part of the shares in favor of the proposal and refrain from voting the remaining shares or vote them against the proposal, but, if the stockholder fails to specify the number of shares which the stockholder is voting affirmatively, it will be conclusively presumed that the stockholder's approving vote is with respect to all shares which the stockholder is entitled to vote. -3- 8 If a quorum is present, the affirmative vote of the majority of the shares represented and voting at a duly-held meeting (which shares voting affirmatively also constitute at least a majority of the required quorum) shall be the act of the stockholders, unless the vote of a greater number, or voting by classes, is required by law or by the certificate of incorporation. 2.9 VALIDATION OF MEETING; WAIVER OF NOTICE Whenever notice is required to be given under any provision of the General Corporation Law of Delaware or of the certificate of incorporation or these bylaws, a written waiver thereof, signed by the person entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person 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. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the stockholders need be specified in any written waiver of notice unless so required by the certificate of incorporation or these bylaws. 2.10 STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING The stockholders of the corporation may not take action by written consent without a meeting but must take any such actions at a duly called annual or special meeting. 2.11 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING For purposes of determining the stockholders entitled to notice of any meeting or to vote thereat, the board of directors may fix, in advance, a record date, which shall not be more than sixty (60) days nor less than ten (10) days before the date of any such meeting and in such event only stockholders of record on the date so fixed are entitled to notice and to vote, notwithstanding any transfer of any shares on the books of the corporation after the record date. If the board of directors does not so fix a record date, 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 business day next preceding the day on which notice is given or, if notice is waived, at the close of business on the business 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 unless the board of directors fixes a new record date for the adjourned meeting, but the board of directors shall fix a new record date if the meeting is adjourned for more than thirty (30) days from the date set for the original meeting. The record date for any other purpose shall be as provided in Section 8.1 of these bylaws. -4- 9 2.12 PROXIES Each stockholder entitled to vote at a meeting of stockholders may authorize another person or persons to act for him by a written proxy, signed by the stockholder and filed with the secretary of the corporation, but no such proxy shall be voted or acted upon after three (3) years from its date, unless the proxy provides for a longer period. A proxy shall be deemed signed if the stockholder's name is placed on the proxy (whether by manual signature, typewriting, telegraphic transmission or otherwise) by the stockholder or the stockholder's attorney-in-fact. The revocability of a proxy that states on its face that it is irrevocable shall be governed by the provisions of Section 212(e) of the General Corporation Law of Delaware. 2.13 INSPECTORS OF ELECTION Before any meeting of stockholders, the board of directors may appoint one or more inspectors to act at the meeting and make a written report thereof. The board of directors may designate one or more persons as alternate inspectors to replace any inspector who fails to act. If no inspector or alternate is able to act at a meeting of stockholders, the person presiding at the meeting shall appoint one or more inspectors to act at the meeting. Such inspectors shall: (a) ascertain the number of shares outstanding and the voting power of each; (b) determine the shares represented at a meeting and the validity of proxies and ballots; (c) count all votes and ballots; (d) determine and retain for a reasonable period a record of the disposition of any challenges made to any determination by the inspectors; and (e) certify their determination of the number of shares represented at the meeting, and their count of all votes and ballots. The inspectors may appoint or retain other persons or entities to assist the inspectors in the performance of the inspectors' duties. 2.14 LIST OF STOCKHOLDERS ENTITLED TO VOTE The officer who has charge of the stock ledger of a corporation shall prepare and make, at least ten (10) days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten (10) days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. -5- 10 ARTICLE III DIRECTORS 3.1 POWERS Subject to the provisions of the General Corporation Law of Delaware and any limitations in the certificate of incorporation or these bylaws relating to action required to be approved by the stockholders or by the outstanding shares, the business and affairs of the corporation shall be managed and all corporate powers shall be exercised by or under the direction of the board of directors. 3.2 NUMBER OF DIRECTORS The authorized number of directors shall be eight (8). This number may be changed by a duly adopted amendment to the certificate of incorporation or by an amendment to this bylaw adopted by the vote or written consent of the holders of a majority of the stock issued and outstanding and entitled to vote or by resolution of a majority of the board of directors. No reduction of the authorized number of directors shall have the effect of removing any director before that director's term of office expires. 3.3 ELECTION, QUALIFICATION AND TERM OF OFFICE OF DIRECTORS Except as provided in Section 3.4 of these bylaws, directors shall be elected at each annual meeting of stockholders to hold office until the next annual meeting. Directors need not be stockholders unless so required by the certificate of incorporation or these bylaws, wherein other qualifications for directors may be prescribed. Each director, including a director elected to fill a vacancy, shall hold office until his successor is elected and qualified or until his earlier resignation or removal. Elections of directors need not be by written ballot. 3.4 RESIGNATION AND VACANCIES Any director may resign effective on giving written notice to the chairman of the board, the president, the secretary or the board of directors, unless the notice specifies a later time for that resignation to become effective. If the resignation of a director is effective at a future time, the board of directors may elect a successor to take office when the resignation becomes effective. Vacancies in the board of directors may be filled by a majority of the remaining directors, even if less than a quorum, or by a sole remaining director; provided, a vacancy created by the removal of a director by the vote of the stockholders or by court order may be filled only by the -6- 11 affirmative vote of a majority of the shares represented and voting at a duly held meeting at which a quorum is present (which shares voting affirmatively also constitute a majority of the required quorum). Each director so elected shall hold office until the next annual meeting of the stockholders and until a successor has been elected and qualified. A vacancy or vacancies in the board of directors shall be deemed to exist in the event of the death, resignation or removal of any director, or if the board of directors by resolution declares vacant the office of a director who has been declared of unsound mind by an order of court or convicted of a felony, or if the authorized number of directors is increased, or if the stockholders fail, at any meeting of stockholders at which any director of directors are elected, to elect the number of directors to be elected at that meeting. The stockholders may elect a director or directors at any time to fill any vacancy or vacancies not filled by the directors. If at any time, by reason of death or resignation or other cause, the corporation should have no directors in office, then any officer or any stockholder or an executor, administrator, trustee or guardian of a stockholder, or other fiduciary entrusted with like responsibility for the person or estate of a stockholder, may call a special meeting of stockholders in accordance with the provisions of the certificate of incorporation or these bylaws, or may apply to the Court of Chancery for a decree summarily ordering an election as provided in Section 211 of the General Corporation Law of Delaware. If, at the time of filling any vacancy or any newly created directorship, the directors then in office constitute less than a majority of the whole board (as constituted immediately prior to any such increase), then the Court of Chancery may, upon application of any stockholder or stockholders holding at least ten (10) percent of the total number of the shares at the time outstanding having the right to vote for such directors, summarily order an election to be held to fill any such vacancies or newly created directorships, or to replace the directors chosen by the directors then in office as aforesaid, which election shall be governed by the provisions of Section 211 of the General Corporation Law of Delaware as far as applicable. 3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE Regular meetings of the board of directors may be held at any place within or outside the State of Delaware that has been designated from time to time by resolution of the board. In the absence of such a designation, regular meetings shall be held at the principal executive office of the corporation. Special meetings of the board may be held at any place within or outside the State of Delaware that has been designated in the notice of the meeting or, if not stated in the notice or if there is no notice, at the principal executive office of the corporation. Any meeting of the board, regular or special, may be held by conference telephone or similar communication equipment, so long as all directors participating in the meeting can hear one another; and all such directors shall be deemed to be present in person at the meeting. -7- 12 3.6 FIRST MEETINGS The first meeting of each newly elected board of directors shall be held at such time and place as shall be fixed by the vote of the stockholders at the annual meeting and no notice of such meeting shall be necessary to the newly elected directors in order legally to constitute the meeting, provided a quorum shall be present. In the event of the failure of the stockholders to fix the time or place of such first meeting of the newly elected board of directors, or in the event such meeting is not held at the time and place so fixed by the stockholders, the meeting may be held at such time and place as shall be specified in a notice given as hereinafter provided for special meetings of the board of directors, or as shall be specified in a written waiver signed by all of the directors. 3.7 REGULAR MEETINGS Regular meetings of the board of directors may be held without notice at such time and at such place as shall from time to time be determined by the board. 3.8 SPECIAL MEETINGS; NOTICE Special meetings of the board of directors for any purpose or purposes may be called at any time by the chairman of the board, the chief executive officer, the president, the chief operating officer or any two (2) directors. Notice of the date, time and place of special meetings shall be delivered personally, by telephone, facsimile, telegram, electronic mail or other comparable communication equipment to each director or sent by first-class mail, charges prepaid, addressed to each director at that director's address as it is shown on the records of the corporation. If the notice is mailed, it shall be deposited in the United States mail at least four (4) days before the time of the holding of the meeting. If the notice is delivered personally or by telephone, facsimile, telegram, electronic mail or other comparable communication equipment, it shall be delivered at least twelve (12) hours before the time of the holding of the meeting. Any notice given personally or by telephone, facsimile, telegram, electronic mail or other comparable communication equipment may be communicated either to the director or to a person at the office of the director who the person giving the notice has reason to believe will promptly communicate it to the director. The notice need not specify the purpose or the place of the meeting, if the meeting is to be held at the principal executive office of the corporation. 3.9 QUORUM A majority of the authorized number of directors shall constitute a quorum for the transaction of business, except to adjourn as provided in Section 3.11 of these bylaws. Every act or decision done or made by a majority of the directors present at a duly held meeting at which a quorum is present shall be regarded as the act of the board of directors, subject to the provisions of the certificate of incorporation and applicable law. -8- 13 A meeting at which a quorum is initially present may continue to transact business notwithstanding the withdrawal of directors, if any action taken is approved by at least a majority of the required quorum for that meeting. 3.10 WAIVER OF NOTICE Whenever notice is required to be given under any provision of the General Corporation Law of Delaware or of the certificate of incorporation or these bylaws, a written waiver thereof, signed by the person entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person 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. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the directors, or members of a committee of directors, need be specified in any written waiver of notice unless so required by the certificate of incorporation or these bylaws. 3.11 ADJOURNMENT A majority of the directors present, whether or not constituting a quorum, may adjourn any meeting to another time and place. 3.12 NOTICE OF ADJOURNMENT Notice of the time and place of holding an adjourned meeting need not be given, unless the meeting is adjourned for more than twenty-four (24) hours, in which case notice of the time and place shall be given before the time of the adjourned meeting, in the manner specified in Section 3.8 of these bylaws, to the directors who were not present at the time of the adjournment. 3.13 BOARD ACTION BY WRITTEN CONSENT WITHOUT A 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 or committee, as the case may be, shall individually or collectively consent thereto in writing. Such action by written consent shall have the same force and effect as a unanimous vote of the board of directors. Such written consent and any counterparts thereof shall be filed with the minutes of the proceedings of the board. 3.14 FEES AND COMPENSATION OF DIRECTORS Directors and members of committees may receive such compensation, if any, for their services and such reimbursement of expenses as may be fixed or determined by resolution of the board of directors. This Section 3.14 shall not be construed to preclude any director from serving the corporation in any other capacity as an officer, agent, employee or otherwise and receiving compensation for those services. -9- 14 3.15 APPROVAL OF 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 subsidiary, including any officer or employee who is a director of the corporation or its subsidiary, whenever, in the judgment of the directors, such loan, guaranty or assistance may reasonably be expected to benefit the corporation. The loan, guaranty 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 this section contained shall be deemed to deny, limit or restrict the powers of guaranty or warranty of the corporation at common law or under any statute. 3.16 REMOVAL OF DIRECTORS Unless otherwise restricted by statute, by the certificate of incorporation or by these bylaws, any director or the entire board of directors may be removed, with or without cause, by the holders of a majority of the shares then entitled to vote at an election of directors. No reduction of the authorized number of directors shall have the effect of removing any director prior to the expiration of such director's term of office. ARTICLE IV COMMITTEES 4.1 COMMITTEES OF DIRECTORS The board of directors may, by resolution adopted by a majority of the authorized number of directors, designate one (1) or more committees, each consisting of two (2) or more directors, to serve at the pleasure of the board. The board may designate one (1) or more directors as alternate members of any committee, who may replace any absent member at any meeting of the committee. The appointment of members or alternate members of a committee requires the vote of a majority of the authorized number of directors. Any committee, to the extent provided in the resolution of the board, shall have all the authority of the board, except with respect to (i) amend the certificate of incorporation (except that a committee may, to the extent authorized in the resolution or resolutions providing for the issuance of shares of stock adopted by the board of directors as provided in Section 151(a) of the General Corporation Law of Delaware, fix 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), (ii) adopt an agreement of merger or consolidation under Sections 251 or 252 of the General Corporation Law of Delaware, (iii) recommend to the stockholders the sale, lease or exchange of all or substantially all of the corporation's property and assets, (iv) recommend to the stockholders a -10- 15 dissolution of the corporation or a revocation of a dissolution, or (v) adopt a certificate of ownership and merger pursuant to Section 253 of the General Corporation Law of Delaware. 4.2 COMMITTEE MINUTES Each committee shall keep regular minutes of its meetings and report the same to the board of directors when required. 4.3 MEETINGS AND ACTION OF COMMITTEES Meetings and actions of committees shall be governed by, and held and taken in accordance with, the provisions of Article III of these bylaws, Section 3.5 (place of meetings and meetings by telephone), Section 3.7 (regular meetings), Section 3.8 (special meetings and notice), Section 3.9 (quorum), Section 3.10 (waiver of notice), Section 3.11 (adjournment), Section 3.12 (notice of adjournment), and Section 3.13 (action without a meeting), with such changes in the context of those bylaws as are necessary to substitute the committee and its members for the board of directors and its members; provided, however, that the time of regular meetings of committees may also be called by resolution of the board of directors and that notice of special meetings of committees shall also be given to all alternate members, who shall have the right to attend all meetings of the committee. The board of directors may adopt rules for the government of any committee not inconsistent with the provisions of these bylaws. ARTICLE V OFFICERS 5.1 OFFICERS The officers of the corporation shall be a president, a secretary, and a chief financial officer. The corporation may also have, at the discretion of the board of directors, a chairman of the board, a chief executive officer, a chief operating officer, a treasurer, one or more corporate vice presidents, one or more assistant secretaries, one or more assistant treasurers, and any such other officers as may be appointed in accordance with the provisions of Section 5.3 of these bylaws. Any number of offices may be held by the same person. In addition to the officers of the corporation described above, there may also be such administrative vice presidents of the corporation as may be designated and appointed from time to time by the chief executive officer of the corporation in accordance with the provisions of Section 5.14 of these bylaws. -11- 16 5.2 ELECTION OF OFFICERS The officers of the corporation, except such officers as may be appointed in accordance with the provisions of Sections 5.3 or 5.5 of these bylaws, shall be chosen by the board of directors, subject to the rights, if any, of an officer under any contract of employment. 5.3 SUBORDINATE OFFICERS The board of directors may appoint, or empower the president to appoint, such other officers and agents as the business of the corporation may require, each of whom shall hold office for such period, have such authority, and perform such duties as are provided in these bylaws or as the board of directors may from time to time determine. 5.4 REMOVAL AND RESIGNATION OF OFFICERS Subject to the rights, if any, of an officer under any contract of employment, any officer may be removed, either with or without cause, by an affirmative vote of the majority of the board of directors at any regular or special meeting of the board or, except in the case of an officer chosen by the board of directors, by any officer upon whom such power of removal may be conferred by the board of directors. Any officer may resign at any time by giving written notice to the corporation. Any resignation shall take effect at the date of the receipt of that notice or at any later time specified in that notice; and, unless otherwise specified in that notice, the acceptance of the resignation shall not be necessary to make it effective. Any resignation is without prejudice to the rights, if any, of the corporation under any contract to which the officer is a party. 5.5 VACANCIES IN OFFICES A vacancy in any office because of death, resignation, removal, disqualification or any other cause shall be filled in the manner prescribed in these bylaws for regular appointments to that office. 5.6 CHAIRMAN OF THE BOARD The chairman of the board, if such an officer be elected, shall, if present, preside at meetings of the board of directors and exercise and perform such other powers and duties as may from time to time be assigned to him by the board of directors or as may be prescribed by these bylaws. If there is no chief executive officer, then the chairman of the board shall also have the powers and duties prescribed in Section 5.7 of these bylaws. -12- 17 5.7 CHIEF EXECUTIVE OFFICER Subject to such supervisory powers, if any, as may be given by the board of directors to the chairman of the board, if there be such an officer, the chief executive officer of the corporation shall, subject to the control of the board of directors, have general supervision, direction, and control of the business and the officers of the corporation. He shall preside at all meetings of the stockholders and, in the absence of the chairman of the board, or if there be none, at all meetings of the board of directors. He shall have the general powers and duties of management usually vested in the office of president of a corporation and shall have such other powers and duties as may be prescribed by the board of directors or these bylaws. 5.8 PRESIDENT The president of the corporation shall have such powers and perform such duties as prescribed by the board of directors or these bylaws. In the absence or disability of the chief executive officer or if there be no such officer, then the president shall have the same powers and be subject to the same restrictions set forth in Section 5.7. 5.9 CHIEF OPERATING OFFICER The chief operating officer shall have such powers and perform such duties as prescribed by the board of directors or these bylaws. In the absence or disability of the chief executive officer, if there be such an officer, the president and the chairman of the board, the chief operating officer shall perform the duties of chief executive officer and president, and when so acting shall have all the powers, and be subject to all the restrictions set forth in Section 5.7. 5.10 CORPORATE VICE PRESIDENTS In the absence or disability of the chief executive officer, if there be such an officer, the president, the chairman of the board and the chief operating officer, if there be such an officer, the corporate vice presidents, if any, in order of their rank as fixed by the board of directors or, if not ranked, a corporate vice president designated by the board of directors, shall perform all the duties of the chief executive officer and president and when so acting shall have all the powers of, and be subject to all the restrictions upon, the chief executive officer and president. The corporate vice presidents shall also have such other powers and perform such other duties as from time to time may be prescribed for them respectively by the board of directors or these bylaws. 5.11 SECRETARY The secretary shall keep or cause to be kept, at the principal executive office of the corporation, or such other place as the board of directors may direct, a book of minutes of all meetings and actions of directors, committees of directors, and stockholders, with the time and place of holding, whether regular or special (and, if special, how authorized and the notice given), the -13- 18 names of those present at directors' meetings or committee meetings, the number of shares present or represented at stockholders' meetings, and the proceedings thereof. The secretary shall keep, or cause to be kept, at the principal executive office of the corporation or at the office of the corporation's transfer agent or registrar, as determined by resolution of the board of directors, a share register, or a duplicate share register, showing the names of all stockholders and their addresses, the number and classes of shares held by each, the number and date of certificates evidencing such shares, and the number and date of cancellation of every certificate surrendered for cancellation. The secretary shall give, or cause to be given, notice of all meetings of the stockholders and of the board of directors required by these bylaws or by law to be given, and he shall keep the seal of the corporation, if one be adopted, in safe custody and shall have such other powers and perform such other duties as may be prescribed by the board of directors or by these bylaws. 5.12 CHIEF FINANCIAL OFFICER The chief financial officer shall keep and maintain, or cause to be kept and maintained, adequate and correct books and records of accounts of the properties and business transactions of the corporation, including accounts of its assets, liabilities, receipts, disbursements, gains, losses, capital, retained earnings and shares. The books of account shall at all reasonable times be open to inspection by any director. The chief financial officer shall deposit all money and other valuables in the name and to the credit of the corporation with such depositories as may be designated by the board of directors. He shall disburse the funds of the corporation as may be ordered by the board of directors, shall render to the president and directors, whenever they request it, an account of all of his transactions as chief financial officer and of the financial condition of the corporation, and shall have such other powers and perform such other duties as may be prescribed by the board of directors or these bylaws. 5.13 TREASURER In the absence or disability of the chief financial officer, the treasurer shall perform all the duties of the chief financial officer and when so acting shall have all the powers of, and be subject to all the restrictions upon, the chief financial officer. The treasurer shall have such other powers and perform such other duties as from time to time may be prescribed respectively by the board of directors or these bylaws. 5.14 ADMINISTRATIVE VICE PRESIDENTS In addition to the corporate vice presidents of the corporation as provided in Section 5.10 of these bylaws and such subordinate officers as may be appointed in accordance with Section 5.3 of these bylaws, there may also be such administrative vice presidents of the corporation as may be designated and appointed from time to time by the chief executive officer of the corporation. -14- 19 Administrative vice presidents shall perform such duties and have such powers as from time to time may be determined by the chief executive officer or the board of directors in order to assist the officers of the corporation in the furtherance of their duties. In the performance of such duties and the exercise of such powers, however, such administrative vice presidents shall have limited authority to act on behalf of the corporation as the board of directors shall establish, including but not limited to limitations on the dollar amount and on the scope of the agreements or commitments that may be made by such administrative vice presidents on behalf of the corporation, which limitations may not be exceeded by such individuals or altered by the chief executive officer without further approval by the board of directors. 5.15 AUTHORITY AND DUTIES OF OFFICERS In addition to the foregoing authority and duties, all officers of the corporation shall respectively have such authority and perform such duties in the management of the business of the corporation as may be designated from time to time by the board of directors or the stockholders. ARTICLE VI INDEMNITY 6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS The corporation shall, to the maximum extent and in the manner permitted by the General Corporation Law of Delaware as the same now exists or may hereafter be amended, indemnify any person against expenses (including attorneys' fees), judgments, fines, and amounts paid in settlement actually and reasonably incurred in connection with any threatened, pending or completed action, suit, or proceeding in which such person was or is a party or is threatened to be made a party by reason of the fact that such person is or was a director or officer of the corporation. For purposes of this Section 6.1, a "director" or "officer" of the corporation shall mean any person (i) who is or was a director or officer of the corporation, (ii) who 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, or (iii) who was a director or officer of a corporation which was a predecessor corporation of the corporation or of another enterprise at the request of such predecessor corporation. The corporation shall be required to indemnify a director or officer in connection with an action, suit, or proceeding (or part thereof) initiated by such director or officer only if the initiation of such action, suit, or proceeding (or part thereof) by the director or officer was authorized by the board of Directors of the corporation. Any repeal or modification of the foregoing provisions of this Article shall not adversely affect any right or protection hereunder of any person in respect of any act or omission occurring prior to the time of such repeal or modification. -15- 20 6.2 INDEMNIFICATION OF OTHERS The corporation shall have the power, to the maximum extent and in the manner permitted by the General Corporation Law of Delaware as the same now exists or may hereafter be amended, to indemnify each of its employees and agents (other than directors and officers) against expenses (including attorneys' fees), judgments, fines, and amounts paid in settlement actually and reasonably incurred in connection with any threatened, pending or completed action, suit, or proceeding, in which such person was or is a party or is threatened to be made a party by reason of the fact that such person is or was an employee or agent of the corporation. For purposes of this Section 6.2, an "employee" or "agent" of the corporation (other than a director or officer) shall mean any person (i) who is or was an employee or agent of the corporation, (ii) who is or was serving at the request of the corporation as an employee or agent of another corporation, partnership, joint venture, trust or other enterprise, or (iii) who was an employee or agent of a corporation which was a predecessor corporation of the corporation or of another enterprise at the request of such predecessor corporation. 6.3 PAYMENT OF EXPENSES IN ADVANCE The corporation shall pay the expenses (including attorney's fees) incurred by a director or officer of the corporation entitled to indemnification hereunder in defending any action, suit or proceeding referred to in this Section 6.1 in advance of its final disposition; provided, however, that payment of expenses incurred by a director or officer of the corporation in advance of the final disposition of such action, suit or proceeding shall be made only upon receipt of an undertaking by the director or officer to repay all amounts advanced if it should ultimately be determined that the director or officer is not entitled to be indemnified under this Section 6.1 or otherwise. 6.4 INDEMNITY NOT EXCLUSIVE The rights conferred on any person by this Article shall not be exclusive of any other rights which such person may have or hereafter acquire under any statute, provision of the corporation's Certificate of Incorporation, these bylaws, agreement, vote of the stockholders or disinterested directors or otherwise. 6.5 INSURANCE INDEMNIFICATION The corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him or her and incurred by him or her in any such capacity, or arising out of his or her status as such, whether or not the corporation would have the power to indemnify him or her against such liability under the provisions of the General Corporation Law of Delaware. -16- 21 ARTICLE VII RECORDS AND REPORTS 7.1 MAINTENANCE AND INSPECTION OF RECORDS The corporation shall, either at its principal executive office or at such place or places as designated by the board of directors, keep a record of its stockholders listing their names and addresses and the number and class of shares held by each stockholder. Any stockholder of record, in person or by attorney or other agent, shall, upon written demand under oath stating the purpose thereof, have the right during the usual hours for business to inspect for any proper purpose the corporation's stock ledger and a list of its stockholders and to make copies or extracts therefrom. A proper purpose shall mean a purpose reasonably related to such person's interest as a stockholder. In every instance where an attorney or other agent is the person who seeks the right to inspection, the demand under oath shall be accompanied by a power of attorney or such other writing that authorizes the attorney or other agent to so act on behalf of the stockholder. The demand under oath shall be directed to the corporation at its registered office in Delaware or at its principal place of business. The officer who has charge of the stock ledger of a corporation shall prepare and make, at least ten (10) days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten (10) days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. The record of stockholders shall also be open to inspection on the written demand of any stockholder or holder of a voting trust certificate, at any time during usual business hours, for a purpose reasonably related to the holder's interests as a stockholder or as the holder of a voting trust certificate. Any inspection and copying under this Section 7.1 may be made in person or by an agent or attorney of the stockholder or holder of a voting trust certificate making the demand. -17- 22 7.2 MAINTENANCE AND INSPECTION OF BYLAWS The corporation shall keep at its principal executive office, or if its principal executive office is not in the State of California, at its principal business office in such state, the original or a copy of these bylaws as amended to date, which bylaws shall be subject to inspection by the stockholders at all reasonable times during office hours. If the principal executive office of the corporation is outside the State of California and the corporation has no principal business office in such state, the secretary shall, upon the written request of any stockholder, furnish to that stockholder a copy of these bylaws as amended to date. 7.3 MAINTENANCE AND INSPECTION OF OTHER CORPORATE RECORDS The accounting books and records, and the minutes of proceedings of the stockholders and the board of directors and any committee or committees of the board of directors, shall be kept at such place or places designated by the board of directors or, in absence of such designation, at the principal executive office of the corporation. The minutes shall be kept in written form and the accounting books and records shall be kept either in written form or in any other form capable of being converted into written form. The minutes and accounting books and records shall be open to inspection upon the written demand of any stockholder or holder of a voting trust certificate, at any reasonable time during usual business hours, for a purpose reasonably related to the holder's interests as a stockholder or as the holder of a voting trust certificate. The inspection may be made in person or by an agent or attorney, and shall include the right to copy and make extracts. Such rights of inspection shall extend to the records of each subsidiary corporation of the corporation. 7.4 INSPECTION BY DIRECTORS Every director shall have the absolute right at any reasonable time to inspect all books, records and documents of every kind and the physical properties of the corporation and each of its subsidiary corporations. Such inspection by a director may be made in person or by an agent or attorney, and the right of inspection includes the right to copy and make extracts of documents. The corporation shall also, on the written request of any stockholder, mail to the stockholder a copy of the last annual, semi-annual or quarterly income statement which it has prepared, and a balance sheet as of the end of that period. The quarterly income statements and balance sheets referred to in this section shall be accompanied by the report, if any, of any independent accountants engaged by the corporation or the certificate of an authorized officer of the corporation that the financial statements were prepared without audit from the books and records of the corporation. -18- 23 7.5 REPRESENTATION OF SHARES OF OTHER CORPORATIONS The chairman of the board, the chief executive officer, the president, the chief operating officer, any corporate vice president, the treasurer, the secretary or the chief financial officer of this corporation, or any other person authorized by the board of directors or the president or a vice president, is authorized to vote, represent, and exercise on behalf of this corporation all rights incident to any and all shares of any other corporation or corporations standing in the name of this corporation. The authority granted herein may be exercised either by such person directly or by any other person authorized to do so by proxy or power of attorney duly executed by such person having the authority. ARTICLE VIII GENERAL MATTERS 8.1 RECORD DATE FOR PURPOSES OTHER THAN NOTICE AND VOTING For purposes of determining 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 other lawful action, the board of directors may fix, in advance, a record date, which shall not be more than sixty (60) days before any such action. In that case, only stockholders of record at the close of business on the date so fixed are entitled to receive the dividend, distribution or allotment of rights, or to exercise such rights, as the case may be, notwithstanding any transfer of any shares on the books of the corporation after the record date so fixed, except as otherwise provided by law. If the board of directors does not so fix a record date, then the record date for determining stockholders for any such purpose shall be at the close of business on the day on which the board adopts the applicable resolution, or the sixtieth (60th) day before the date of that action, whichever is later. 8.2 CHECKS From time to time, the board of directors shall determine by resolution which person or persons may sign or endorse all checks, drafts, other orders for payment of money, notes or other evidences of indebtedness that are issued in the name of or payable to the corporation, and only the persons so authorized shall sign or endorse those instruments. -19- 24 8.3 EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS The board of directors, except as otherwise provided in these bylaws, may authorize any officer or officers, or agent or agents, to enter into any contract or execute any instrument in the name of and on behalf of the corporation; such authority may be general or confined to specific instances. Unless so 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. 8.4 STOCK CERTIFICATES; PARTLY PAID SHARES The shares of a corporation shall be represented by certificates, provided that the board of directors of the corporation may provide by resolution or resolutions that some or all of any or all classes or series of its stock shall be uncertificated shares. Any such resolution shall not apply to shares represented by a certificate until such certificate is surrendered to the corporation. Notwithstanding the adoption of such a resolution by the board of directors, every holder of stock represented by certificates and upon request every holder of uncertificated shares shall be entitled to have a certificate signed by, or in the name of the corporation by the chairman or vice-chairman of the board of directors, or the president or vice-president, and by the chief financial officer or an assistant treasurer, or the secretary or an assistant secretary of such corporation representing the number of shares registered in certificate form. Any or all of the signatures on the certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate has ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the corporation with the same effect as if he were such officer, transfer agent or registrar at the date of issue. The corporation may issue the whole or any part of its shares as partly paid and subject to call for the remainder of the consideration to be paid therefor. Upon the face or back of each stock certificate issued to represent any such partly paid shares, upon the books and records of the corporation in the case of uncertificated partly paid shares, the total amount of the consideration to be paid therefor and the amount paid thereon shall be stated. Upon the declaration of any dividend on fully paid shares, the corporation shall declare a dividend upon partly paid shares of the same class, but only upon the basis of the percentage of the consideration actually paid thereon. 8.5 SPECIAL DESIGNATION ON CERTIFICATES If the corporation is authorized to issue more than one class of stock or more than one series of any class, then the powers, the designations, the preferences, and the 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 shall be set forth in full or summarized on the face or back of the certificate that the corporation shall issue to represent such class or series of stock; provided, however, that, except as otherwise provided in Section 202 of the General Corporation Law of Delaware, in lieu of the foregoing requirements there may be set forth on the -20- 25 face or back of the certificate that the corporation shall issue to represent such class or series of stock a statement that the corporation will furnish without charge to each stockholder who so requests the powers, the designations, the preferences, and the 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. 8.6 LOST CERTIFICATES Except as provided in this Section 8.6, no new certificates for shares shall be issued to replace a previously issued certificate unless the latter is surrendered to the corporation and canceled at the same time. The corporation may issue a new certificate of stock or uncertificated shares in the place of any certificate theretofore issued by it, alleged to have been lost, stolen or destroyed, and the corporation may require the owner of the lost, stolen or destroyed certificate, or his legal representative, to give the corporation a bond sufficient to indemnify it against any claim that may be made against it on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate or uncertificated shares. 8.7 CONSTRUCTION; DEFINITIONS Unless the context requires otherwise, the general provisions, rules of construction, and definitions in the Delaware General Corporation Law shall govern the construction of these bylaws. Without limiting the generality of this provision, the singular number includes the plural, the plural number includes the singular, and the term "person" includes both a corporation and a natural person. 8.8 DIVIDENDS The directors of the corporation, subject to any restrictions contained in the certificate of incorporation, may declare and pay dividends upon the shares of its capital stock pursuant to the General Corporation Law of Delaware. Dividends may be paid in cash, in property, or in shares of the corporation's capital stock. The directors of the corporation may set apart out of any of the funds of the corporation available for dividends a reserve or reserves for any proper purpose and may abolish any such reserve. Such purposes shall include but not be limited to equalizing dividends, repairing or maintaining any property of the corporation, and meeting contingencies. 8.9 FISCAL YEAR The fiscal year of the corporation shall be fixed by resolution of the board of directors and may be changed by the board of directors. -21- 26 8.10 TRANSFER OF STOCK Upon surrender to the corporation or the transfer agent of the corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignation or authority to transfer, it shall be the duty of the corporation to issue a new certificate to the person entitled thereto, cancel the old certificate, and record the transaction in its books. 8.11 STOCK TRANSFER AGREEMENTS 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. 8.12 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, shall be entitled to hold liable for calls and assessments the person registered on its books as the owner of shares, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of another person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Delaware. ARTICLE IX AMENDMENTS The original or other bylaws of the corporation may be adopted, amended or repealed by the stockholders entitled to vote; provided, however, that the corporation may, in its certificate of incorporation, confer the power to adopt, amend or repeal bylaws upon the directors. The fact that such power has been so conferred upon the directors shall not divest the stockholders of the power, nor limit their power to adopt, amend or repeal bylaws. ARTICLE X DISSOLUTION If it should be deemed advisable in the judgment of the board of directors of the corporation that the corporation should be dissolved, the board, after the adoption of a resolution to that effect by a majority of the whole board at any meeting called for that purpose, shall cause notice to be mailed -22- 27 to each stockholder entitled to vote thereon of the adoption of the resolution and of a meeting of stockholders to take action upon the resolution. At the meeting a vote shall be taken for and against the proposed dissolution. If a majority of the outstanding stock of the corporation entitled to vote thereon votes for the proposed dissolution, then a certificate stating that the dissolution has been authorized in accordance with the provisions of Section 275 of the General Corporation Law of Delaware and setting forth the names and residences of the directors and officers shall be executed, acknowledged, and filed and shall become effective in accordance with Section 103 of the General Corporation Law of Delaware. Upon such certificate's becoming effective in accordance with Section 103 of the General Corporation Law of Delaware, the corporation shall be dissolved. Whenever all the stockholders entitled to vote on a dissolution consent in writing, either in person or by duly authorized attorney, to a dissolution, no meeting of directors or stockholders shall be necessary. The consent shall be filed and shall become effective in accordance with Section 103 of the General Corporation Law of Delaware. Upon such consent's becoming effective in accordance with Section 103 of the General Corporation Law of Delaware, the corporation shall be dissolved. If the consent is signed by an attorney, then the original power of attorney or a photocopy thereof shall be attached to and filed with the consent. The consent filed with the Secretary of State shall have attached to it the affidavit of the secretary or some other officer of the corporation stating that the consent has been signed by or on behalf of all the stockholders entitled to vote on a dissolution; in addition, there shall be attached to the consent a certification by the secretary or some other officer of the corporation setting forth the names and residences of the directors and officers of the corporation. ARTICLE XI CUSTODIAN 11.1 APPOINTMENT OF A CUSTODIAN IN CERTAIN CASES The Court of Chancery, upon application of any stockholder, may appoint one or more persons to be custodians and, if the corporation is insolvent, to be receivers, of and for the corporation when: (i) at any meeting held for the election of directors the stockholders are so divided that they have failed to elect successors to directors whose terms have expired or would have expired upon qualification of their successors; or (ii) the business of the corporation is suffering or is threatened with irreparable injury because the directors are so divided respecting the management of the affairs of the corporation that the required vote for action by the board of directors cannot be obtained and the stockholders are unable to terminate this division; or -23- 28 (iii) the corporation has abandoned its business and has failed within a reasonable time to take steps to dissolve, liquidate or distribute its assets. 11.2 DUTIES OF CUSTODIAN The custodian shall have all the powers and title of a receiver appointed under Section 291 of the General Corporation Law of Delaware, but the authority of the custodian shall be to continue the business of the corporation and not to liquidate its affairs and distribute its assets, except when the Court of Chancery otherwise orders and except in cases arising under Sections 226(a)(3) or 352(a)(2) of the General Corporation Law of Delaware. -24- 29 CERTIFICATE OF ADOPTION OF BYLAWS OF ANERGEN, INC. Adoption by Incorporator The undersigned person appointed in the Certificate of Incorporation to act as the Incorporator of ANERGEN, INC. hereby adopts the foregoing bylaws, comprising 24 pages, as the Bylaws of the corporation. Executed this 4th day of May 1998. /s/ ANNA ITOI ---------------------------------- Anna Itoi, Incorporator Certificate by Secretary of Adoption by Incorporator The undersigned hereby certifies that he is the duly elected, qualified, and acting Secretary of ANERGEN, INC. and that the foregoing Bylaws, comprising 24 pages, were adopted as the Bylaws of the corporation on May 4, 1998, by the person appointed in the Certificate of Incorporation to act as the Incorporator of the corporation. IN WITNESS WHEREOF, the undersigned has hereunto set his hand and affixed the corporate seal this 4th day of May 1998. /s/ BARRY M. SHERMAN ---------------------------------- Barry M. Sherman, M.D., Secretary -25- EX-27.1 3 FINANCIAL DATA SCHEDULE
5 1,000 9-MOS DEC-31-1998 JAN-01-1998 SEP-30-1998 1,868 502 0 0 0 2,420 7,185 6,012 3,629 1,733 0 0 0 57,705 (55,809) 3,629 0 3,421 0 0 9,247 0 106 (5,932) 0 (5,932) 0 0 0 (5,932) (0.31) (0.31)
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