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PROSPECTUS                                      Filed Pursuant to Rule 424(b)(3)
                                            Registration Statement No. 333-50505


                                  $100,000,000
 
                                     AVIRON
                 5 3/4% CONVERTIBLE SUBORDINATED NOTES DUE 2005
 
    This Prospectus relates to the public offering and sale from time to time by
the holders (the "Selling Securityholders") of (i) up to $100,000,000 aggregate
principal amount of 5 3/4% Convertible Subordinated Notes due 2005 (the "Notes")
of Aviron, a Delaware corporation ("Aviron" or the "Company") and (ii) the
shares of Common Stock, par value $0.001 per share, of the Company (the "Common
Stock") into which the Notes are convertible (the "Conversion Shares"). Interest
on the Notes is payable semi-annually in cash in arrears on April 1 and October
1 of each year, commencing October 1, 1998. The Notes will mature on April 1,
2005. The Notes are convertible at the option of the holder thereof at any time
prior to maturity, unless previously redeemed, into shares of Common Stock at a
conversion price of $30.904 per share (initially equivalent to a conversion rate
of 32.35827 shares per $1,000 principal amount of Notes), subject to adjustment
in certain events. No fractional shares of Common Stock shall be issued but in
lieu thereof an appropriate amount will be paid in cash. On May 4, 1998, the
last reported sale price of the Common Stock on the Nasdaq National Market
(symbol "AVIR") was $26.62 per share.
 
    The Notes are redeemable at the option of the Company, in whole or in part,
at any time on or after April 6, 2001, at the redemption prices set forth
herein, plus accrued and unpaid interest and Liquidated Damages (as defined), if
any, to the date of redemption. The Notes do not provide for any sinking fund.
Upon the occurrence of a Change of Control (as defined), the Company will be
required to offer to purchase the Notes at a purchase price equal to 100% of the
aggregate principal amount thereof, plus accrued and unpaid interest and
Liquidated Damages, if any, to the date of purchase. See "Description of Notes."
 
    The Notes are general subordinated obligations of the Company and are
subordinated in right of payment to all current and future Senior Indebtedness
(as defined) of the Company. In addition, the Notes are structurally
subordinated to all current and future liabilities of the Company's
subsidiaries. As of February 28, 1998, the Company had approximately $906,000 of
indebtedness that would have qualified as Senior Indebtedness. The Indenture (as
defined) will permit the Company to incur additional indebtedness, including
Senior Indebtedness. See "Description of Notes."
 
    Prior to this offering, there has been no public market for the Notes. The
Company does not intend to apply for listing of the Notes on any securities
exchange or for quotation through any automated quotation system. The Notes are
eligible for trading in the Private Offerings, Resale and Trading through
Automated Linkages ("Portal") market of the National Association of Securities
Dealers, Inc. The Notes are not expected to remain eligible for trading on the
Portal System. There can be no assurance that any trading market will develop
for the Notes.
 
    The Notes were issued by the Company in March 1998 and were sold to
"qualified institutional buyers" (as defined) and a limited number of
institutional accredited investors (as defined) in transactions exempt from
registration under the Securities Act of 1933, as amended (the "Securities
Act").
 
    The Selling Securityholders, directly or through agents, broker-dealers or
underwriters, may sell the Notes or the Conversion Shares offered hereby from
time to time on terms to be determined at the time of sale. Such Notes or
Conversion Shares may be sold at market prices prevailing at the time of sale or
at negotiated prices. The Selling Securityholders and any agents, broker-dealers
or underwriters that participate with the Selling Securityholders in the
distribution of the Notes or Conversion Shares may be deemed to be
"underwriters" within the meaning of the Securities Act, and any commission
received by them and any profit on the resale of the Common Stock purchased by
them may be deemed to be underwriting discounts or commissions under the
Securities Act. Each of the Selling Securityholders reserves the right to accept
and, together with their agents from time to time to reject, in whole or in
part, any proposed purchase of Notes or Conversion Shares to be made directly or
through agents. The Company will not receive any proceeds from the sale of Notes
or Conversion Shares by the Selling Securityholders. See "Selling
Securityholders" and "Plan of Distribution."
 
    SEE "RISK FACTORS" BEGINNING ON PAGE 8 FOR A DISCUSSION OF CERTAIN MATTERS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS IN CONNECTION WITH AN
INVESTMENT IN THE NOTES OFFERED HEREBY.
 
    The aggregate proceeds to the Selling Securityholders from the sale of the
Notes or Conversion Shares will be the purchase price of such Notes or
Conversion Shares sold less the aggregate agents' commissions and underwriters'
discounts. The Selling Securityholders are entitled to registration of their
Notes and Conversion Shares pursuant to a Registration Rights Agreement dated as
of March 15, 1998 (the "Registration Rights Agreement") and this offer is
intended to satisfy the rights granted by the Registration Rights Agreement. The
Company has agreed to pay substantially all of the expenses of the offering of
the Notes and the Conversion Shares by holders thereof other than underwriting
discounts and commissions, if any. The Company has agreed to indemnify the
Selling Securityholders and certain other persons against certain liabilities,
including liabilities under the Securities Act. See "Plan of Distribution."
 
THE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED ON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
 
                  THE DATE OF THIS PROSPECTUS IS MAY 4, 1998.
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                             AVAILABLE INFORMATION
 
     The Company is subject to the reporting requirements of the Exchange Act,
and in accordance therewith, files annual and quarterly reports, proxy
statements and other information with the Securities and Exchange Commission
(the "Commission"). Such reports, proxy statements and other information may be
inspected and copied at the Commission's Public Reference Section, 450 Fifth
Street, N.W., Room 1024, Washington, D.C. 20549, as well as at the Commission's
Regional Offices at 7 World Trade Center, 13th Floor, New York, New York 10048;
and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of
such material can be obtained at prescribed rates from the Public Reference
Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. The
Commission's Internet address is http://www.sec.gov. The Commission's Web site
also contains reports, proxy and information statements, and other information
regarding the Company that has been filed electronically with the Commission.
The Common Stock of the Company is quoted on the Nasdaq National Market. Reports
and other information concerning the Company may be inspected at the National
Association of Securities Dealers, Inc. at 1735 K Street, N.W. Washington, D.C.
20006.
 
     The Company has agreed that if, at any time while the Notes or the Common
Stock issuable upon conversion of the Notes are "restricted securities" within
the meaning of the Securities Act, and the Company is not subject to the
reporting requirements of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), the Company will promptly furnish or cause to be furnished upon
request of a Holder of restricted securities and to qualified prospective
purchasers designated by such Holders, the information required to be delivered
pursuant to Rule 144(d)(4) under the Securities Act, to the extent required to
permit compliance with Rule 144A in connection with resales of Notes and such
Common Stock.
 
                             ADDITIONAL INFORMATION
 
     A registration statement on Form S-3 with respect to the Notes and
Conversion Shares offered hereby (together with all amendments, exhibits and
schedules thereto, the "Registration Statement") has been filed with the
Commission under the Securities Act. This Prospectus does not contain all of the
information contained in such Registration Statement, certain portions of which
have been omitted pursuant to the rules and regulations of the Commission. For
further information with respect to the Company and the Notes and Conversion
Shares offered hereby, reference is made to the Registration Statement.
Statements contained in this Prospectus regarding the contents of any contract
or any other documents are not necessarily complete and, in each instance,
reference is hereby made to the copy of such contract or document filed as an
exhibit to the Registration Statement. The Registration Statement may be
inspected without charge at the Securities and Exchange Commission's principal
office in Washington, D.C., and copies of all or any part thereof may be
obtained from the Public Reference Section, Securities and Exchange Commission,
Washington, D.C., 20549, upon payment of the prescribed fees.
 
                INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
 
     The following documents, filed with the Commission under the Exchange Act
(File No. 0-20815) are hereby incorporated by reference into this Prospectus:
 
     (a) The Company's Annual Report on Form 10-K for the fiscal year ended
         December 31, 1997, filed March 17, 1998, as amended March 31, 1998,
         including all material incorporated by reference therein; and
 
     (b) The Company's Current Report on Form 8-K, dated March 17, 1998 and
         filed April 1, 1998.
 
     All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date of this Prospectus and prior to the
termination of the offering shall be deemed to be incorporated by reference
herein and to be a part hereof from the date of filing of such documents. Any
statement contained in this Prospectus or in a document incorporated or deemed
to be incorporated by
 
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reference herein shall be deemed to be modified or superseded for purposes of
this Prospectus to the extent that a statement contained herein or in any
subsequently filed document which also is or is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Prospectus.
 
     The Company will provide without charge to each person, including any
beneficial owner, to whom this Prospectus is delivered, upon written or oral
request of such person, a copy of any and all of the documents that have been
incorporated by reference herein (not including exhibits to such documents
unless such exhibits are specifically incorporated by reference herein or into
such documents). Such request may be directed to: Investor Relations, Aviron,
297 North Bernardo Avenue, Mountain View, California 94043.
 
                DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
 
     The discussion in this Prospectus contains forward-looking statements
within the meaning of Section 27A of the Securities Act and Section 21E of the
Exchange Act that involve risks and uncertainties. Those statements include
words such as "anticipate," "estimate," "project," "intend," and similar
expressions which are intended to identify forward-looking statements and appear
throughout this Prospectus and include statements regarding the intent, belief,
or current expectations of the Company, primarily with respect to the operations
of the Company or related industry developments. Prospective purchasers of the
Notes are cautioned that any such forward-looking statements are not guarantees
of future performance and involve risks and uncertainties, and that actual
results could differ materially from those discussed here and in the documents
incorporated by reference herein.
 
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                                    SUMMARY
 
     The following summary is qualified in its entirety by the more detailed
information and financial statements appearing elsewhere in this Prospectus or
incorporated by reference herein. See "Risk Factors" for a discussion of certain
factors that should be considered by prospective investors.
 
                                  THE COMPANY
 
     Aviron is a biopharmaceutical company whose focus is the prevention of
disease through innovative vaccine technology. The Company's goal is to become a
leader in the discovery, development, manufacture and marketing of vaccines
which are sufficiently cost effective to justify their use in immunization
programs targeting the general population. Aviron's vaccine programs are based
on both classical live virus vaccine attenuation techniques and the Company's
proprietary genetic engineering technologies. Live virus vaccines, such as those
for smallpox, polio, measles, mumps, rubella and chicken pox, have had a long
record of success in preventing, and in some cases eliminating, disease.
 
     The Company's lead product candidate, a cold adapted influenza vaccine
delivered as an intranasal spray, has been shown to provide a high protection
rate against influenza with minimal adverse effects in a pivotal Phase III
clinical trial in children. Aviron is developing this live vaccine for
widespread annual use in children, healthy adults and high risk adults. The
Company has initiated Phase II clinical trials for a live intranasal vaccine for
Parainfluenza Virus Type 3 ("PIV-3") to protect against croup. The Company is
also developing a subunit vaccine for Epstein-Barr Virus ("EBV") to protect
against infectious mononucleosis, in collaboration with SmithKline Beecham
Biologicals, S.A. ("SmithKline Beecham"), which entered a Phase I clinical trial
in Europe in October 1997. In addition, Aviron is using its proprietary
"Rational Vaccine Design" technologies to discover new live virus vaccines.
Rational Vaccine Design involves the addition of antigenic information to
enhance the virus' stimulation of the immune system, the deletion or
modification of virulence proteins, or the alteration of the virus' genetic
control signals to slow down its replication. The Company is applying these
technologies to develop vaccine candidates for diseases caused by
Cytomegalovirus ("CMV"), Herpes Simplex Virus Type 2 ("HSV-2") and Respiratory
Syncytial Virus ("RSV").
 
     Influenza. Influenza affects 35 to 50 million Americans each year resulting
in approximately 20,000 deaths annually, primarily in the elderly, despite the
availability of an injectable inactivated vaccine that has been reported to be
60% to 90% effective. The United States Food and Drug Administration ("FDA")
estimates that approximately 80 million doses of the injectable influenza
vaccine were manufactured for use in the United States in 1997. Experts suggest
that, although over half of Americans at high risk for complications from
influenza receive the annual influenza vaccine, relatively few of the 70 million
children under the age of 18 are vaccinated.
 
     Aviron's cold adapted influenza vaccine has been tested in over 5,000
infants, children, adults and elderly persons. Prior to Aviron's in-licensing of
the cold adapted vaccine, formulations of this vaccine had been tested in over
7,000 patients. Because this vaccine is delivered as a nasal spray rather than
as an injection, the Company believes it would provide a more attractive way to
immunize children on an annual basis. Children are an important target because
much of the illness occurs in children, and as a result they are thought to be
important in the spread of influenza. Aviron expects that initially the cold
adapted influenza vaccine will be delivered in physicians' offices and other
locations where the current injectable influenza vaccine is given. The Company
believes that the nasal spray delivery of this vaccine will enable it to be
administered by adults without special medical training, so that it will be
practical to consider delivery in pharmacies, schools, day care centers and in
the workplace.
 
     In July 1997, the National Institute of Allergy and Infectious Diseases
("NIAID") of the National Institutes of Health ("NIH") and the Company announced
the results of an initial analysis of the first stage of a pivotal Phase III
clinical trial of Aviron's live cold adapted intranasal vaccine involving 1,602
children. In this trial, the vaccine demonstrated a 93% protection rate against
culture-confirmed influenza in those children receiving two doses of the
vaccine, the primary endpoint of the study. Only 1% of the children who received
two doses experienced culture-confirmed influenza, compared to 18% of those
receiving placebo. These results
 
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were statistically significant. The clinical investigators have submitted
findings of this trial for publication in a peer-reviewed medical journal. The
Company is currently conducting the second stage of this Phase III clinical
trial in 1,358 children who participated in the first stage of this trial to
collect immunogenicity data, as well as additional safety and efficacy data. In
1996, the Company completed a challenge efficacy study of this vaccine in 92
adults which demonstrated an 85% protection rate compared to placebo against
culture-confirmed influenza. These results were also statistically significant.
Previously, Aviron conducted Phase I/II clinical trials of this vaccine in
approximately 600 children and healthy adults.
 
     Parainfluenza Virus Type 3. PIV-3 is a common respiratory virus of
childhood which causes croup, cough, fever and pneumonia. Over 80% of children
have been infected by age four, many having experienced several cases of PIV-3
infection. The Company has in-licensed the rights to a bovine PIV-3 ("bPIV-3")
vaccine from the NIH which had sponsored tests in almost 100 infants, children
and adults for safety and immunogenicity. Aviron is currently conducting a Phase
II clinical trial for this vaccine candidate.
 
     Epstein-Barr Virus. EBV infects most people at some point in their
lifetime. At least half of the approximately 10% of students who first become
infected with the virus in high school and college develop infectious
mononucleosis. EBV also has been shown to be a contributing factor in the
development of certain types of cancer and lymphoma. Aviron and SmithKline
Beecham entered into a collaborative agreement in 1995 to develop an EBV vaccine
based on proprietary Aviron technology. SmithKline Beecham began a Phase I
clinical trial of the subunit vaccine in Europe in October 1997.
 
     Cytomegalovirus. Most people also become infected with CMV at some time in
their lives, but the resulting disease is typically serious only for those with
impaired immune systems or for babies of women infected in the first trimester
of pregnancy. Approximately 40,000 infants in the United States are infected
each year, resulting in varying levels of brain damage or deafness in
approximately 10% of these infants. The Company has selected several Rational
Vaccine Design candidates for clinical testing for the prevention of CMV disease
and plans to file an Investigational New Drug Application ("IND") for its CMV
vaccine candidates.
 
     Herpes Simplex Virus Type 2. Genital herpes is an incurable disease
characterized by recurrent, often painful genital sores, with over 700,000 new
cases estimated in the United States each year. The Company currently is
developing and evaluating several Rational Vaccine Design candidates in
preclinical models to create a prophylactic vaccine.
 
     Respiratory Syncytial Virus. RSV is the major cause of lower respiratory
tract illness in the very young, responsible for over 90,000 hospitalizations
and more than 4,000 deaths per year in the United States. Aviron is using its
Rational Vaccine Design technology to develop intranasal vaccine candidates to
prevent RSV disease.
 
     Aviron has entered into, and intends to enter into additional, selected
collaborative agreements to gain access to complementary products and
technologies, capabilities and financial support for its programs. In addition
to acquiring rights from third parties to augment its Rational Vaccine Design
technology and the cold adapted influenza vaccine technology, the Company has
entered into a collaborative agreement with SmithKline Beecham covering
worldwide rights to its EBV vaccine, and a collaboration with Sang-A Pharm. Co.,
Ltd. ("Sang-A") involving certain marketing and manufacturing rights to the
Company's products in South and North Korea ("Korea"). In addition, the Company
entered into contract manufacturing and packaging agreements with Evans Medical
Limited, a subsidiary of Medeva plc ("Evans"), and Packaging Coordinators, Inc.,
a subsidiary of Cardinal Health, Inc. ("PCI"), for the initial production of its
cold adapted influenza vaccine.
 
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BUSINESS STRATEGY
 
     Aviron's objective is to become a leader in the discovery, development,
manufacture and marketing of vaccines which are sufficiently cost effective to
justify their use in immunization programs targeting the general population. The
Company's strategy is to:
 
     Develop Vaccines to Prevent Diseases That Merit Widespread
Immunization. The concept of universal immunization is well established for
certain infectious diseases where safe and effective vaccines are already
available, including immunization against pathogens such as polio, measles,
mumps, rubella and hepatitis B. For each of its potential products, the
Company's objective is to produce vaccine strains which are sufficiently safe
and cost effective to obtain official recommendations for universal use in
childhood vaccine regimens or, in the case of influenza, annual use in the
general population.
 
     Apply Rational Vaccine Design Technology to a Range of Viral
Targets. Aviron believes that its proprietary genetic engineering technologies
may be used to create live attenuated vaccines for a wide range of viral
targets, such as respiratory viruses related to influenza and chronic virus
infections related to herpes simplex virus, and potentially to the creation of
vectors used in gene therapy and the treatment of cancer. One advantage of
Rational Vaccine Design technology is that the design of engineered viruses
makes them less likely to revert to naturally occurring (wild type)
characteristics than classically derived live vaccines.
 
     Acquire Promising Products and Technology. Aviron evaluates opportunities
to in-license or otherwise acquire rights to promising products and technologies
and intends to add programs which complement the Company's core technologies and
capabilities. For example, the Company obtained exclusive rights to the cold
adapted influenza vaccine technology from the University of Michigan and the
NIH, and to the PIV-3 vaccine from the NIH.
 
     Select Programs and Market Vaccines Based on Pharmacoeconomic Data. Public
health agencies and managed care systems are increasingly concerned with the
economic impact of potential new mandates for vaccines. In setting its internal
product development priorities, the Company considers the costs of implementing
widespread vaccine programs based on its products in relation to potential cost
savings to governments and managed health care systems and intends to perform
rigorous cost-effectiveness analyses on its products.
 
     Establish Collaborative Arrangements to Enhance Product Development
Efforts. Aviron intends to continue to enter into collaborative arrangements to
gain access to specific technologies and skills which may accelerate product
development and provide additional financial resources to support its research
and development and commercialization efforts, particularly outside of the
United States. The Company has entered into collaborative arrangements with
SmithKline Beecham for development of an EBV vaccine and with Sang-A for certain
rights to the Company's products in Korea.
 
     Establish Commercialization Capabilities. The Company intends to
participate in the marketing and selling of its cold adapted influenza vaccine
product in partnership with third parties. Aviron intends to enter into one or
more marketing collaborations with established pharmaceutical companies which
would enable it to penetrate the segmented vaccine market. No such collaboration
has been entered into to date. For marketing and sales outside the United
States, the Company intends to establish collaborative relationships with
companies having strong capabilities in local markets. Aviron has secured
production capacity through 2001 for its cold adapted influenza vaccine. In
order to secure future production capability, Aviron may extend and expand its
existing arrangements, collaborate with other third parties, or establish its
own manufacturing facilities.
 
     The Company was incorporated in California in April 1992 as Vector
Pharmaceuticals, Inc., changed its name to Aviron in February 1993, and
reincorporated in Delaware in November 1996. The Company's executive offices are
located at 297 North Bernardo Avenue, Mountain View, California 94043, and its
telephone number is (650) 919-6500.
 
     "Aviron" is a trademark of the Company. Certain trademarks of other
companies are used in this Prospectus.
 
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                              RECENT DEVELOPMENTS
 
     In March 1998, $100,000,000 of 5 3/4% Convertible Subordinated Notes due
2005 (the "Notes") were issued by the Company and sold to "qualified
institutional buyers" (as defined in Rule 144A of the Securities Act) and a
limited number of other institutional "accredited investors" (as defined in Rule
501(a)(1), (2), (3) or (7) under the Securities Act) in transactions exempt from
registration under the Securities Act. The net proceeds to Aviron from the sale
of the Notes were approximately $96.0 million. Of the net proceeds,
approximately $13.3 million was used to repurchase 530,831 shares of Aviron
Common Stock formerly held by Sang-A. The balance is expected to be used by the
Company for clinical trials, regulatory submissions, manufacturing and marketing
expenses in support of product launch for its cold adapted influenza vaccine;
research and development, clinical testing, clinical trials and regulatory
submissions for its other vaccine programs; and working capital.
 
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                                  RISK FACTORS
 
     Prospective investors should carefully consider and evaluate the following
factors relating to the company and the offering of the notes and the conversion
shares, together with the information and financial data set forth elsewhere in
this prospectus or incorporated by reference herein, before making an investment
in the Notes or the Conversion Shares.
 
UNCERTAINTIES RELATED TO CLINICAL TRIALS
 
     In order to commercialize any of its products under development, the
Company must demonstrate with substantial evidence through clinical trials and
to the FDA's satisfaction that the product is safe and effective for use in the
indications for which approval is requested. The results from preclinical
testing and early clinical trials may not be predictive of results obtained in
large clinical trials. Companies in the pharmaceutical, biopharmaceutical and
biotechnology industries have suffered significant setbacks in various stages of
clinical trials, even in advanced clinical trials after promising results had
been obtained in earlier trials. The Company's vaccines are intended for use
primarily in healthy individuals. To obtain regulatory approval, the Company
must demonstrate safety and efficacy in healthy people, which likely will
require a lengthier process and involve a larger number of trials and people
than would be customary for clinical trials of therapeutics for disease
management. There can be no assurance that the Company's clinical trials will
demonstrate sufficient safety and efficacy to obtain the requisite regulatory
approvals or will result in marketable products. If the Company's cold adapted
influenza vaccine is not shown to be safe and effective in Aviron's future
clinical trials, the resulting delays in obtaining regulatory approvals for this
vaccine, as well as the need for additional financing, would have a material
adverse effect on the Company's business, financial condition and results of
operations. A material incidence of adverse side effects during Aviron's
clinical trials could have a negative impact on the marketing of the product.
 
     The Company's cold adapted influenza vaccine is a trivalent vaccine
delivered as a nasal spray that is based on technology licensed from the NIH and
the University of Michigan. Wyeth-Ayerst Laboratories ("Wyeth-Ayerst"), a
division of American Home Products Corporation, licensed certain rights to the
vaccine in 1991 and was developing it for sale in collaboration with the NIH
until relinquishing its rights in 1993. Formulations of the vaccine have been
the subject of a number of clinical trials performed by the NIAID and others.
The Company has reviewed the data from these trials and believes that it can
submit such data in partial support of its application for regulatory approval
of its cold adapted influenza vaccine from the FDA. The Company did not
participate in these trials and cannot be confident in the accuracy of the data
collected. Very few of the trials involved a trivalent vaccine delivered as a
nasal spray, but instead typically used formulations of monovalent or bivalent
vaccine delivered as nasal drops. The Company has performed and is in the
process of performing additional trials of its cold adapted influenza vaccine
candidate to support its application to the FDA. There can be no assurance that
the data from these third-party trials are accurate, that the Company will be
able to obtain favorable results from its own trials, or that the Company can
complete these trials on a timely basis, or at all.
 
     In the case of the Company's cold adapted influenza vaccine, the Company is
seeking FDA approval for indications in children, healthy adults, and for
co-administration with the inactivated injectable vaccine in high risk adults,
including the elderly. As a result, the Company's clinical trials will need to
demonstrate to the FDA's satisfaction safety and efficacy of the vaccine in each
of these target populations. The data necessary to calculate the primary
endpoints in the Company's pivotal Phase III clinical trial of its live cold
adapted intranasal influenza vaccine in healthy children became available in
July 1997. There can be no assurance that the analysis of the data regarding the
primary endpoint announced by the Company and the conclusions drawn from this
analysis will not change in the course of regulatory review for licensing. Such
changes could have an adverse effect on the Company's product development
efforts and its prospects for regulatory approval of the vaccine. The Company is
conducting the second stage of its Phase III clinical trial in healthy children
during the 1997/98 influenza season. There can be no assurance that the results
of the second stage of this trial will
 
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support the results of the first stage of this trial. Failure to do so could
have an adverse effect on the regulatory approval or labeling of the cold
adapted intranasal influenza vaccine and could have a material adverse effect on
the Company's business, financial condition and results of operations. In
addition, the Company currently plans to submit safety data to support labeling
claims for use of the vaccine in healthy and high risk adults; however, the
Company plans to submit efficacy data on only a limited number of people for
these populations in its initial Product License Application ("PLA") filing.
There can be no assurance that the FDA will consider this data to be sufficient
to support indications for use of the vaccine in healthy or high risk adults. To
the extent that the FDA does not find such data submitted by the Company
sufficient to support product approval for one or more indications, the
Company's commercialization of the vaccine may be substantially delayed for one
or more of its target populations. In this connection, the Company could be
required to commence and complete additional clinical trials to generate
additional safety and efficacy data to support product approval for one or more
of its target populations.
 
     The completion of the Company's clinical trials may be delayed by many
factors. For example, delays may be encountered in enrolling a sufficient number
of people fitting the appropriate trial profile, preparing the modified vaccine
strain for certain influenza seasons, or manufacturing clinical trial materials.
The Company's late-stage clinical trials of its live cold adapted influenza
vaccine must be conducted during the influenza season and must be commenced
early enough in the approximately five-month season so that subjects may be
vaccinated well in advance of a challenge by the wild-type virus. Were the
influenza season to commence earlier than anticipated, the number of subjects
that could participate in a particular study might be reduced in that season due
to the subjects' possible exposure to wild-type influenza virus. Additionally,
there is a risk that there will not be enough natural influenza in the community
in a given influenza season to achieve statistically significant results from
clinical trials. There can be no assurance that delays in, or termination of,
clinical trials will not occur. Any delays in, or termination of, the Company's
clinical trial efforts could have a material adverse effect on the Company's
business, financial condition and results of operations.
 
     There can be no assurance that the Company's development efforts will be
successful, that required regulatory approvals, including those with respect to
IND, PLA and Establishment License Application ("ELA") applications, will be
obtained or that any products, if introduced, will be successfully marketed.
 
NEED FOR ANNUAL REASSORTMENT; LACK OF MANUFACTURING EXPERIENCE; RELIANCE ON
CONTRACT MANUFACTURERS
 
     Influenza viruses have a high mutation rate and the surface antigens of
influenza viruses that induce protective immunity are variable from year to
year. Each spring, the FDA and the United States Centers for Disease Control and
Prevention (the "CDC") determine circulating influenza strains that will be
included in the following season's influenza vaccines. As a result,
manufacturers of vaccines, including Aviron, must modify their influenza
vaccines each year to include the selected strains in a form that meets FDA
guidelines, within an approximately six-month period, in order to make them
available before the influenza season. If the Company were unable to develop an
influenza vaccine for a particular year that meets FDA and CDC guidelines and
establish a manufacturing process for the vaccine, its business, financial
condition and results of operations would be materially adversely affected. No
assurance can be given that delays in preparing vaccines for use in clinical
trials or commercial sales will not be encountered.
 
     The Company currently does not have facilities to manufacture the cold
adapted influenza vaccine and has no experience with clinical or commercial
manufacture of this potential product. All of the cold adapted vaccine material
used in the Company's early stage clinical trials has been supplied solely by
Evans pursuant to a manufacturing and development agreement entered into in
November 1995 (the "Evans Clinical Agreement"). Evans is one of four companies
licensed by the FDA to produce influenza vaccine for sale in the United States,
and produces its own injectable inactivated influenza vaccine that could compete
with the Company's cold adapted influenza vaccine. Under the Evans Clinical
Agreement, Evans also is collaborating with Aviron to develop a liquid
formulation of the cold adapted influenza vaccine requiring only refrigeration
rather than frozen storage. The Company believes that a liquid formulation will
be required to address markets outside the United States and Canada.
 
     The Company initially plans to obtain any commercial quantities of its cold
adapted influenza vaccine product from Evans. Pursuant to an agreement entered
into by the Company and Evans in April 1997 (the
 
                                        9
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"Evans Commercial Agreement"), Evans has agreed to manufacture the Company's
needs for bulk product through the 2001/2002 influenza season. In October 1997,
the Company entered into a nonexclusive arrangement with PCI for blending,
filling, packaging and labeling of its cold adapted influenza vaccine in the
United States until October 2004. In the event of better than expected market
acceptance, the Company may be capacity-constrained on its supply of vaccine
through at least the 2000/2001 influenza season. In order to secure future
production capacity, Aviron may extend and expand its existing arrangements,
collaborate with other third parties, or establish its own manufacturing
facilities. Using an alternative supplier or building a proprietary facility
would require a substantial amount of funds and additional clinical trials and
testing. There can be no assurance that an alternative source of supply will be
established on a timely basis, or that the Company will have or be able to
obtain funds sufficient for building or equipping a new facility. In addition,
as part of the regulatory approval process, before commercial launch of the cold
adapted influenza vaccine, the Company will need to obtain approval of an ELA
for its own facility and the PCI facility, and Evans must obtain an ELA for its
facility. Subsequent establishment of alternative sources of supply or
manufacturing would require approval of a subsequent ELA for each such facility.
 
     The production of the Company's cold adapted influenza vaccine is subject
to the availability of a large number of specific pathogen-free hen eggs, for
which there are currently a limited number of suppliers. The Company has been
purchasing its egg requirement from a single supplier on a purchase order basis,
rather than pursuant to any long term contractual arrangements. Contamination or
disruption of this source of supply would adversely affect the ability to
manufacture the Company's cold adapted influenza vaccine. The production of the
cold adapted influenza vaccine is also subject to the availability of the device
for delivery of the vaccine intranasally. The Company has been purchasing
intranasal delivery devices from a single supplier on a purchase order basis,
rather than pursuant to any long term contractual arrangements. There can be no
assurance that these suppliers will provide timely and adequate supplies of
these product components and raw materials. In addition, the Company depends on
the submission by the delivery device manufacturer of a Device Master File
application ("DMF") for separate review by regulatory authorities. The Company
will reference the DMF as part of the PLA submission for the cold adapted
influenza vaccine.
 
     The production and marketing of influenza vaccine is highly seasonal.
Because most cases of influenza occur in winter, the majority of influenza
vaccinations in the Northern Hemisphere occur between September and December of
a given year. If the Company were unable to develop an influenza vaccine for a
particular year that meets FDA and CDC guidelines, the Company would receive no
revenues from an influenza vaccine for that influenza season, which would
materially adversely affect the Company's business, financial condition and
results of operation, given the relatively fixed nature of its operating
expenses over the short term. Failure of one of the Company's suppliers to
deliver timely and sufficient supplies to the Company, if it caused the Company
to be unable to deliver vaccines during the peak demand period for the influenza
season, would have a disproportionately adverse effect on the Company's
financial results.
 
     The Company currently does not have facilities to manufacture any of its
other potential products in commercial quantities and has no experience with
commercial manufacture of vaccine products. To manufacture its other potential
products for large-scale clinical trials or on a commercial scale, the Company
may be required to build a large-scale manufacturing facility, which would
require a significant amount of funds. The scale-up of manufacturing for
commercial production would require the Company to develop advanced
manufacturing techniques and rigorous process controls. However, no assurance
can be given as to the ability of the Company to produce commercial quantities
of its potential products in compliance with applicable regulations or at an
acceptable cost, or at all.
 
     The Company is alternatively considering the use of contract manufacturers
for the commercial production of its other potential products. The Company is
aware of only a limited number of manufacturers which it believes have the
ability and capacity to manufacture its other potential products in a timely
manner. There can be no assurance that the Company would be able to contract
with any of these companies for the manufacture of its products on acceptable
terms, if at all. If the Company enters into an agreement with a third-party
manufacturer, it may be required to relinquish control of the manufacturing
process, which could adversely affect the Company's results of operations.
Furthermore, a third-party manufacturer also will be required to manufacture the
Company's products in compliance with state and federal regulations. Failure of
 
                                       10
   11
 
any such third-party manufacturer to comply with state and federal regulations
and to deliver the required quantities on a timely basis and at commercially
reasonable prices would materially adversely affect the Company's business,
financial condition and results of operations. No assurance can be given that
the Company, alone or with a third party, will be able to make the transition to
commercial production of its potential products successfully, if at all, or that
if successful, the Company will be able to maintain such production.
 
STABILITY OF COLD ADAPTED INFLUENZA VACCINE
 
     The Company's current frozen formulation of the cold adapted influenza
vaccine is being designed to meet an acceptable level of stability for the U.S.
market initially targeted by the Company. In addition to its current frozen
formulation, the Company is exploring alternative formulations and presentations
for the vaccine which may enable improved distribution and longer shelf life.
There can be no assurance that the Company will succeed in achieving adequate
product stability for the current frozen formulation of its live cold adapted
influenza vaccine, that the Company's efforts to produce such alternative
formulations will be successful, or that such alternative formulations will
actually enable improved distribution and longer shelf life.
 
UNCERTAINTY OF MARKET ACCEPTANCE
 
     Even if the requisite regulatory approvals are obtained for the Company's
potential products, uncertainty exists as to whether such products will be
accepted in United States or foreign markets. The Company believes, for example,
that widespread use of the Company's proposed vaccines in the United States is
unlikely without positive recommendations from the Advisory Committee on
Immunization Practices (the "ACIP") of the CDC, the American Academy of
Pediatrics ("AAP") or the American College of Physicians. There can be no
assurance that such authorities will recommend the use of the Company's proposed
products. The lack of such recommendations would have a material adverse effect
on the Company's business, financial condition and results of operations.
 
     A number of additional factors may affect the rate and overall market
acceptance of Aviron's cold adapted influenza vaccine and any other products
which may be developed by the Company, including the safety and efficacy results
in the Company's clinical trials, the rate of adoption of Aviron's vaccines by
health care practitioners, the rate of vaccine acceptance by the target
population, the success of the CDC in selecting proper strains to be included in
each season's vaccine and the perceived effectiveness of influenza vaccines
generally, the timing of market entry relative to competitive products, the
availability of alternative technologies, the price of the Company's products
relative to alternative technologies, the means and frequency of administration
of such products, the availability of third-party reimbursement and the extent
of marketing and sales efforts by the Company, collaborative partners and
third-party distributors or agents retained by the Company. Side effects, such
as the runny nose, sore throat or fever seen in a minority of clinical trial
participants, or unfavorable publicity concerning Aviron's products or any
product incorporating live virus vaccines could have an adverse effect on the
Company's ability to obtain physician, patient or third-party payor acceptance
and efforts to sell the Company's products. The Company's current formulation of
the cold adapted influenza vaccine requires frozen storage, which may adversely
affect market acceptance in certain foreign countries where adequate freezer
capacity is not commonly available. There can be no assurance that physicians,
patients or third-party payors will accept new live virus vaccine products or
any of the Company's products as readily as other types of vaccines, or at all.
 
LACK OF MARKETING EXPERIENCE; DEPENDENCE ON THIRD PARTIES
 
     Primary care physicians, including pediatricians, family practitioners,
general practitioners, and internists, are expected to play a major role in
influencing decisions by individuals to obtain influenza prophylaxis for
themselves or their children and the choice of type of immunization. For the
cold adapted influenza vaccine to be widely adopted, it will likely be necessary
to engage the efforts of an experienced pharmaceutical sales force, in addition
to obtaining recommendations for the vaccine's use from advisory bodies such as
the ACIP and AAP. Aviron currently has no direct sales or distribution
capability nor does it intend to build a large pharmaceutical sales force
itself. Rather, the Company intends to obtain these services through
collaboration
 
                                       11
   12
 
with one or more major pharmaceutical companies in the United States and
elsewhere. The Company is currently evaluating the capabilities of a number of
such potential partners and expects to conclude one or more agreements as part
of its commercialization strategy. No assurance can be given that the Company
will be successful in negotiating an arrangement in a timely fashion or that
such an agreement will be on favorable terms to the Company.
 
     The successful commercialization of the Company's products is dependent in
part upon the ability of the Company to maintain existing and enter into
additional collaborative agreements with corporate partners for the development,
testing and marketing of certain of its vaccines and upon the ability of these
third parties to perform their responsibilities. The amount and timing of
resources devoted to these activities is not within the control of the Company.
There can be no assurance that any such agreements or arrangements will be
available on terms acceptable to the Company, if at all, that such third parties
would perform their obligations as expected, or that any revenue would be
derived from such arrangements. If Aviron is not able to enter into such
agreements or arrangements, it could encounter delays in introducing its
products into the market or be forced to limit the scope of its
commercialization activities. If the Company were to market products directly,
significant additional expenditures, management resources and time would be
required to develop a sales and marketing staff within the Company. In addition,
the Company would also be competing with other companies that currently have
experienced and well-funded marketing and sales operations. There can be no
assurance that the Company will be able to establish its own sales and marketing
force or that any such force, if established, would be successful in gaining
market acceptance for any products that may be developed by the Company.
 
NEED FOR FUTURE FUNDING; UNCERTAINTY OF ACCESS TO CAPITAL
 
     The Company's operations to date have consumed substantial and increasing
amounts of cash. The negative cash flow from operations is expected to continue
and to accelerate in the foreseeable future. The development of the Company's
technology and proposed products will require a commitment of substantial funds
to conduct the costly and time-consuming research, preclinical testing and
clinical trials necessary to develop and optimize such technology and proposed
products, to establish manufacturing, marketing and sales capabilities and to
bring any such products to market. The Company's future capital requirements
will depend upon many factors, including continued scientific progress in the
research and development of the Company's technology and vaccine programs, the
size and complexity of these programs, the ability of the Company to establish
and maintain collaborative arrangements, progress with preclinical testing and
clinical trials, the time and costs involved in obtaining regulatory approvals,
the cost involved in preparing, filing, prosecuting, maintaining and enforcing
patent claims or trade secrets and product commercialization activities.
 
     The Company anticipates that the proceeds of the Offering, together with
revenues from existing collaborations and current balances of cash, cash
equivalents and marketable securities, will enable it to maintain its current
and planned operations through 1999. The estimate of the time period in which
these capital resources will be sufficient to meet the Company's capital
requirements is a forward-looking statement that is subject to risks and
uncertainties and the amounts and timing of the expenditures by the Company may
vary materially depending on numerous factors, such as the status of the
Company's research and development efforts, the regulatory approval process,
technological advances, determinations as to commercial potential, the terms of
collaborative agreements entered into by the Company, the status of competitive
products and the possibility of the Company's construction of a commercial
manufacturing facility for its potential products. In particular, if the Company
were to construct and equip such a manufacturing facility during this period,
the Company anticipates that it would likely begin to make substantial
additional capital expenditures in the second half of 1998 and beyond, which may
require the Company to seek additional funding. In addition, the Company's
research and development expenditures will vary as projects are added, extended
or terminated and as a result of variations in funding from existing or future
collaborative agreements. The Company is seeking additional collaborative
agreements with corporate partners and may seek additional funding through
public or private equity or debt financing. There can be no assurance that any
additional collaborative agreements will be entered into or that additional
financing will be available on acceptable terms, if at all. If additional funds
are raised by issuing equity securities, further dilution to stockholders may
result. If adequate funds are not available, the Company may be required to
delay, reduce
 
                                       12
   13
 
the scope of, or eliminate one or more of its research or development programs
or to obtain funds through collaborative arrangements with others that may
require the Company to relinquish rights to certain of its technologies, product
candidates or products that the Company would otherwise seek to develop or
commercialize itself, which could materially adversely affect the Company's
business, financial condition and results of operations.
 
UNCERTAINTIES RELATED TO EARLY STAGE OF DEVELOPMENT; TECHNOLOGICAL UNCERTAINTY
 
     Aviron commenced its operations in April 1992 and until recently was a
development stage company. All of the Company's product candidates are in the
research or development stage. With the exception of two in-licensed product
candidates, none of the Company's proposed products has yet been approved for
clinical trials. To date, the Company has had no revenue from product sales and
all of its resources have been dedicated to the development of vaccines. There
can be no assurance that product revenues will be realized on a timely basis, if
ever.
 
     The development of safe and effective live vaccines for the prevention of
viral diseases such as influenza, parainfluenza and other target diseases is
highly uncertain and subject to numerous risks. Potential products that appear
to be promising at early stages of development may not reach the market for a
number of reasons. Potential products may be found ineffective or cause harmful
side effects during preclinical testing or clinical trials, fail to receive
necessary regulatory approvals, be difficult to manufacture on a large scale, be
uneconomical, fail to achieve market acceptance or be precluded from
commercialization by proprietary rights of third parties. Aviron has not yet
requested or received the regulatory approvals that are required to market its
products. Aviron does not expect that any of its proposed products will be ready
for commercialization until at least the 1999/2000 influenza season, if at all.
The Company's estimate of the potential timing of commercialization of its
proposed products is a forward-looking statement that is subject to risks and
uncertainties and actual results may vary materially as a result of a number of
factors. Such factors include those described under "-- Uncertainties Related to
Clinical Trials," " -- Lack of Manufacturing Experience; Reliance on Contract
Manufacturers," and "-- Stability of Cold Adapted Influenza Vaccine." To achieve
profitability, the Company, alone or with others, must successfully identify,
develop, test, manufacture and market its products. There can be no assurance
that Aviron will succeed in the development and marketing of any product. Any
potential product requires significant additional investment, development,
preclinical testing and clinical trials prior to potential regulatory approval
and commercialization.
 
UNCERTAINTY OF FUTURE PROFITABILITY; ACCUMULATED DEFICIT; ABILITY TO SERVICE
DEBT
 
     The Company has experienced significant and increasing operating losses
since its inception in April 1992. As of December 31, 1997, the Company had an
accumulated deficit of approximately $66.4 million. Aviron has not received any
product revenue to date and does not expect to generate revenues from the sale
of products for several years, if at all. The Company expects to incur
significant and increasing operating losses over at least the next several years
as the Company's research and development efforts, preclinical testing and
clinical trial activities expand. Until such time as the Company begins to
generate significant operating revenues, interest payments on the Notes will be
made from the Company's working capital, including the proceeds of the Offering.
The Company's ability to achieve profitability and its ability to make scheduled
payments, or to refinance its obligations with respect to its indebtedness,
including the Notes, depends in part upon its ability, alone or with others, to
complete development of its proposed products, to obtain required regulatory
approvals and to successfully manufacture and market such products. To the
extent that the Company is unable to obtain third-party funding for expenses,
the Company expects that its increased expenses will result in increased losses
from operations. There can be no assurance that Aviron will obtain required
regulatory approvals or successfully identify, develop, test, manufacture and
market any product candidates, or that the Company will ever achieve product
revenues or profitability. There can be no assurance that the Company's
revenues, operating results, cash flow and capital resources if and once
generated will be sufficient for payment of its indebtedness in the future. In
the absence of such revenues, operating results, cash flow and capital resources
or in the event of any such delays or other problems, the Company could face
substantial liquidity problems and might be required to dispose of material
assets or operations to meet its debt
 
                                       13
   14
 
service and other obligations, and there can be no assurance as to the timing of
such sales or the proceeds that the Company could realize therefrom.
 
UNCERTAINTY OF PROTECTION OF PATENTS AND PROPRIETARY RIGHTS; DEPENDENCE ON TRADE
SECRETS
 
     The Company's success will depend in part on its ability to maintain its
technology licenses, maintain trade secrets, obtain patents and operate without
infringing the proprietary rights of others, both in the United States and in
other countries. Since patent applications in the United States are maintained
in secrecy until patents issue and since publication of discoveries in the
scientific or patent literature often lag behind actual discoveries, the Company
cannot be certain that it was the first to make the inventions covered by each
of its pending patent applications or that it was the first to file patent
applications for such inventions. The patent positions of biotechnology and
pharmaceutical companies can be highly uncertain and involve complex legal and
factual questions, and therefore the breadth of claims allowed in biotechnology
and pharmaceutical patents, or their enforceability, cannot be predicted. There
can be no assurance that any of the Company's or its licensors' patents or
patent applications will issue or, if issued, will not be reexamined, reissued,
opposed, challenged, invalidated or circumvented, or that the rights granted
thereunder will provide proprietary protection or competitive advantages to the
Company.
 
     In May 1996, American Cyanamid Company filed an opposition to the grant of
the Company's European patent with claims directed to chimeric negative strand
RNA viruses and to methods of engineering these viruses to express foreign
proteins and antigens. American Cyanamid Company primarily challenges the
breadth of the claims which the Company was granted. Although the Company is
responding to the opposition, no assurance can be given as to the scope of the
claims, if any, which the European Patent Office ultimately will find
patentable. Failure of the Company to prevail in the opposition would impede the
Company's ability to prevent competitors from using this technology in Europe.
 
     The commercial success of Aviron additionally will depend, in part, upon
the Company not infringing patents issued to others. A number of pharmaceutical
companies, biotechnology companies, universities and research institutions have
filed patent applications or received patents in the areas of the Company's
programs. Some of these patent applications or patents may limit the scope of
claims issuing from the Company's patent applications, prevent certain claims
from being issued, or conflict in certain respects with claims made under the
Company's applications.
 
     The Company is aware of patent applications that have been filed by others
that may pertain to certain aspects of the Company's programs or to its patents
or patent applications, including the patents related to the Company's RSV
vaccine under development. The Company is aware of a claim by a third party,
regarding inventorship of subject matter claimed in a United States patent
which, along with its related foreign counterpart patents and applications, is
licensed to the Company and which is directed to certain aspects of technology
relating to herpes viruses. This claim may also relate to a pending United
States patent application which is a continuation of the licensed patent. It is
presently unclear whether this claim of inventorship is valid, and, if valid, it
could affect ownership of the subject United States patent and patent
application as well as their foreign counterparts.
 
     If patents have been or are issued to others containing preclusive or
conflicting claims and such claims are ultimately determined to be valid, the
Company may be required to obtain licenses to these patents or to develop or
obtain alternative technology. No assurance can be given that patents have not
been issued, or will not be issued, to third parties that contain preclusive or
conflicting claims with respect to the cold adapted influenza vaccine or any of
the Company's other programs. The Company's breach of an existing license or
failure to obtain a license to technology required to commercialize its products
may have a material adverse effect on the Company's business, financial
condition and results of operations. Litigation, which could result in
substantial costs to the Company, may also be necessary to enforce any patents
issued to the Company or to determine the scope and validity of third-party
proprietary rights. If competitors of the Company prepare and file patent
applications in the United States that claim technology also claimed by the
Company, the Company may have to participate in interference proceedings
declared by the United States Patent and Trademark Office to determine priority
of invention, which could result in substantial cost to the Company, even if the
eventual outcome is favorable to the Company. An adverse outcome could subject
the Company to
 
                                       14
   15
 
significant liabilities to third parties and require the Company to license
disputed rights from third parties or to cease using such technology.
 
     The patent laws of European and certain other foreign countries generally
do not allow for the issuance of patents for methods of treatment of the human
body. To the extent the Company's patent portfolio includes claims for methods
of treating humans, these methods may not be protectable in Europe and certain
other foreign countries.
 
     The Company also relies on trade secrets to protect its technology,
especially where patent protection is not believed to be appropriate or
obtainable. Certain of the Company's licensors also rely on trade secrets to
protect technology which has been licensed to Aviron, and as a result, the
Company is dependent on the efforts of such licensors to protect such trade
secrets. For example, the University of Michigan relies, in part, on trade
secrets to protect the master strains of the cold adapted influenza virus used
by the Company and the NIH relies in part on trade secrets to protect the master
strains of the bPIV-3 virus. Aviron protects its proprietary technology and
processes, in part, by confidentiality agreements or material transfer
agreements with its employees, consultants, collaborators and certain
contractors. There can be no assurance that these agreements will not be
breached, that the Company would have adequate remedies for any breach, or that
the Company's trade secrets or those of its licensors will not otherwise become
known or be independently discovered by competitors. To the extent that Aviron
or its consultants or research collaborators use intellectual property owned by
others in their work for the Company, disputes may also arise as to the rights
in related or resulting know-how and inventions. See "-- Lack of Patent
Protection of Cold Adapted Influenza Master Donor Strains."
 
LACK OF PATENT PROTECTION OF COLD ADAPTED INFLUENZA MASTER DONOR STRAINS
 
     The Company has no issued patents covering the cold adapted influenza
master donor strains. The Company's rights to the master donor strains are
substantially based on an exclusive worldwide license of materials and know-how
from the University of Michigan, which owns the master donor strains from which
the Company's vaccine is derived, and on an exclusive license of know-how and
clinical trial data from the NIH. Neither the University of Michigan nor the NIH
has been issued any patents covering the cold adapted influenza vaccine. There
can be no assurance that a third party will not gain access by some means to
University of Michigan master donor strains, reproduce the Company's cold
adapted influenza vaccine or develop another live virus influenza vaccine which
might be comparable to Aviron's in terms of safety and effectiveness. See
"-- Uncertainty of Protection of Patents and Proprietary Rights; Dependence on
Trade Secrets."
 
GOVERNMENT REGULATION; NO ASSURANCE OF REGULATORY APPROVALS
 
     The production and marketing of the Company's products and its ongoing
research and development activities are subject to extensive regulation by
numerous government authorities in the United States and other countries. Prior
to marketing in the United States, any product developed by the Company must
undergo rigorous preclinical testing and clinical trials and an extensive
regulatory approval process implemented by the FDA under the Food, Drug and
Cosmetic Act (the "FDC Act"). Satisfaction of such regulatory requirements,
which includes demonstrating that the product is both safe and effective,
typically takes several years or more depending upon the type, complexity and
novelty of the product and requires the expenditure of substantial resources.
This process may be more demanding for vaccines intended for use in healthy
people compared to therapeutics used for treatment of people with diseases.
Preclinical studies must be conducted in compliance with the FDA's Good
Laboratory Practice ("GLP") regulations. Clinical testing must meet requirements
for Institutional Review Board ("IRB") oversight and informed consent, as well
as FDA prior review, oversight and Good Clinical Practice ("GCP") regulations.
The Company has limited experience in conducting and managing the clinical
trials necessary to obtain regulatory approval. Furthermore, the Company or the
FDA may suspend clinical trials at any time if either believes that the subjects
participating in such trials are being exposed to unacceptable health risks.
 
     The Company understands that its vaccine products will be classified by the
FDA as "biologic products," as opposed to "drug products." The steps ordinarily
required before a biologic product may be marketed in the United States include
(a) preclinical testing and clinical trials; (b) the submission to the FDA of an
IND,
                                       15
   16
 
which must become effective before clinical trials may commence; (c) adequate
and well-controlled clinical trials to establish the safety and efficacy of the
drug; (d) the submission to the FDA of a PLA, together with an ELA for each
manufacturing facility; and (e) FDA approval of the applications, including
approval of all product labeling.
 
     Preclinical testing includes laboratory evaluation of product chemistry,
formulation and stability, as well as animal studies to assess the potential
safety and efficacy of each product. The results of the preclinical tests are
submitted to the FDA as part of an IND and are reviewed by the FDA before the
commencement of clinical trials. Unless the FDA objects to an IND, the IND will
become effective 30 days following its receipt by the FDA. There can be no
assurance that submission of an IND will result in FDA authorization to commence
clinical trials or that the lack of an objection means that the FDA will
ultimately approve an application for marketing approval.
 
     Before receiving FDA approval to market a product in accordance with the
above procedures, the Company will have to demonstrate that the product is safe
and effective. Data obtained from preclinical testing and clinical trials are
susceptible to varying interpretations which could delay, limit or prevent
regulatory approvals. In addition, delays or rejections may be encountered based
upon additional government regulation from future legislation or administrative
action or changes in FDA policy during the period of product development,
clinical trials and FDA regulatory review. Similar delays may also be
encountered in foreign countries. There can be no assurance that even after such
time and expenditures, regulatory approval will be obtained for any products
developed by the Company. If regulatory approval of a product is granted, such
approval and related labeling claims will be limited to those specific segments
of the population for which the product is safe and effective, as demonstrated
through clinical trials. Furthermore, approval may entail ongoing requirements
for post-marketing studies. Even if such regulatory approval is obtained, a
marketed product, its manufacturer and its manufacturing facilities are subject
to continual review and periodic inspections. The regulatory standards for
manufacturing are currently being applied stringently by the FDA. Discovery of
previously unknown problems with a product, manufacturer or facility may result
in restrictions on such product or manufacturer, including costly recalls or
even withdrawal of the product from the market. There can be no assurance that
any product developed by the Company alone or in conjunction with others will
prove to be safe and efficacious in clinical trials and will meet all of the
applicable regulatory requirements needed to receive or maintain marketing
approval.
 
     The Company believes that the approval process for vaccines may be longer
than for therapeutic products, since vaccines are administered to healthy
individuals. In addition, regulatory scrutiny may be particularly intense for
products, such as Aviron's cold adapted influenza vaccine, which are designed to
be given to healthy children.
 
     Outside the United States, the Company's ability to market a product is
contingent upon receiving marketing authorization from the appropriate
regulatory authorities. The requirements governing the conduct of clinical
trials, marketing authorization, pricing and reimbursement vary widely from
country to country. At present, foreign marketing authorizations are applied for
at a national level, although within the European Union (the "EU"), procedures
are available to companies wishing to market a product in more than one EU
member state. If the regulatory authorities are satisfied that adequate evidence
of safety, quality and efficacy has been presented, a marketing authorization
will be granted. This foreign regulatory approval process includes all of the
risks associated with FDA approval set forth above.
 
INTENSE COMPETITION AND RISK OF TECHNOLOGICAL OBSOLESCENCE
 
     The Company operates in a rapidly evolving field. Any product developed by
the Company would compete with existing and new drugs and vaccines being created
by pharmaceutical, biopharmaceutical and biotechnology companies. If the Company
were able to successfully develop its vaccines, it would be competing with
larger companies that have already introduced vaccines and have significantly
greater marketing, sales, manufacturing, financial and managerial resources. For
example, with respect to its cold adapted influenza vaccine, the Company will be
competing against larger companies such as Pasteur Merieux Connaught,
Wyeth-Ayerst, and Evans, the supplier of the Company's cold adapted influenza
vaccine. Each of these companies sells the injectable inactivated influenza
vaccine in the United States, has significantly
 
                                       16
   17
 
greater financial resources than Aviron and has established marketing and
distribution channels for such products. In addition the Company is aware of
efforts to develop improved inactivated injectable influenza vaccines by Chiron
(Chiron Biocine Division) and others; intranasally administered inactivated
vaccines by Swiss Serum and Vaccine Institute, Biovector Therapeutics, S.A. and
Virus Research Institute; a "naked DNA" vaccine by Merck Research Laboratories;
and a commercially available cold adapted influenza vaccine in Russia. Further,
the Company is aware of several large pharmaceutical companies that alone or
with partners are developing new drug therapies designed to relieve the symptoms
of influenza. The Company is also aware of several companies that are marketing
or are in late-stage development of products to prevent CMV or HSV disease,
including Glaxo Wellcome plc ("Glaxo"), and a cold adapted PIV-3 vaccine
developed with NIH support which is licensed to Wyeth-Ayerst.
 
     New developments are expected to continue in the pharmaceutical,
biopharmaceutical and biotechnology industries and in academia, government
agencies and other research organizations. Other companies may succeed in
developing products that are safer, more effective or less costly than any that
may be developed by the Company. Such companies may also be more effective than
the Company in the production and marketing of their products. Furthermore,
rapid technological development by competitors may result in the Company's
products becoming obsolete before the Company is able to recover its research,
development or commercialization expenses incurred in connection with any such
product. Many potential competitors have substantially greater financial,
technical, marketing and sales resources than the Company. Some of these
companies also have considerable experience in preclinical testing, clinical
trials and other regulatory approval procedures. Moreover, certain academic
institutions, government agencies and other research organizations are
conducting research in areas in which the Company is working. These institutions
are becoming increasingly aware of the commercial value of their findings and
are becoming more active in seeking patent protection and licensing arrangements
to collect royalties for the use of technology that they have developed. These
institutions may also market competitive commercial products on their own or
through joint ventures.
 
     Aviron believes that competition in the markets it is addressing will
continue to be intense. The vaccine industry is characterized by intense price
competition, and the Company anticipates that it will face this and other forms
of competition. There can be no assurance that pharmaceutical, biopharmaceutical
and biotechnology companies will not develop more effective products than those
of the Company or will not market and sell their products more effectively than
the Company, which would have a material adverse effect on the Company's
business, financial condition and results of operations.
 
DEPENDENCE ON COLLABORATIVE AGREEMENTS
 
     The Company's strategy for the development, clinical trials, manufacturing
and commercialization of certain of its products includes maintaining and
entering into various collaborations with corporate partners, licensors,
licensees and others. The Company in-licensed its cold adapted influenza vaccine
from the NIAID and the University of Michigan. It has obtained rights to certain
recombinant negative strand RNA technology from The Mount Sinai School of
Medicine ("Mount Sinai"), and rights to the herpes simplex viruses, EBV and
various recombinant methods and materials from ARCH Development Corporation
("ARCH"). The Company has entered into agreements with SmithKline Beecham for
the development of its EBV vaccine, with Sang-A for clinical development,
manufacturing and development rights for certain products in Korea and certain
Asian countries (not including Japan), and has licensed from the NIAID rights
covering its PIV-3 vaccine. There can be no assurance that the Company will be
able to maintain existing collaborative agreements, negotiate collaborative
arrangements in the future on acceptable terms, if at all, or that any such
collaborative arrangements will be successful. To the extent that the Company is
not able to maintain or establish such arrangements, the Company would be
required to undertake product development and commercialization activities at
its own expense, which would increase the Company's capital requirements or
require the Company to limit the scope of its development and commercialization
activities. In addition, the Company may encounter significant delays in
introducing its products into certain markets or find that the development,
manufacture or sale of its products in such markets is adversely affected by the
absence of such collaborative agreements. ARCH has recently asserted an
interpretation of the financial terms of this agreement with the Company,
relating to the license by Aviron of its EBV technology to SmithKline Beecham,
which would require the Company to pay ARCH one-half of any future or past
payments
 
                                       17
   18
 
(including sub-license fees and milestone payments) received by Aviron under the
SB Agreement. The Company disputes ARCH's interpretation of the financial terms
of the agreement. No assurance can be given, however, that the Company's
interpretation will prevail. Failure of the Company to prevail in this matter
could have a material adverse effect on the Company's business, financial
condition and results of operations.
 
     The Company cannot control the amount and timing of resources which its
collaborative partners devote to the Company's programs or potential products,
which may vary, because of factors unrelated to the potential products. If any
of the Company's collaborative partners breach or terminate their agreements
with the Company or otherwise fail to conduct their collaborative activities in
a timely manner, the preclinical or clinical development or commercialization of
product candidates or research programs will be delayed and the Company would be
required to devote additional resources to product development and
commercialization, or terminate certain development programs. These
relationships generally may be terminated at the discretion of the Company's
collaborative partners, in some cases with only limited notice to the Company.
The termination of collaborative arrangements could have a material adverse
effect on the Company's business, financial condition and results of operations.
There also can be no assurance that disputes will not arise in the future with
respect to the ownership of rights to any technology developed with third
parties. These and other possible disagreements between collaborators and the
Company could lead to delays in the collaborative research, development or
commercialization of certain product candidates, or could result in litigation
or arbitration, which would be time consuming and expensive, and would have a
material adverse effect on the Company's business, financial condition and
results of operations.
 
     In addition, Aviron's collaborative partners may develop, either alone or
with others, products that compete with the development and marketing of the
Company's products. Competing products of the Company's collaborative partners
may result in their withdrawal of support with respect to all or a portion of
the Company's technology, which would have a material adverse effect on the
Company's business, financial condition and results of operations.
 
SUBORDINATION
 
     The Notes will be unsecured and subordinated in right of payment in full to
all existing and future Senior Indebtedness (as defined) of the Company, or its
subsidiaries, if any. As a result of such subordination, in the event of
bankruptcy, liquidation or reorganization of the Company or upon acceleration of
the Notes due to an Event of Default (as defined) under the Indenture and in
certain other events, the assets of the Company will be available to pay
obligations on the Notes only after all Senior Indebtedness has been paid in
full in cash or other payment satisfactory to the holders of Senior
Indebtedness, and there may not be sufficient assets remaining to pay amounts
due on any or all of the Notes then outstanding. The Notes also will be
effectively subordinated to the liabilities, including trade payables, of any
subsidiary of the Company. The Indenture does not prohibit or limit the
incurrence of Senior Indebtedness or the incurrence of other indebtedness and
other liabilities by the Company or any subsidiary of the Company, and the
incurrence of additional indebtedness and other liabilities by the Company or
any subsidiary of the Company could adversely affect the Company's ability to
pay its obligations on the Notes. As of February 28, 1998, the Company had
approximately $906,000 of indebtedness outstanding that would have constituted
Senior Indebtedness. The Company anticipates that from time to time it will
incur additional indebtedness, including Senior Indebtedness, and that it and
its subsidiaries, if any, may from time to time incur other additional
indebtedness and liabilities. See "Description of Notes -- Subordination of
Notes."
 
LIMITATIONS ON REDEMPTION OF NOTES UPON FUNDAMENTAL CHANGE
 
     Upon a Fundamental Change (as defined), each holder of Notes will have
certain rights, at the holder's option, to require the Company to redeem all or
a portion of such holder's Notes. If a Fundamental Change were to occur, there
can be no assurance that the Company would have sufficient funds to pay the
redemption price for all Notes tendered by the holders thereof. Any future
credit agreements or other agreements relating to other indebtedness (including
other Senior Indebtedness) to which the Company becomes a party may contain
similar restrictions and provisions. In the event a Fundamental Change occurs at
a time when the Company is prohibited from purchasing or redeeming Notes, the
Company could seek the consent of its lenders to the purchase of Notes or could
attempt to refinance the borrowings that contain such prohibition. If
 
                                       18
   19
 
the Company does not obtain such a consent to repay such borrowings, the Company
would remain prohibited from purchasing or redeeming Notes. In such case, the
Company's failure to redeem tendered Notes would constitute an Event of Default
under the Indenture, which might constitute a default under the terms of other
indebtedness that the Company may enter into from time to time. In such
circumstances, the subordination provisions in the Indenture would likely
restrict payments to the holders of Notes. The term "Fundamental Change" is
limited to certain specified transactions and may not include other events that
might adversely affect the financial condition of the Company, nor would the
requirement that the Company offer to repurchase the Notes upon a Fundamental
Change necessarily afford holders of the Notes protection in the event of a
highly leveraged transaction, reorganization, merger or similar transaction
involving the Company. See "Description of Notes -- Redemption at Option of
Holders."
 
LIMITED PUBLIC MARKET FOR THE NOTES AND RESTRICTIONS ON TRANSFER
 
     Prior to this offering the Notes have been eligible for trading on the
Portal Market. The Notes sold pursuant to this Registration Statement of which
this Prospectus forms a part are not expected to remain eligible for trading on
the Portal system. The Notes are not listed on any national securities exchange
in the United States and are not quoted in the Nasdaq Stock Market. There can be
no assurance that any market for the Notes will develop or, if one does develop,
that it will be maintained. If an active market for the Notes fails to develop
or be sustained, the trading price of such Notes could be materially adversely
affected.
 
RATING OF NOTES
 
     The Company believes it is possible that one or more rating agencies may
rate the Notes. There can be no assurance as to whether any such agency or
agencies will rate the Notes or, if they do, what rating or ratings they will
assign to the Notes. If one or more rating agencies assign the Notes a rating
lower than that expected by investors, such event could have a material adverse
effect on the market price of the Notes and the Company's Common Stock.
 
VOLATILITY OF NOTES AND COMMON STOCK PRICE
 
     The market prices for securities of pharmaceutical, biopharmaceutical and
biotechnology companies have historically been highly volatile. The market from
time to time experiences significant price and volume fluctuations that are
unrelated to the operating performance of particular companies. In addition,
factors such as fluctuations in the Company's operating results, future sales of
Notes and Common Stock, announcements of technological innovations or new
therapeutic products by the Company or its competitors, announcements regarding
collaborative agreements, clinical trial results, government regulation,
developments in patent or other proprietary rights, public concern as to the
safety of drugs developed by the Company or others, changes in reimbursement
policies, comments made by securities analysts and general market conditions can
have an adverse effect on the market price of the Notes and the Common Stock. In
particular, the realization of any of the risks described in these "Risk
Factors" could have a significant and adverse impact on such market price.
 
POTENTIAL ADVERSE EFFECTS OF SHARES ELIGIBLE FOR FUTURE SALE
 
     Sale of a substantial amount of Common Stock in the public market following
the Offering could adversely affect the market price for the Common Stock. Of
the shares outstanding, all are freely tradable without restriction or further
registration under the Securities Act, except for (i) 747,481 shares held by
directors and executive officers of the Company; and (ii) up to 3,235,827 shares
of Common Stock issuable upon conversion of the Notes which are being registered
hereby.
 
RISK OF PRODUCT LIABILITY; UNCERTAINTY OF AVAILABILITY OF INSURANCE
 
     The Company's business exposes it to potential product liability risks that
are inherent in the testing, manufacturing and marketing of vaccines. The
Company has obtained clinical trial liability insurance for its clinical trials,
but there can be no assurance that it will be able to maintain adequate
insurance for its clinical trials. The Company also intends to seek product
liability insurance in the future for products approved for marketing, if any.
However, no assurance can be given that the Company will be able to acquire or
maintain insurance or that insurance can be acquired or maintained at a
reasonable cost or in sufficient amounts to protect the Company. There can be no
assurance that insurance coverage and the resources of the Company
                                       19
   20
 
would be sufficient to satisfy any liability, resulting from product liability
claims. A successful product liability, claim or series of claims brought
against the Company could have a material adverse effect on its business,
financial condition and results of operations. The Company intends to seek
inclusion of certain of its products in the United States National Vaccine
Injury Compensation Program, a no-fault compensation program for claims against
vaccine manufacturers, which administers a trust funded by excise taxes on sales
of certain recommended childhood vaccines. There can be no assurance that this
government program will continue or that the Company's proposed vaccines will be
included in the program.
 
UNCERTAINTY RELATED TO PHARMACEUTICAL PRICING AND REIMBURSEMENT
 
     Political, economic and regulatory influences are subjecting the health
care industry in the United States to fundamental change. Recent initiatives to
reduce the federal deficit and to reform health care delivery are increasing
cost-containment efforts. The Company anticipates that Congress, state
legislatures and the private sector will continue to review and assess
alternative benefits, controls on health care spending through limitations on
the growth of private health insurance premiums and Medicare and Medicaid
spending, the creation of large insurance purchasing groups, price controls on
pharmaceuticals and other fundamental changes to the health care delivery
system. Any such proposed or actual changes could cause the Company or its
collaborative partners to limit or eliminate spending on development projects.
Legislative debate is expected to continue in the future, and market forces are
expected to demand reduced costs. Aviron cannot predict what effect the adoption
of any federal or state health care reform measures or future private sector
reforms may have on its business.
 
     In both domestic and foreign markets, sales of the Company's proposed
vaccines will depend in part upon the availability of reimbursement from
third-party payors, such as government health administration authorities,
managed care providers, private health insurers and other organizations. In
addition, other third-party payors are increasingly challenging the price and
cost effectiveness of medical products and services. Significant uncertainty
exists as to the reimbursement status of newly approved health care products.
There can be no assurance that the Company's proposed products will be
considered cost effective or that adequate third-party reimbursement will be
available to enable Aviron to maintain price levels sufficient to realize an
appropriate return on its investment in product development. Legislation and
regulations affecting the pricing of pharmaceuticals may change before the
Company's proposed products are approved for marketing. Adoption of such
legislation could further limit reimbursement for medical products. If adequate
coverage and reimbursement levels are not provided by the government and
third-party payors for the Company's potential products, the market acceptance
of these products would be adversely affected, which would have a material
adverse effect on the Company's business, financial condition and results of
operations.
 
NEED TO ATTRACT AND RETAIN KEY EMPLOYEES AND CONSULTANTS
 
     The Company is highly dependent on the principal members of its scientific
and management staff. In addition, the Company relies on consultants and
advisors, including its scientific advisors, to assist the Company in
formulating its research and development strategy. Attracting and retaining
qualified personnel, consultants and advisors will be critical to the Company's
success. To pursue its product development and marketing plans, the Company will
be required to hire additional qualified scientific personnel to perform
research and development, as well as personnel with expertise in conducting
clinical trials, government regulation, manufacturing, marketing and sales.
Expansion in the areas of product development, marketing and sales is also
expected to require the addition of management personnel and the development of
additional expertise by existing management personnel. The Company faces
competition for qualified individuals from numerous pharmaceutical,
biopharmaceutical and biotechnology companies, universities and other research
institutions. There can be no assurance that the Company will be able to attract
and retain such individuals.
 
     In addition, a portion of the Company's research and development is
conducted under sponsored research programs with several universities and
research institutions. The Company depends on the availability of a principal
investigator for each such program, and the Company cannot assure that these
individuals or their research staffs will be available to conduct research and
development for Aviron. The Company's academic collaborators are not employees
of the Company. As a result, the Company has limited control over their
activities and can expect that only limited amounts of their time will be
dedicated to Company activities. The
 
                                       20
   21
 
Company's academic collaborators may have relationships with other commercial
entities, some of which could compete with the Company.
 
RISKS ASSOCIATED WITH HAZARDOUS MATERIALS
 
     The Company's research and development involves the controlled use of
hazardous materials, chemicals, various radioactive substances and viruses.
Although the Company believes that its safety procedures for handling and
disposing of such materials comply with the standards prescribed by state and
federal regulations, the risk of accidental contamination or injury from these
materials cannot be completely eliminated. In the event of such an accident, the
Company could be held liable for any damages that result and any such liability
could exceed the resources of the Company and could have a material adverse
effect on the Company's business, financial condition and results of operations.
The Company may incur substantial costs to comply with environmental regulations
if the Company develops manufacturing capacity.
 
DILUTION; ABSENCE OF DIVIDENDS
 
     Under an agreement with the University of Michigan, the Company is
obligated to issue a warrant to purchase shares of Common Stock at an exercise
price of $10.00 per share, for a number of shares to be based on 1.25% of the
Common Stock outstanding on the date, if any, of the first commercial sale of
the Company's cold adapted intranasal influenza vaccine. In addition, the Notes
offered hereby are convertible into Common Stock. To the extent the University
of Michigan warrant and other outstanding warrants are exercised and the Notes
are converted, the ownership interests of the holders of Common Stock would be
diluted. The Company has not paid any dividends on its Common Stock since
inception and does not anticipate paying any cash dividends in the foreseeable
future.
 
ANTI-TAKEOVER EFFECTS OF DELAWARE LAW AND CERTAIN CHARTER PROVISIONS
 
     The Company's Board of Directors has the authority to issue up to 5,000,000
shares of Preferred Stock and to determine the price, rights, preferences and
privileges of those shares without any further vote or action by the Company's
stockholders. The rights of the holders of Common Stock will be subject to, and
may be adversely affected by, the rights of the holders of any Preferred Stock
that may be issued in the future. While the Company has no present intention to
issue shares of Preferred Stock, such issuance, while providing desirable
flexibility in connection with possible acquisitions and other corporate
purposes, could have the effect of making it more difficult for a third party to
acquire a majority of the outstanding voting stock of the Company. In October
1997, the Company's Board of Directors adopted a Share Purchase Rights Plan,
commonly referred to as a "poison pill." In addition, the Company is subject to
the anti-takeover provisions of Section 203 of the Delaware General Corporation
Law, which prohibits the Company from engaging in a "business combination" with
an "interested stockholder" for a period of three years after the date of the
transaction in which the person became an interested stockholder, unless the
business combination is approved in a prescribed manner. The application of
Section 203 could have the effect of delaying or preventing a change of control
of the Company. The Company's Certificate of Incorporation provides for
staggered terms for the members of the Board of Directors. The staggered Board
of Directors and certain other provisions of the Company's Certificate of
Incorporation and Bylaws may have the effect of delaying or preventing changes
in control or management of the Company, which could adversely affect the market
price of the Company's Common Stock. See "Description of Capital Stock."
 
                                       21
   22
 
                                USE OF PROCEEDS
 
     The Company will not receive any proceeds from the sale of the Notes and
the Conversion Shares by the Selling Securityholders in the offering.
 
                          PRICE RANGE OF COMMON STOCK
 
     The Common Stock is traded on the Nasdaq National Market under the symbol
"AVIR." Public trading of the Common Stock commenced on November 5, 1996. The
following table sets forth for the periods indicated the high and low price per
share of the Common Stock on the Nasdaq National Market. These prices represent
quotations among dealers without adjustments for retail mark-ups, mark-downs or
commissions, and may not represent actual transactions.
 


                                                              HIGH      LOW
                                                              ----      ---
                                                                  
1996
  Fourth Quarter ended December 31, 1996....................  $ 8 3/8   $ 6 7/8
1997
  First Quarter ended March 31, 1997........................   12 3/4     6 3/4
  Second Quarter ended June 30, 1997........................   15 1/4     8
  Third Quarter ended September 30, 1997....................   32 3/4    11
  Fourth Quarter ended December 31, 1997....................   28 1/2    18 3/4
1998
  First Quarter ended March 31, 1998........................   28        22 7/8
  Second Quarter ended June 30, 1998 (through May 4)........   26 7/8    22

 
     On May 4, 1998, the last reported sale price of the Common Stock on the
Nasdaq National Market was $26.62 per share. On April 8, 1998, there were 391
holders of record of the Company's common stock.
 
                                DIVIDEND POLICY
 
     The Company has never paid cash dividends on its Common Stock. The Company
presently intends to retain earnings for use in the operation and expansion of
its business and therefore does not anticipate paying any cash dividends in the
foreseeable future.
 
                                       22
   23
 
                                 CAPITALIZATION
 
     The following table sets forth the capitalization of the Company as of
December 31, 1997, and as adjusted to reflect the receipt of the sale of the
Notes offered hereby, the repurchase of 530,831 shares of Aviron Common Stock
formerly held by Sang-A and the application of the remaining estimated net
proceeds therefrom (assuming the over-allotment option is not exercised):
 


                                                                 DECEMBER 31, 1997
                                                              -----------------------
                                                               ACTUAL     AS ADJUSTED
                                                              --------    -----------
                                                                  (IN THOUSANDS)
                                                                    
Cash, cash equivalents and marketable securities............  $ 75,111     $157,811
                                                              ========     ========
Short-term debt, including current portion of long-term
  obligations...............................................  $    477     $    477
                                                              ========     ========
Long-term debt:
  Capital lease obligations, excluding current portion......  $    521     $    521
  5 3/4% Convertible Subordinated Notes due 2005............        --      100,000
Stockholders' equity:
  Preferred Stock, $0.001 par value; 5,000,000 shares
     authorized, issuable in series; none issued and
     outstanding............................................        --           --
  Common Stock, $0.001 par value; 30,000,000 shares
     authorized; 16,082,476 shares issued and outstanding;
     as adjusted 16,082,476 shares issued and 15,551,645
     outstanding (1)........................................        16           15
  Additional paid-in capital................................   142,840      129,541
  Notes receivable from stockholders........................      (115)        (115)
  Deferred compensation.....................................      (588)        (588)
  Accumulated deficit.......................................   (66,411)     (66,411)
                                                              --------     --------
       Total stockholders' equity...........................    75,742       62,442
                                                              --------     --------
          Total capitalization..............................  $ 76,263     $162,963
                                                              ========     ========

 
- ---------------
(1) Outstanding shares exclude (i) 885,819 shares of Common Stock issuable upon
    exercise of options outstanding, at a weighted average exercise price of
    approximately $8.86 per share; (ii) an aggregate of 916,674 shares reserved
    for future grants or purchases pursuant to the Company's 1996 Equity
    Incentive Plan, Employee Stock Purchase Plan and Non-Employee Director Stock
    Option Plan; (iii) 53,542 shares issuable upon exercise of warrants
    outstanding, at a weighted average exercise price of $6.78 per share; and
    (iv) 3,235,827 shares of Common Stock issuable upon conversion of the Notes.
 
                                       23
   24
 
                              SELECTED FINANCIAL DATA
 
     The selected financial data set forth below should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the financial statements and notes thereto in the Company's
Annual Report on Form 10-K for the year ended December 31, 1997 incorporated by
reference herein. The statement of operations data for the years ended December
31, 1993, 1994, 1995, 1996 and 1997 and the balance sheet data as of December
31, 1993, 1994, 1995, 1996 and 1997 are derived from financial statements of the
Company audited by Ernst & Young LLP, independent auditors.
 


                                                             YEAR ENDED DECEMBER 31,
                                                --------------------------------------------------
                                                 1993      1994       1995       1996       1997
                                                -------   -------   --------   --------   --------
                                                      (IN THOUSANDS, EXCEPT PER SHARE DATA)
                                                                           
STATEMENT OF OPERATIONS DATA:
Total revenues................................  $    --   $    --   $  1,707   $  1,625   $  1,477
Operating expenses:
  Research and development....................    2,073     4,216     10,220     14,997     24,254
  General and administrative..................    1,874     2,493      3,252      4,595      5,978
                                                -------   -------   --------   --------   --------
     Total operating expenses.................    3,947     6,709     13,472     19,592     30,232
                                                -------   -------   --------   --------   --------
Loss from operations..........................   (3,947)   (6,709)   (11,765)   (17,967)   (28,755)
Interest income, net of interest expense......      175       207        362        466      2,253
                                                -------   -------   --------   --------   --------
Net loss......................................  $(3,772)  $(6,502)  $(11,403)  $(17,501)  $(26,502)
                                                =======   =======   ========   ========   ========
Basic and diluted net loss per share(1).......                                            $  (1.94)
                                                                                          ========
Pro forma basic and diluted net loss per
  share(1)....................................                      $  (1.70)  $  (1.94)
                                                                    ========   ========
Shares used in computing basic and diluted net
  loss per share(1)...........................                         6,711      9,043     13,684
Fixed charges.................................  $    43   $   155   $    296   $    435   $    481

 


                                                             YEAR ENDED DECEMBER 31,
                                                --------------------------------------------------
                                                 1993      1994       1995       1996       1997
                                                -------   -------   --------   --------   --------
                                                                  (IN THOUSANDS)
                                                                           
BALANCE SHEET DATA:
Cash, cash equivalents and marketable
  securities..................................  $12,410   $ 6,449   $ 17,819   $ 17,872   $ 75,111
Working capital...............................   12,155     5,877     16,775     16,411     54,580
Total assets..................................   13,206     7,789     19,878     21,592     85,325
Capital lease obligations, noncurrent.........       --       750        618        871        521
Accumulated deficit...........................   (4,525)  (11,060)   (22,444)   (39,935)   (66,411)
Total stockholders' equity....................   12,893     6,362     17,537     17,947     75,742

 
- ---------------
(1) See Note 1 of Notes to Financial Statements for an explanation of the method
    used to determine the number of shares used to compute per share amounts.
 
                                       24
   25
 
                                DESCRIPTION OF NOTES
 
     The Notes were issued under an Indenture dated as of March 15, 1998 (the
"Indenture") between the Company and Marine Midland Bank, as trustee (the
"Trustee"). A copy of the form of Indenture and Registration Rights Agreement
(as defined below) is available from the Trustee upon request by a registered
holder of the Notes. The following summaries of certain provisions of the Notes,
the Indenture and the Registration Rights Agreement do not purport to be
complete and are subject to, and are qualified in their entirety by reference
to, all the provisions of the Notes, the Indenture and the Registration Rights
Agreement, including the definitions therein of certain terms which are not
otherwise defined in this Prospectus. Wherever particular provisions or defined
terms of the Indenture (or of the Form of Note which is a part of the Indenture)
or the Registration Rights Agreement are referred to, such provisions or defined
terms am incorporated herein by reference. References in this section to the
"Company" are solely to Aviron, a Delaware corporation, and not its
subsidiaries.
 
GENERAL
 
     The Notes represent unsecured general obligations of the Company
subordinate in right of payment to certain other obligations of the Company as
described under "Subordination of Notes" and convertible into Common Stock as
described under "Conversion of Notes." The Notes were limited to $100,000,000
aggregate principal amount ($115,000,000 aggregate principal amount if the
Initial Purchasers' over-allotment option is exercised in full), were issued
only in denominations of $1,000 and integral multiples thereof and will mature
on April 1, 2005 unless earlier converted or redeemed at the option of the
Company or redeemed at the option of the holder upon a Fundamental Change (as
defined).
 
     The Indenture does not contain any financial covenants or restrictions on
the payment of dividends, the incurrence of Senior Indebtedness (as defined) or
the issuance or repurchase of other outstanding securities of the Company. The
Indenture contains no covenants or other provisions to afford protection to
holders of the Notes in the event of a highly leveraged transaction or a change
in control of the Company except to the extent described under "Redemption at
Option of the Holder."
 
     The Notes will bear interest at the annual rate set forth on the cover page
hereof from March 30, 1998 or from the most recent payment date to which
interest has been paid or duly provided for, payable semi-annually on April 1
and October 1, commencing on October 1, 1998, to holders of record at the close
of business on the preceding March 15 and September 15, respectively, except (i)
that the interest payable upon redemption (unless the date of redemption is an
interest payment date) will be payable to the person to whom principal is
payable and (ii) as set forth in the next succeeding sentence. In the case of
any Note (or portion thereof) which is converted into Common Stock of the
Company during the period from (but excluding) a record date for any interest
payment date to (but excluding) such interest payment date either (i) if such
Note (or portion thereof) has been called for redemption on a redemption date
which occurs during such period, or is to be redeemed in connection with a
Fundamental Change on a Repurchase Date (as defined) which occurs during such
period, the Company shall not be required to pay interest on such interest
payment date in respect of any such Note (or portion thereof) or (ii) if
otherwise, any Note (or portion thereof) submitted for conversion during such
period shall be accompanied by funds equal to the interest payable on such
interest payment date on the principal amount so converted. See "Conversion of
Notes." Interest will be payable at the office of the Company maintained by the
Company for such purposes in the Borough of Manhattan, the City of New York,
which shall initially be an office or agency of the Trustee and may, at the
Company's option, be paid either (i) by check mailed to the address of the
person entitled thereto as it appears in the Note register, provided that a
holder of Notes with an aggregate principal amount in excess of $2.0 million
shall, at the written election of such holder, be paid by wire transfer in
immediately available funds, or (ii) by transfer to an account maintained by
such person located in the United States; provided, however, that payments to
The Depository Trust Company, New York, New York ("DTC") will be made by wire
transfer of immediately available funds to the account of DTC or its nominee.
Interest will be computed on the basis of a 360-day year comprised of twelve
30-day months.
 
                                       25
   26
 
FORM, DENOMINATION AND REGISTRATION
 
     The Notes were issued in fully registered form, without coupons, in
denominations of $1,000 principal amount and integral multiples thereof.
 
     Global Notes, Book-Entry Form. Notes are evidenced by a global note (the
"Global Note") which was deposited with, or on behalf of, DTC and registered in
the name of Cede & Co. ("Cede") as DTC's nominee. Except as set forth below, a
Global Note may be transferred, in whole or in part, only to another nominee of
DTC or to a successor of DTC or its nominee.
 
     QIBs may hold their interests in the applicable Global Note directly
through DTC if such holder is a participant in DTC, or indirectly through
organizations which are participants in DTC (the "Participants"). Transfers
between Participants will be effected in the ordinary way in accordance with DTC
rules and will be settled in clearing house funds.
 
     QIBs who are not Participants may beneficially own interests in Global
Notes held by DTC only through Participants or certain banks, brokers, dealers,
trust companies and other parties that clear through or maintain a custodial
relationship with a Participant, either directly or indirectly ("Indirect
Participants"). So long as Cede, as the nominee of DTC, is the registered owner
of a Global Note, Cede for all purposes will be considered the sole holder of
such Global Note. Except as provided below, owners of beneficial interests in a
Global Note will not be entitled to have certificates registered in their names,
will not receive or be entitled to receive physical delivery of certificates in
definitive registered form, and will not be considered the holders thereof.
 
     Payment of interest on and the redemption price or repurchase price of a
Global Note will be made to Cede, the nominee for DTC, as the registered owner
of such Global Note by wire transfer of immediately available funds on each
interest payment date or redemption date or Repurchase Date (as defined), as the
case may be. Neither the Company, the Trustee nor any paying agent will have any
responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests in a Global Note or
for maintaining, supervising or reviewing any records relating to such
beneficial ownership interests.
 
     The Company has been informed by DTC that, with respect to any payment of
interest on, or the redemption price of, a Global Note, DTC's practice is to
credit Participants' accounts on the payment date therefor with payments in
amounts proportionate to their respective beneficial interests in the principal
amount represented by such Global Note as shown on the records of DTC, unless
DTC has reason to believe that it will not receive payment on such payment date.
Payments by Participants to owners of beneficial interests in the principal
amount represented by a Global Note held through such Participants will be the
responsibility of such Participants, as is now the case with securities held for
the accounts of customers registered in "street name."
 
     Because DTC can only act on behalf of Participants, who in turn act on
behalf of Indirect Participants and certain banks, the ability of a person
having a beneficial interest in the principal amount represented by a Global
Note to pledge such interest to persons or entities that do not participate in
the DTC system, or otherwise take actions in respect of such interest, may be
affected by the lack of a physical certificate evidencing such interest.
 
     Neither the Company nor the Trustee (or any registrar, paying agent or
conversion agent under the Indenture) will have any responsibility for the
performance by DTC or its Participants or Indirect Participants of their
respective obligations under the rules and procedures governing their
operations. DTC has advised the Company that it will take any action permitted
to be taken by a holder of Notes (including, without limitation, the
presentation of Notes for exchange as described below), only at the direction of
one or more Participants to whose account with DTC interests in a Global Note
are credited, and only in respect of the principal amount of the Notes
represented by such Global Note as to which such Participant or Participants has
or have given such direction.
 
     DTC has advised the Company as follows: DTC is a limited purpose trust
company organized under the laws of the State of New York, a member of the
Federal Reserve System, a "clearing corporation" within the meaning of the
Uniform Commercial Code and a "clearing agency" registered pursuant to the
provisions of
                                       26
   27
 
Section 17A of the Exchange Act. DTC was created to hold securities for its
Participants and to facilitate the clearance and settlement of securities
transactions between Participants through electronic book-entry changes to the
accounts of its Participants, thereby eliminating the need for physical movement
of certificates. Participants include securities brokers and dealers, banks,
trust companies and clearing corporations and may include certain other
organizations such as the Initial Purchasers. Certain of such Participants (or
their representatives), together with other entities, own DTC. Indirect access
to the DTC system is available to others such as banks, brokers, dealers and
trust companies that clear through, or maintain a custodial relationship with a
Participant, either directly or indirectly.
 
     Although DTC has agreed to the foregoing procedures in order to facilitate
transfers of interests in Global Notes among Participants, it is under no
obligation to perform or continue to perform such procedures, and such
procedures may be discontinued at any time. If DTC is at any time unwilling or
unable to continue as depositary and a successor depositary is not appointed by
the Company within 90 days, the Company will cause Notes to be issued in
definitive registered form in exchange for Global Notes.
 
     Certificated Notes. Notes sold to investors that are "institutional
accredited investors" (as defined in Rule 501(a)(1), (2), (3) or 7 under the
Securities Act), will be issued in definitive registered form and may not be
represented by a Global Note. In addition, QIBs may request that certificated
Notes be issued in exchange for Notes represented by a Global Note. Furthermore,
certificated Notes may be issued in exchange for Notes represented by Global
Notes if no successor depositary is appointed by the Company as set forth above
under "Global Notes, Book-Entry Form."
 
     Restrictions on Transfer; Legends. The Notes will be subject to certain
transfer restrictions as described below under "Transfer Restrictions" and
certificates evidencing the Notes will bear a legend to such effect.
 
CONVERSION OF NOTES
 
     The holders of Notes will be entitled at any time after 90 days following
the latest date of original issuance of any Notes through the close of business
on the final maturity date of the Notes, subject to prior redemption, to convert
any Notes or portions thereof (in denominations of $1,000 or multiples thereof)
into Common Stock of the Company, at the conversion price set forth on the cover
page of this Offering Memorandum, subject to adjustment as described below.
Except as described below, no payment or other adjustment will be made on
conversion of any Notes for interest accrued thereon or for dividends on any
Common Stock issued. If any Notes not called for redemption are converted during
the period from (but excluding) a record date for any interest payment date to
(but excluding) such interest payment date, such Notes must be accompanied by
funds equal to the interest payable on such interest payment date on the
principal amount so converted. The Company is not required to issue fractional
shares of Common Stock upon conversion of Notes and, in lieu thereof, will pay a
cash adjustment based upon the market price of Common Stock on the last business
day prior to the date of conversion. In the case of Notes called for redemption,
conversion rights will expire at the close of business on the business day
preceding the day fixed for redemption unless the Company defaults in the
payment of the redemption price. A Note in respect of which a holder is
exercising its option to require redemption upon a Fundamental Change may be
converted only if such holder withdraws its election to exercise its option in
accordance with the terms of the Indenture.
 
     The initial conversion price of $30.904 per share of Common Stock is
subject to adjustment under formulate as set forth in the Indenture in certain
events, including:
 
          (i) the issuance of Common Stock of the Company as a dividend or
     distribution on the Common Stock;
 
          (ii) certain subdivisions and combinations of the Common Stock;
 
          (iii) the issuance to all holders of Common Stock of certain rights or
     warrants to purchase Common Stock;
 
          (iv) the distribution to all holders of Common Stock of capital stock
     (other than Common Stock) or evidences of indebtedness of the Company or of
     assets (including securities, but excluding those rights, warrants,
     dividends and distributions referred to above or paid in cash);
 
                                       27
   28
 
          (v) distributions consisting of cash, excluding any quarterly cash
     dividend on the Common Stock to the extent that the aggregate cash dividend
     per share of Common Stock in any fiscal quarter does not exceed the greater
     of (x) the amount per share of Common Stock of the next preceding quarterly
     cash dividend on the Common Stock to the extent that such preceding
     quarterly dividend did not require an adjustment of the conversion price
     pursuant to this clause (v) (as adjusted to reflect subdivisions or
     combinations of the Common Stock), and (y) 3.75% of the average of the last
     reported sales price of the Common Stock during the ten trading days
     immediately prior to the date of declaration of such dividend, and
     excluding any dividend or distribution in connection with the liquidation,
     dissolution or winding up of the Company. If an adjustment is required to
     be made as set forth in this clause (v) as a result of a distribution that
     is a quarterly dividend, such adjustment would be based upon the amount by
     which such distribution exceeds the amount of the quarterly cash dividend
     permitted to be excluded pursuant to this clause (v). If an adjustment is
     required to be made as set forth in this clause (v) as a result of a
     distribution that is not a quarterly dividend, such adjustment would be
     based upon the full amount of the distribution;
 
          (vi) payment in respect of a tender offer or exchange offer by the
     Company or any subsidiary of the Company for all or any portion of the
     Common Stock to the extent that the cash and value of any other
     consideration included in such payment per share of Common Stock exceeds
     the Current Market Price (as defined) per share of Common Stock on the
     trading day next succeeding the last date on which tenders or exchanges may
     be made pursuant to such tender or exchange offer, and
 
          (vii) payment in respect of a tender offer or exchange offer by a
     person other than the Company or any subsidiary of the Company in which, as
     of the closing date of the offer, the Board of Directors is not
     recommending rejection of the offer. The adjustment referred to in this
     clause (vii) will only be made if the tender offer or exchange offer is for
     an amount that increases the offeror's ownership of Common Stock to more
     than 25% of the total shares of Common Stock outstanding, and if the cash
     and value of any other consideration included in such payment per share of
     Common Stock exceeds the Current Market Price per share of Common Stock on
     the business day next succeeding the last date on which tenders or
     exchanges may be made pursuant to such tender or exchange offer. The
     adjustment referred to in this clause (vii) will generally not be made,
     however, if, as of the closing of the offer, the offering documents with
     respect to such offer disclose a plan or an intention to cause the Company
     to engage in a consolidation or merger of the Company or a sale of all or
     substantially all of the Company's assets.
 
     Under the provisions of the Company's Share Purchase Rights Plan (see
"Description of Capital Stock -- Share Purchase Rights Plan"), upon conversion
of the Notes into Common Stock to the extent that the Share Purchase Rights Plan
is still in effect upon such conversion, the holders will receive, in addition
to the Common Stock, the Rights described therein (whether or not the rights
have separated from the Common Stock at the time of conversion), subject to
certain limited exceptions.
 
     In the case of (i) any reclassification of the Common Stock or (ii) a
consolidation, merger or combination involving the Company or a sale or
conveyance to another person of all or substantially all the property and assets
of the Company, in each case, as a result of which holders of Common Stock shall
be entitled to receive stock, other securities, other property or assets
(including cash) with respect to or in exchange for such Common Stock, the
holders of the Notes then outstanding will generally be entitled thereafter to
convert such Notes into the kind and amount of shares of stock, other securities
or other property or assets (including cash) which they would have owned or been
entitled to receive upon such reclassification, consolidation, merger,
combination, sale or conveyance had such Notes been converted into Common Stock
immediately prior to such reclassification, consolidation, merger, combination,
sale or conveyance assuming that a holder of Notes would not have exercised any
rights of election as to the stock, other securities or other property or assets
(including cash) receivable in connection therewith.
 
     In the event of a taxable distribution to holders of Common Stock or in
certain other circumstances requiring an adjustment to the conversion price, the
holders of Notes may, in certain circumstances, be deemed to have received a
distribution subject to United States income tax as a dividend; in certain other
circumstances, the absence of such an adjustment may result in a taxable
dividend to the holders of Common Stock. See "Certain United States Federal
Income Tax Considerations" below.
 
                                       28
   29
 
     The Company from time to time may to the extent permitted by law reduce the
conversion price by any amount for any period of at least 20 days, in which case
the Company shall give at least 15 days' notice of such reduction, if the Board
of Directors has made a determination that such reduction would be in the best
interests of the Company, which determination shall be conclusive. The Company
may, at its option, make such reductions in the conversion price, in addition to
those set forth above, as the Board of Directors deems advisable to avoid or
diminish any income tax to holders of Common Stock resulting from any dividend
or distribution of stock (or rights to acquire stock) or from any event treated
as such for income tax purposes. See "Certain United States Federal Income Tax
Considerations."
 
     No adjustment in the conversion price will be required unless such
adjustment would require a change of at least 1% in the conversion price then in
effect; provided that any adjustment that would otherwise be required to be made
shall be carried forward and taken into account in any subsequent adjustment.
Except as stated above, the conversion price will not be adjusted for the
issuance of Common Stock or any securities convertible into or exchangeable for
Common Stock or carrying the right to purchase any of the foregoing.
 
OPTIONAL REDEMPTION BY THE COMPANY
 
     The Notes are not entitled to any sinking fund. At any time on or after
April 6, 2001, the Notes will be redeemable at the Company's option on at least
30 days' notice as a whole or, from time to time, in part at the following
prices (expressed as a percentage of the principal amount), together with
accrued interest to, but excluding, the date fixed for redemption:
 
     If redeemed during the period beginning April 6, 2001 and ending on March
31, 2002 at a redemption price of 103.286%, and if redeemed during the 12-month
period beginning April 1:
 


                                                            REDEMPTION
                           YEAR                               PRICE
                           ----                             ----------
                                                         
2002......................................................    102.464%
2003......................................................    101.643
2004......................................................    100.821

 
and 100% at April 1, 2005, provided that any semi-annual payment of interest
becoming due on the date fixed for redemption shall be payable to the holders of
record on the relevant record date of the Notes being redeemed.
 
     If less than all of the outstanding Notes are to be redeemed, the Trustee
shall select the Notes to be redeemed in principal amounts of $1,000 or
multiples thereof by lot, pro rata or by another method the Trustee considers
fair and appropriate. If a portion of a holder's Notes is selected for partial
redemption and such holder converts a portion of such Notes, such converted
portion shall be deemed to be of the portion selected for redemption.
 
     The Company may not give notice of any redemption of Notes if a default in
payment of interest on the Notes has occurred and is continuing.
 
REDEMPTION AT OPTION OF THE HOLDER
 
     If a Fundamental Change (as defined) occurs at any time prior to maturity
of the Notes, each holder of Notes shall have the right, at the holder's option,
to require the Company to redeem any or all of such holder's Notes on the date
(the "Repurchase Date") that is 30 days after the date of the Company's notice
of such Fundamental Change. The Notes will be redeemable in multiples of $1,000
principal amount.
 
     The Company shall redeem such Notes at a price equal to 100% of the
principal amount to be redeemed plus accrued interest to (but excluding) the
date of redemption; provided that, if such Repurchase Date is an interest
payment date, then the interest payable on such date shall be paid to the holder
of record of the Notes on the relevant record date.
 
     The Company is required to mail to all holders of record of the Notes a
notice of the occurrence of a Fundamental Change and of the redemption right
arising as a result thereof on or before the tenth day after the occurrence of
such Fundamental Change. The Company is also required to deliver the Trustee a
copy of such notice. To exercise the redemption right, a holder of Notes must
deliver, on or before the 30th day after
 
                                       29
   30
 
the date of the Company's notice of a Fundamental Change (the "Fundamental
Change Expiration Time"), written notice of the holder's exercise of such right,
together with the Notes to be so redeemed, duly endorsed for transfer, to the
Company (or an agent designated by the Company for such purpose). Payment for
Notes surrendered for redemption (and not withdrawn) prior to the Fundamental
Change Expiration Time will be made promptly following the Repurchase Date.
 
     The term "Fundamental Change" means the occurrence of any transaction or
event in connection with which all or substantially all of the Common Stock
shall be exchanged for, converted into, acquired for or constitute solely the
right to receive, consideration (whether by means of an exchange offer,
liquidation, tender offer, consolidation, merger, combination, reclassification,
recapitalization or otherwise) which is not all or substantially all common
stock listed (or, upon consummation of or immediately following such transaction
or event which will be listed) on a United States national securities exchange
or approved for quotation on the Nasdaq National Market or any similar United
States system of automated dissemination of quotations of securities prices.
 
     The Company will comply with the provisions of Rule 13e-4 and any other
tender offer rules under the Exchange Act to the extent then applicable in
connection with the redemption rights of the holders of Notes in the event of a
Fundamental Change.
 
     The redemption rights of the holders of Notes could discourage a potential
acquiror of the Company. The Fundamental Change redemption feature, however, is
not the result of management's knowledge of any specific effort to obtain
control of the Company by means of a merger, tender offer, solicitation or
otherwise, or part of a plan by management to adopt a series of anti-takeover
provisions. The term "Fundamental Change" is limited to certain specified
transactions and may not include other events that might adversely affect the
financial condition of the Company, nor would the requirement that the Company
offer to repurchase the Notes upon a Fundamental Change necessarily afford the
holders of the Notes protection in the event of a highly leveraged transaction,
reorganization, merger or similar transaction involving the Company.
 
     If a Fundamental Change were to occur, there can be no assurance that the
Company would have sufficient funds to pay the redemption price for all the
Notes tendered by the holders thereof. In addition, future credit agreements or
other agreements relating to other indebtedness (including other Senior
Indebtedness) to which the Company becomes a party may contain provisions that a
Fundamental Change would constitute an event of default thereunder, and may
include restrictions and provisions that would prohibit the Company from
purchasing or redeeming any Notes. In the event a Fundamental Change occurs at a
time when the Company is prohibited from purchasing or redeeming the Notes, the
Company could seek the consent of its then-existing lenders to the purchase of
the Notes or could attempt to refinance the borrowings that contain such
prohibition. If the Company does not obtain such a consent or repay such
borrowings, the Company would remain prohibited from purchasing or redeeming the
Notes. In such case, the Company's failure to redeem tendered Notes would
constitute an Event of Default under the Indenture, and may constitute a default
under the terms of other indebtedness that the Company may enter into from time
to time. In such circumstances, the subordination provisions in the indenture
would likely restrict payments to holders of Notes.
 
SUBORDINATION OF NOTES
 
     The Indebtedness evidenced by the Notes is subordinated to the extent
provided in the Indenture to the prior payment in full of all Senior
Indebtedness of the Company. The Notes also would be effectively subordinated to
all indebtedness and other liabilities, including trade payables and lease
obligations, if any, of any subsidiary of the Company.
 
     Upon any distribution of assets of the Company upon any dissolution,
winding up, liquidation or reorganization, the payment of the principal of, or
premium, if any, and interest (including Liquidated Damages (as defined), if
any) on the Notes is to be subordinated to the extent provided in the Indenture
in right of payment to the prior payment in full in cash or other payment
satisfactory to the holders of Senior Indebtedness of all Senior Indebtedness.
In the event of any acceleration of the Notes because of an Event of Default (as
defined), the holders of any Senior Indebtedness then outstanding would be
entitled to payment in full in cash or other payment satisfactory to the holders
of Senior Indebtedness of all obligations in respect of
 
                                       30
   31
 
such Senior Indebtedness before the holders of the Notes are entitled to receive
any payment or distribution in respect thereof. The Indenture will require that
the Company or the Trustee promptly notify holders of Designated Senior
Indebtedness if payment of the Notes is accelerated because of an Event of
Default.
 
     The Company also may not make any payment upon or in respect of the Notes
(including upon redemption at the option of the holder of any Note or at the
option of the Company) if (i) a default in the payment of the principal,
premium, if any, interest, rent or other obligations in respect of Designated
Senior Indebtedness occurs and is continuing (a "Payment Default") or (ii) any
other default occurs and is continuing with respect to Designated Senior
Indebtedness (as defined) that permits a holder of the Designated Senior
Indebtedness as to which such default relates to accelerate its maturity and the
Trustee receives a written notice of such default (a "Payment Blockage Notice")
from the Company or other person permitted to give such notice under the
Indenture (a "Non-Payment Default"). Payments on the Notes may and shall be
resumed (a) in case of a Payment Default, upon the date on which such default is
cured or waived or ceases to exist and (b) in case of a Non-Payment Default, the
earlier of the date on which such Non-Payment Default is cured or waived or
ceases to exist or 179 days after the date on which the applicable Payment
Blockage Notice is received by the Trustee if the maturity of such Designated
Senior Indebtedness has not been accelerated and no Payment Default with respect
to any Designated Senior Indebtedness has occurred which has not been cured or
waived (in which case clause (a) shall instead be applicable). No new period of
payment blockage may be commenced pursuant to a Payment Blockage Notice unless
and until (i) 365 days have elapsed since the initial effectiveness of the
immediately prior Payment Blockage Notice and (ii) all scheduled payments of
principal, premium, if any, and interest (including Liquidated Damages, if any)
on the Notes that have come due have been paid in full in cash. No Non-Payment
Default that existed or was continuing on the date of delivery of any Payment
Blockage Notice to the Trustee shall be, or shall be made, the basis for a
subsequent Payment Blockage Notice, unless such Non-Payment Default is based
upon facts or events arising after the date of delivery of such Payment Blockage
Notice.
 
     Notwithstanding the foregoing, in the event that the Trustee or any holder
of the Notes receives any payment or distribution of assets of the Company of
any kind in contravention of any of the subordination provisions of the
Indenture, whether in cash, property or securities, including, without
limitation, by way of set-off or otherwise, in respect of the Notes before all
Senior Indebtedness are paid in full, then such payment or distribution will be
held by the recipient in trust for the benefit of holders of Senior Indebtedness
or their representatives to the extent necessary to make payment in full of all
Senior Indebtedness remaining unpaid, after giving effect to any concurrent
payment or distribution, or provision therefor, to or for the benefit of the
holders of Senior Indebtedness.
 
     By reason of the subordination provisions described above, in the event of
the Company's bankruptcy, dissolution or reorganization, holders of Senior
Indebtedness may receive more, ratably, and holders of the Notes may receive
less, ratably, than the other creditors of the Company. Such subordination will
not prevent the occurrence of any Event of Default under the Indenture.
 
     The term "Senior Indebtedness" means the principal of, premium, if any,
interest (including all interest accruing subsequent to the commencement of any
bankruptcy or similar proceeding, whether or not a claim for post-petition
interest is allowable as a claim in any such proceeding) and rent payable on or
in connection with, and all fees, costs, expenses and other amounts accrued or
due on or in connection with, Indebtedness (as defined) of the Company, whether
outstanding on the date of the Indenture or thereafter created, incurred,
assumed, guaranteed or in effect guaranteed by the Company (including all
deferrals, renewals, extensions or refundings of, or amendments, modifications
or supplements to, the foregoing), unless in the case of any particular
Indebtedness the instrument creating or evidencing the same or the assumption or
guarantee thereof expressly provides that such Indebtedness shall not be senior
in right of payment to the Notes or expressly provides that such Indebtedness is
pari passu or junior to the Notes. Notwithstanding the foregoing, the term
Senior Indebtedness shall not include any Indebtedness of the Company to any
subsidiary of the Company, a majority of the voting stock of which is owned,
directly or indirectly, by the Company.
 
     The term "Indebtedness" means, with respect to any Person (as defined) and
without duplication:
 
          (a) all indebtedness, obligations and other liabilities (contingent or
     otherwise) of such Person for borrowed money (including obligations of the
     Company in respect of overdrafts, foreign exchange
                                       31
   32
 
     contracts, currency exchange agreements, interest rate protection
     agreements, and any loans or advances from banks, whether or not evidenced
     by notes or similar instruments, and all commitment, standby and other fees
     due and payable to financial institutions with respect to credit facilities
     available to such Person) or evidenced by bonds, debentures, notes or
     similar instruments (whether or not the recourse of the lender is to the
     whole of the assets of such Person or to only a portion thereof), other
     than any account payable or other accrued current liability or obligation
     incurred in the ordinary course of business in connection with the
     obtaining of materials or services;
 
          (b) all reimbursement obligations and other liabilities (contingent or
     otherwise) of such Person with respect to letters of credit, bank
     guarantees or bankers' acceptances;
 
          (c) all obligations and liabilities (contingent or otherwise) in
     respect of leases of real or personal property or other assets of such
     Person required, in conformity with generally accepted accounting
     principles, to be accounted for as capitalized lease obligations on the
     balance sheet of such Person and all obligations and other liabilities
     (contingent or otherwise) under any lease or related document (including a
     purchase agreement) in connection with the lease of real property which
     provides that such Person is contractually obligated to purchase or cause a
     third party to purchase the leased property and thereby guarantee a minimum
     residual value of the leased property to the lessor and the obligations of
     such Person under such lease or related document to purchase or to cause a
     third party to purchase such leased property;
 
          (d) all obligations of such Person (contingent or otherwise) with
     respect to an interest rate or other swap, cap or collar agreement or other
     similar instrument or agreement or foreign currency hedge, exchange,
     purchase or similar instrument or agreement;
 
          (e) all direct or indirect guaranties or similar agreements by such
     Person in respect of, and obligations or liabilities (contingent or
     otherwise) of such Person to purchase or otherwise acquire or otherwise
     assure a creditor against loss in respect of, indebtedness, obligations or
     liabilities of another Person of the kind described in clauses (a) through
     (d);
 
          (f) any indebtedness or other obligations described in clauses (a)
     through (e) secured by any mortgage, pledge, lien or other encumbrance
     existing on property which is owned or held by such Person, regardless of
     whether the indebtedness or other obligation secured thereby shall have
     been assumed by such Person; and
 
          (g) any and all deferrals, renewals, extensions and refundings of, or
     amendments, modifications or supplements to, any indebtedness, obligation
     or liability of the kind described in clauses (a) through (f).
 
     The term "Designated Senior Indebtedness" means any Senior Indebtedness in
which the instrument creating or evidencing the same or the assumption or
guarantee thereof (or related agreements or documents to which the Company is a
party) expressly provides that such Senior Indebtedness shall be "Designated
Senior Indebtedness" for purposes of the Indenture (provided that such
instrument, agreement or other document may place limitations and conditions on
the right of such Senior Indebtedness to exercise the rights of Designated
Senior Indebtedness).
 
     As of February 28, 1998, the Company had approximately $906,000 of
indebtedness outstanding that would have constituted Senior Indebtedness. The
Indenture will not limit the amount of additional indebtedness, including Senior
Indebtedness, which the Company can create, incur, assume or guarantee, nor will
the Indenture limit the amount of indebtedness or other liabilities that any
subsidiary can create, incur, assume or guarantee.
 
     The Company is obligated to pay reasonable compensation to the Trustee and
to indemnify the Trustee against certain losses, liabilities or expenses
incurred by it in connection with its duties relating to the Notes. The
Trustee's claims for such payments will generally be senior to those of the
holders of the Notes in respect of all funds collected or held by the Trustee.
 
EVENTS OF DEFAULT; NOTICE AND WAIVER
 
     An Event of Default is defined in the Indenture as being: default in
payment of the principal of or premium, if any (upon redemption or otherwise),
on the Notes (whether or not such payment is permitted to
                                       32
   33
 
be made under the subordination provisions described above); default for 30 days
in payment of any installment of interest, including Liquidated Damages, if any,
on the Notes (whether or not such payment is permitted to be made under the
subordination provisions described above); default by the Company for 60 days
after notice in the observance or performance of any other covenants in the
Notes or the Indenture; or certain events involving bankruptcy, insolvency or
reorganization of the Company or any of its Significant Subsidiaries. The
Indenture provides that the Trustee may withhold notice to the holders of the
Notes of any default (except in payment of principal or premium, if any, or
interest (including Liquidated Damages, if any) with respect to the Notes) if
the Trustee considers it in the interest of the holders of the Notes to do so.
 
     The Indenture provides that if an Event of Default shall have occurred and
be continuing, the Trustee or the holders of not less than 25% in principal
amount of the Notes then outstanding may declare the principal of, premium, if
any, and accrued interest (including Liquidated Damages, if any) on the Notes to
be due and payable immediately. In the case of certain events of bankruptcy or
insolvency of the Company, the principal of, premium, if any, and accrued
interest (including Liquidated Damages, if any) on the Notes shall automatically
become and be immediately due and payable. However, if the Company shall cure
all defaults (except the nonpayment of principal of, premium, if any, and
interest (including Liquidated Damages, if any) on any of the Notes which shall
have become due by acceleration) and certain other conditions are met, with
certain exceptions, such declaration may be canceled and past defaults may be
waived by the holders of a majority of the principal amount of the Notes then
outstanding.
 
     The Indenture provides that any payment of principal, premium, if any, or
interest (including Liquidated Damages, if any) that is not made when due
(whether or not such payment is permitted to be made under the subordination
provisions described above) will accrue interest, to the extent legally
permissible, at the annual rate set forth on the cover page hereof from the date
on which such payment was required under the terms of the Indenture until the
date of payment.
 
     The holders of a majority in principal amount of the Notes then outstanding
shall have the right to direct in writing the time, method and place of
conducting any proceedings for any remedy available to the Trustee, subject to
certain limitations specified in the Indenture.
 
     The Indenture provides that no holder of the Notes may pursue any remedy
under the Indenture, except for a default in the payment of principal, premium,
if any, or interest (including Liquidated Damages, if any), on the Notes, unless
such holder shall have previously given to the Trustee written notice of a
continuing Event of Default, and the holders of at least 25% in principal amount
of the outstanding Notes shall have made a written request, and offered
reasonable indemnity, to the Trustee to pursue the remedy, and the Trustee shall
not have received from the holders of a majority in principal amount of the
outstanding Notes a direction inconsistent with such request and shall have
failed to comply with such request within 60 days after receipt of such request.
 
MODIFICATION OF THE INDENTURE
 
     The Indenture contains provisions permitting the Company and the Trustee,
with the consent of the holders of a majority in principal amount of the Notes
at the time outstanding, to modify the Indenture or any supplemental indenture
or the rights of the holders of the Notes, except that no such modification
shall (i) extend the fixed maturity of any Note, reduce the rate or extend the
time for payment of interest thereon, reduce the principal amount thereof or
premium, if any, thereon, reduce any amount payable upon redemption thereof,
change the obligation of the Company to redeem any Note upon the happening of
any Fundamental Change in a manner adverse to the holders of the Notes, impair
the right of a holder to institute suit for the payment thereof, change the
currency in which the Notes are payable, impair the right to convert the Notes
into Common Stock subject to the terms set forth in the Indenture, or modify the
provisions of the Indenture with respect to the subordination of the Notes in a
manner adverse to the holders of the Notes in any material respect, without the
consent of each holder of a Note so affected or (ii) reduce the aforesaid
percentage of Notes whose holders are required to consent to any such
modification of the Indenture or any such supplemental indenture, without the
consent of the holders of all of the Notes then outstanding. The indenture also
provides for certain modifications of its terms without the consent of the
holders of the Notes.
 
                                       33
   34
 
REGISTRATION RIGHTS OF THE NOTEHOLDERS
 
     The Company has entered into a registration rights agreement with the
Initial Purchasers (the "Registration Rights Agreement") pursuant to which the
Company, at its expense, will, for the benefit of the holders, file with the
Commission the Shelf Registration Statement covering resale of the Registrable
Securities (as defined) as soon as practicable, but in any event within 90 days
after the first date of original issuance of the Notes. The Company will use
commercially reasonable efforts to cause the Shelf Registration Statement to
become effective as promptly as is practicable, but in any event within 180 days
of such first date of original issuance and to keep the Shelf Registration
Statement effective until the earlier of (i) the sale pursuant to the Shelf
Registration Statement of all the securities registered thereunder and (ii) the
expiration of the holding period applicable to such securities held by persons
that are not affiliates of the Company under Rule 144(k) under the Securities
Act, or any successor provision, subject to certain permitted exceptions. The
Company will be permitted to suspend the use of the prospectus that is a part of
the Shelf Registration Statement under certain circumstances relating to pending
corporate developments, public filings with the Commission and similar events
for a period not to exceed 60 days in any three-month period or not to exceed an
aggregate of 90 days in any 12-month period. The Company has agreed to pay
predetermined liquidated damages ("Liquidated Damages") (i) in respect of the
Notes, at a rate per annum equal to .5% of the principal amount of the Notes,
and (ii) in respect of any shares of Common Stock issued upon conversion of the
Notes, at a rate per annum equal to .5% of the then applicable conversion price,
to holders of Notes and holders of Common Stock issued upon conversion of the
Notes if the Shelf Registration Statement is not timely filed or made effective
or if the prospectus is unavailable for periods in excess of those permitted
above. A holder who sells Notes and Common Stock issued upon conversion of the
Notes pursuant to the Shelf Registration Statement generally will be required to
be named as a selling stockholder in the related prospectus, deliver a
prospectus to purchasers and be bound by certain provisions of the Registration
Rights Agreement that are applicable to such holder (including certain
indemnification provisions). The Company will pay all expenses of the Shelf
Registration Statement, provide to each registered holder copies of such
prospectus, notify each registered holder when the Shelf Registration Statement
has become effective and take certain other actions are required to permit,
subject to the foregoing, unrestricted resales of the Notes and the Common Stock
issued upon conversion of the Notes. The plan of distribution of the Shelf
Registration Statement will permit resales of Registrable Securities by selling
security holders through brokers and dealers.
 
     The Company has agreed in the Registration Rights Agreement to give notice
to all holders of the filing and effectiveness of the Shelf Registration
Statement. A form of notice and questionnaire (the "Questionnaire") is to be
completed and delivered by a holder to the Company at least three business days
prior to any intended distribution of Registrable Securities pursuant to the
Shelf Registration Statement. Holders are required to complete and deliver the
Questionnaire prior to the effectiveness of the shelf Registration Statement so
that such holders may be named as selling stockholders in the related prospectus
at the time of effectiveness. Upon receipt of such a completed Questionnaire,
together with such other information as may be reasonably requested by the
Company, from a holder following the effectiveness of the Shelf Registration
Statement, the Company will, as promptly as practicable but in any event within
five business days of such receipt, file such amendments to the Shelf
Registration Statements or supplements to the related prospectus as are
necessary to permit such holder to deliver such prospectus to purchasers of
Registrable Securities (subject to the Company's right to suspend the use of the
prospectus as described above). The Company has agreed to pay Liquidated Damages
to such holder if the Company fails to make such filing in the time required or,
if such filing is a post-effective amendment of the Shelf Registration Statement
required to be declared effective under the Securities Act, if such amendment is
not declared effective within 45 days of the filing thereof. Any holder that
does not complete and deliver a Questionnaire or provide such other information
will not be named as a selling stockholder in the prospectus and therefore will
not be permitted to sell any Registrable Securities pursuant to the Shelf
Registration Statement.
 
     The summary herein of certain provisions of the Registration Rights
Agreement is subject to, and is qualified in its entirety by reference to, all
the provisions of the Registration Rights agreement, a copy of which is
available upon request to the Company.
 
                                       34
   35
 
RULE 144A INFORMATION REQUIREMENT
 
     The Company has agreed to furnish to the holders or beneficial holders of
the Notes or the underlying Common Stock and prospective purchasers of the Notes
or the underlying Common Stock designated by the holders of the Notes or the
underlying Common Stock, upon their request, the information required to be
delivered pursuant to Rule 144A(d)(4) under the Securities Act until such time
as such securities are no longer "restricted securities" within the meaning of
Rule 144 under the Securities Act (assuming such securities have not been owned
by an affiliate of the Company).
 
INFORMATION CONCERNING THE TRUSTEE
 
     Marine Midland Bank, as Trustee under the Indenture, has been appointed by
the Company as paying agent, conversion agent, registrar and custodian with
regard to the Notes.
 
                                       35
   36
 
                          DESCRIPTION OF CAPITAL STOCK
 
     The following description of the capital stock of the Company and certain
provisions of the Company's Certificate of Incorporation and Bylaws is a summary
and is qualified in its entirety by the provisions of the Certificate of
Incorporation and Bylaws, which have been incorporated by reference in the
Company's Registration Statement, of which this Prospectus is a part.
 
     The authorized capital stock of the Company consists of 30,000,000 shares
of Common Stock, par value $0.001 and 5,000,000 shares of Preferred Stock, par
value $0.001.
 
COMMON STOCK
 
     At April 8, 1998, there were 15,628,925 shares of Common Stock outstanding
(plus up to 1,046,819 shares that may be issued upon exercise of outstanding
options and warrants). The holders of Common Stock are entitled to one vote for
each share held of record on all matters submitted to a vote of the
stockholders. The holders of Common Stock are not entitled to cumulative voting
rights with respect to the election of directors, and as a consequence, minority
stockholders will not be able to elect directors on the basis of their votes
alone.
 
     Subject to preferences that may be applicable to any then outstanding
shares of Preferred Stock, holders of Common Stock are entitled to receive
ratably such dividends as may be declared by the Board of Directors out of funds
legally available therefore. See "Dividend Policy." In the event of liquidation,
dissolution or winding up of the Company, holders of the Common Stock are
entitled to share ratably in all assets remaining after payment of liabilities
and the liquidation preference of any then outstanding shares of Preferred
Stock. Holders of Common Stock have no preemptive rights and no right to convert
their Common Stock into any other securities. There are no redemption or sinking
fund provisions applicable to the Common Stock. All outstanding shares of Common
Stock are, and all shares of Common Stock to be outstanding upon completion of
this offering will be, fully paid and nonassessable.
 
PREFERRED STOCK
 
     The Board of Directors has the authority, without further action by the
stockholders, to issue up to 5,000,000 shares of Preferred Stock in one or more
series and to fix the rights, preferences, privileges and restrictions thereof,
including dividend rights, conversion rights, voting rights, terms of
redemption, liquidation preferences, sinking fund terms and the number of shares
constituting any series or the designation of such series, without any further
vote or action by the stockholders. The issuance of Preferred Stock could
adversely affect the voting power of holders of Common Stock and the likelihood
that such holders will receive dividend payments and payments upon liquidation
may have the effect of delaying, deferring or preventing a change in control of
the Company, which could have a depressive effect on the market price of the
Company's Common Stock. The Company has no present plan to issue any shares of
Preferred Stock.
 
SHARE PURCHASE RIGHTS PLAN
 
     In October 1997, the Company's Board of Directors adopted a Share Purchase
Rights Plan, commonly known as a "poison pill". The Share Purchase Rights Plan
provides for the distribution of certain rights to acquire shares of the
Company's Series A Junior Participating Preferred Stock, par value $0.001 (the
"Rights") as a dividend for each share of Common Stock held of record as of
October 23, 1997. The Rights are triggered and become exercisable upon the
occurrence of either the (i) date of a public announcement of the acquisition of
20% or more beneficial ownership of the Company's Common Stock by a person or
group (an "Acquiring Person"), or (ii) ten business days (or such later time as
may be set by the Board of Directors) after a public announcement of a tender or
exchange offer for 20% or more beneficial ownership of the Company's Common
Stock by an Acquiring Person. If the Rights are triggered because an Acquiring
Person beneficially owns 20% or more of the Company's Common Stock, each Right
effectively provides its holder, other than a holder who is an Acquiring Person,
the right to purchase shares of Common Stock at a 50% discount from the market
price at that time, upon payment of an exercise price of $150 per Right. In
addition, in the event of certain business combinations, the Rights permit the
purchase of shares of common stock of an acquirer at a 50% discount from the
market price at that time. The Board of Directors has the right to redeem the
Rights at a price of $0.001 per Right at any time prior to the close of business
on the day of the first public announcement that a person has become an
Acquiring Person. If the Rights are triggered under certain circumstances, the
Board of Directors may elect to exchange each Right (other than Rights held by
                                       36
   37
 
Acquiring Persons) for one share of Common Stock. The Rights have no voting
privileges and are attached to and trade with Company's Common Stock. The Board
of Directors also generally may amend the terms of the Rights without the
consent of the holders of the Rights. The Rights expire on October 23, 2007.
These provisions may have the effect of deterring hostile takeovers of delaying
changes in control or management of the Company.
 
WARRANTS
 
     In February 1993, the Company entered into an agreement with The Mount
Sinai School of Medicine of the City University of New York ("Mount Sinai"),
under which Mount Sinai transferred to the Company rights to certain patents,
patent applications, and associated know-how and other technical information.
Mount Sinai also granted the Company (i) an option to acquire any improvements
to the inventions disclosed in the licensed patents and patent applications
thereafter developed by Mount Sinai and (ii) a right of first negotiation for a
license or assignment to certain related technology. In connection with these
agreements, the Company issued to Mount Sinai warrants (the "Mount Sinai
Warrants") to purchase, in the aggregate, up to 45,000 shares of Common Stock.
Each Mount Sinai Warrant is exercisable for a period of five years from
specified milestone events. As of December 31, 1997, warrants to purchase 7,126
shares were exercisable at a per share exercise price of $4.50. Warrants to
purchase 29,750 shares became exercisable upon the effective date of the
Company's initial public offering, at a per share exercise price of $10.00.
Warrants to purchase the remaining 6,250 shares are not exercisable and
terminated automatically on the effective date of the Company's initial public
offering, according to their terms. In 1996, Warrants to purchase 3,124 Shares
of Common Stock were distributed by Mount Sinai to certain inventors of the
relevant technology, of which 1,874 were exercised on July 30, 1997.
 
     In connection with an agreement entered into in February 1995 with the
University of Michigan ("Michigan"), under which Michigan transferred to the
Company certain intellectual property rights and technology (the "Michigan
Technology"), the Company agreed to issue to Michigan a warrant (the "Michigan
Warrant") to purchase shares of its Common Stock upon the first commercial sale
of a product incorporating the Michigan Technology, for a number of shares equal
to 1.25% of the total issued and outstanding shares of the Company's Common
Stock as of the date of such first commercial sale (excluding shares of the
Company's Common Stock issued by the Company in connection with its acquisition
of another company, in connection with any corporate partnering transaction,
issued in connection with other technology transfers not involving the Michigan
Technology, or unvested employee or director option shares), at a per share
exercise price of $10.00.
 
     In connection with a private placement of Series C Preferred Stock, the
Company issued to the placement agent a warrant to purchase 70,507 shares of its
Common Stock at a per share exercise price of $8.10, exercisable at any time
through November 9, 2000, which was exercised on July 28, 1997.
 
     In January 1997, the Company issued to Cooley Godward LLP a warrant to
purchase 16,666 shares of its Common Stock at an exercise price of $2.00 per
share, exercisable at any time through January 24, 2000, in lieu of payment of a
portion of legal fees.
 
REGISTRATION RIGHTS
 
     The holders (or their permitted transferees) ("Holders") of approximately
1,618,926 shares of Common Stock are entitled to certain rights with respect to
the registration of such shares under the Securities Act. If the Company
proposes to register any of its securities under the Securities Act, either for
its own account or for the account of other security holders, the Holders are
entitled to notice of the registration and are entitled to include, at the
Company's expense, such shares therein. Certain of the Holders may require the
Company at its expense on not more than two occasions to file a Registration
Statement under the Securities Act, with respect to their shares of Common
Stock, and the Company is required to use its best efforts to effect the
registration, subject to certain conditions and limitations. The Holders may
require the Company at its expense to register their shares on Form S-3 subject
to certain conditions and limitations.
 
                                       37
   38
 
DELAWARE ANTI-TAKEOVER LAW AND CERTAIN CHARTER PROVISIONS
 
     The Company is subject to the provisions of Section 203 of the Delaware
General Corporation Law (the "Delaware Law"), an anti-takeover law. In general,
the statute prohibits a publicly-held Delaware corporation from engaging in a
"business combination" with an "interested stockholder" for a period of three
years after the date of the transaction in which the person became an interested
stockholder, unless the business combination is approved in a prescribed manner.
A "business combination" includes a merger, asset sale or other transaction
resulting in a financial benefit to the stockholder. For purposes of Section
203, an "interested stockholder" is a person who, together with affiliates and
associates, owns (or within three years prior, did own) 15% or more of the
corporation's voting stock.
 
     The Company's Certificate of Incorporation provides that each director will
serve for a three-year term, with approximately one-third of the directors to be
elected annually. Candidates for director may be nominated only by the Board of
Directors or by a stockholder who gives written notice to the Company no later
than 60 days prior nor earlier than 90 days prior to the first anniversary of
the last annual meeting of stockholders. The number of authorized directors of
the Company may be determined from time to time to pursuant to a resolution of
the Board. Currently the Board consists of six members. Between stockholder
meetings, the Board may appoint new directors to fill vacancies or newly created
directorships. The Certificate does not provide for cumulative voting at
stockholder meetings for election of directors. As a result, stockholders
controlling more than 50% of the outstanding Common Stock can elect the entire
Board of Directors, while stockholders controlling 49% of the outstanding Common
Stock may not be able to elect any directors. A director may be removed from
office only for cause by the affirmative vote of a majority of the combined
voting power of the then outstanding shares of stock entitled to vote generally
in the election of directors.
 
     The Company's Certificate of Incorporation requires that any action
required or permitted to be taken by stockholders of the Company must be
effected at a duly called annual or special meeting of stockholders and may not
be effected by a consent in writing. The Company's Certificate of Incorporation
also provides that the authorized number of directors may be changed only by
resolution of the Board of Directors. Delaware Law and these charter provisions
may have the effect of deterring hostile takeovers or delaying changes in
control or management of the Company, which could have a depressive effect on
the market price of the Company's Common Stock.
 
LIMITATION OF LIABILITY AND INDEMNIFICATION
 
     The Company's Certificate of Incorporation contains certain provisions
permitted under Delaware Law relating to the liability of directors. These
provisions eliminate a director's personal liability for monetary damages
resulting from a breach of fiduciary duty, except in certain circumstances
involving certain wrongful acts, such as (i) for any breach of the director's
duty of loyalty to the Company or its stockholders, (ii) for acts or omissions
not in good faith or which involve intentional misconduct or a knowing violation
of law, (iii) under Section 174 of the Delaware General Corporation Law, or (iv)
for any transaction from which the director derives an improper personal
benefit. These provisions do not limit or eliminate the rights of the Company or
any stockholder to seek non-monetary relief, such as an injunction or
rescission, in the event of a breach of director's fiduciary duty. These
provisions will not alter a directors liability under federal securities laws.
The Company's Certificate of Incorporation also contains provisions indemnifying
the directors and officers of the Company to the fullest extent permitted by
Delaware General Corporation Law. The Company believes that these provisions
will assist the Company in attracting and retaining qualified individuals to
serve as directors.
 
TRANSFER AGENT
 
     The transfer agent for the Common Stock of the Company is The First
National Bank of Boston.
 
                                       38
   39
 
                UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
 
     The following is a summary of certain material United States federal income
and estate tax considerations relating to the purchase, ownership and
disposition of the Notes and of Common Stock into which Notes may be converted,
but does not purport to be a complete analysis of all the potential tax
considerations relating thereto. This summary is based on the provisions of the
Internal Revenue Code of 1986, as amended (the "Code"), the applicable Treasury
Regulations promulgated or proposed thereunder ("Treasury Regulations"),
judicial authority and current administrative rulings and practice, all of which
are subject to change, possibly on a retroactive basis. This summary deals only
with holders that will hold Notes and Common Stock into which Notes may be
converted as "capital assets" (within the meaning of Section 1221) and does not
address tax considerations applicable to investors that may be subject to
special tax rules, such as banks, tax-exempt organizations, insurance companies,
dealers in securities or currencies, persons that will hold Notes as a position
in a hedging transaction, "straddle" or "conversion transaction" for tax
purposes, or persons that have a "functional currency" other than the U.S.
dollar. This summary discusses the tax considerations applicable to the initial
purchasers of the Notes who purchase the Notes at their "issue price" as defined
in Section 1273 of the Code and does not discuss the tax considerations
applicable to subsequent purchasers of the Notes. The Company has not sought any
ruling from the Internal Revenue Service ("IRS") with respect to the statements
made and the conclusions reached in the following summary, and there can be no
assurance that the IRS will agree with such statements and conclusions.
INVESTORS CONSIDERING THE PURCHASE OF NOTES SHOULD CONSULT THEIR OWN TAX
ADVISORS WITH RESPECT TO THE APPLICATION OF THE UNITED STATES FEDERAL INCOME AND
ESTATE TAX LAWS TO THEIR PARTICULAR SITUATIONS AS WELL AS ANY TAX CONSEQUENCES
ARISING UNDER THE LAWS OF ANY STATE, LOCAL OR FOREIGN TAXING JURISDICTION OR
UNDER ANY APPLICABLE TAX TREATY.
 
UNITED STATES HOLDERS
 
     As used herein, the term "United States Holder" means the beneficial owner
of a Note or Common Stock that for United States federal income tax purposes is
(i) a citizen or resident of the United States, (ii) a corporation, partnership
or other entity created or organized in or under the laws of the United States
or any political subdivision thereof, (iii) an estate the income of which is
subject to United States federal income taxation regardless of its source, or
(iv) a trust if (a) a court within the United States is able to exercise primary
supervision over the administration of the trust and (b) one or more U.S.
persons have the authority to control all substantial decisions of the trust.
 
  Payment of Interest
 
     Interest on a Note generally will be includable in the income of a United
States Holder as ordinary income at the time such interest is received or
accrued, in accordance with such Holder's method of accounting for United States
federal income tax purposes. The Company is obligated to pay liquidated damages
to holders of the Notes in certain circumstances described under "Description of
Notes -- Registration Rights of the Noteholders." Failure of the Company to
register the Notes as described under "Description of Notes" will cause
Additional Interest to accrue on the Notes in the manner described therein.
According to Treasury Regulations, the possibility of a change in the interest
rate will not affect the amount of interest income recognized by a holder (or
the timing of such recognition) if the likelihood of the change, as of the date
the debt obligations are issued, is remote. The Company believes that the
likelihood of a change in the interest rate on the Notes is remote and does not
intend to treat the possibility of a change in the interest rate as affecting
the yield to maturity of any Note. Similarly, the Company intends to take the
position that the likelihood of a redemption or a repurchase upon a "Change of
Control" is remote under the Treasury Regulations, and likewise does not intend
to treat the possibility of the foregoing as affecting the yield to maturity of
any Note.
 
  Sale, Exchange or Redemption of the Notes
 
     Except as described below under "Conversion of the Notes," upon the sale,
exchange or redemption of a Note, a United States Holder generally will
recognize capital gain or loss equal to the difference between
 
                                       39
   40
 
(i) the amount of cash proceeds and the fair market value of any property
received on the sale, exchange or redemption (except to the extent such amount
is attributable to accrued interest income, which is taxable as ordinary income)
and (ii) such Holder's adjusted tax basis in the Note. A United States Holder's
adjusted tax basis in a Note generally will equal the cost of the Note to such
Holder, less any principal payments received by such Holder. Such capital gain
or loss will be long-term if the United States Holder's holding period is more
than 18 months, will be mid-term if the holding period is more than 12 months
and equal to or less than 18 months, will be short-term if the holding period is
equal to or less than 12 months. Under the Taxpayer's Relief Act of 1997 (the
"1997 Act"), in the case of individuals, long-term capital gains are taxed at a
maximum rate of 20%, mid-term capital gains are taxed at a maximum rate of 28%,
and short-term capital gains are taxed at a maximum rate of 39.6%. Also, under
the 1997 Act, in taxable years beginning after December 31, 2000, the rate of
tax applicable to long-term capital gains in certain circumstances may be
reduced below 20% for property held for more than five years. Corporate tax
payments are subject to a maximum regular tax rate of 35% on all capital gains
and ordinary income.
 
  Constructive Dividends on Notes
 
     If at any time (i) the Company makes a distribution of cash or property to
its stockholders or purchases Common Stock and such distribution or purchase
would be taxable to such stockholders as a dividend for United States federal
income tax purposes (e.g., distributions of evidences of indebtedness or assets
of the Company, but generally not stock dividends or rights to subscribe for
Common Stock) and, pursuant to the anti-dilution provisions of the Indenture,
the Conversion Rate of the Notes is increased, or (ii) the Conversion Rate of
the Notes is increased at the discretion of the Company, such increase in
Conversion Rate may be deemed to be the payment of a taxable dividend (to the
extent of the Company's current or accumulated earnings and profits) to United
States Holders of Notes (pursuant to Section 305 of the Code). Such Holders of
Notes could therefore have taxable income as a result of an event pursuant to
which they received no cash or property.
 
  Conversion of the Notes
 
     A United States Holder generally will not recognize any income, gain or
loss upon conversion of a Note into Common Stock, except with respect to cash
received in lieu of a fractional share of Common Stock. Such Holder's tax basis
in the Common Stock received on conversion of a Note will be the same as such
Holder's adjusted tax basis in the Note at the time of conversion (reduced by
any basis allocable to a fractional share interest), and the holding period for
the Common Stock received on conversion will generally include the holding
period of the Note converted.
 
     Cash received in lieu of a fractional share of Common Stock upon conversion
will be treated as a payment in exchange for the fractional share of Common
Stock. Accordingly, the receipt of cash in lieu of a fractional share of Common
Stock generally will result in capital gain or loss (measured by the difference
between the cash received for the fractional share and the United States
Holder's adjusted tax basis in the fractional share).
 
  Dividends on Common Stock
 
     Generally, distributions will be treated as a dividend, subject to tax as
ordinary income, to the extent of the Company's current or accumulated earnings
and profits, then as a tax-free return of capital to the extent of the Holder's
tax basis in the Common Stock and thereafter as gain from the sale of exchange
of such stock.
 
     In general, a dividend distribution to a corporate United States Holder
will qualify for the 70% dividends received deduction if the Holder owns less
than 20% of the voting power and value of the Company's stock (other than any
non-voting, non-convertible, non-participating preferred stock). A corporate
United States Holder that owns 20% or more of the voting power and value of the
Company's stock (other than any nonvoting, non-convertible, non-participating
preferred stock) generally will qualify for an 80% dividends received deduction.
The dividends received deduction is subject, however, to certain holding period,
taxable income and other limitations.
 
                                       40
   41
 
  Sale of Common Stock
 
     Upon the sale or exchange of Common Stock, a United States Holder generally
will recognize capital gain or loss equal to the difference between (i) the
amount of cash and the fair market value of any property received upon the sale
or exchange and (ii) such Holder's adjusted tax basis in the Common Stock. Such
capital gain or loss will be long-term if the United States Holder's holding
period is more than 18 months, will be mid-term if the holding period is more
than 12 months and equal to or less than 18 months, will be short-term if the
holding period is equal to or less than 12 months. Under the 1997 Act, in the
case of individuals long-term capital gains are taxed at a maximum rate of 20%
and mid-term capital gains are taxed at a maximum rate of 28%, and short-term
capital gains are taxed at a maximum rate of 39.6%. Also, under the 1997 Act, in
taxable years beginning after December 31, 2000, the rate of tax applicable to
long-term capital gains in certain circumstances may be reduced below 20% for
property held for more than five years. A United States Holder's basis and
holding period in Common Stock received upon conversion of a Note are determined
as discussed above under "-- Conversion of the Notes".
 
     Market Discount. Investors acquiring Notes should note that the resale of
Notes may be adversely affected by the market discount provisions of Sections
1276 through 1278 of the Code. Under the market discount rules, if a holder of a
Note purchases it at market discount (i.e., at a price below its stated
redemption price at maturity) in excess of a statutorily-defined de minimis
amount and thereafter recognizes gain upon a disposition or retirement of the
Note, then the lesser of the gain recognized or the portion of the market
discount that accrued on a ratable basis (or, if elected, on a constant interest
rate basis) generally will be treated as ordinary income at the time of the
disposition. Moreover, any market discount on a Note may be taxable to an
investor to the extent of appreciation at the time of certain otherwise
non-taxable transactions (e.g., gifts). Any accrued market discount not
previously taken into income prior to a conversion of a Note, however, should
(under Treasury Regulations not yet issued) carry over to the Common Stock
received on conversion and be treated as ordinary income upon a subsequent
disposition of such Common Stock, to the extent of any gain recognized on such
disposition. In addition, absent an election to include market discount in
income as it accrues, a holder of a market discount debt instrument may be
required to defer a portion of any interest expense that otherwise may be
deductible on any indebtedness incurred or maintained to purchase or carry such
debt instrument until the holder disposes of the debt instrument in a taxable
transaction.
 
  Information Reporting and Backup Withholding Tax
 
     In general, information reporting requirements will apply to payments of
principal, premium, if any, and interest on a Note, payments of dividends on
Common Stock, payments of the proceeds of the sale of a Note and payments of the
proceeds of the sale of Common Stock to certain noncorporate United States
Holders. The payer will be required to withhold backup withholding tax at the
rate of 31% if (a) the payee fails to furnish a taxpayer identification number
("TIN") to the payer or establish an exemption from backup withholding, (b) the
IRS notifies the payer that the TIN furnished by the payee is incorrect, (c)
there has been a notified payee underreporting with respect to interest,
dividends or original issue discount described in Section 3406(c) of the Code or
(d) there has been a failure of the payee to certify under the penalty of
perjury that the payee is not subject to backup withholding under the Code.
Certain United States Holders, including all corporations, will be exempt from
such backup withholding. Any amounts withheld under the backup withholding rules
from a payment to a United States Holder will be allowed as a credit against
such Holder's United States federal income tax and may entitle the Holder to a
refund, provided that the required information is furnished to the IRS.
 
     Recently issued Treasury regulations (the "Final Withholding Regulations"),
which are generally effective with respect to payments made after December 31,
1998, modify the currently effective information reporting and backup
withholding procedures and requirements, and provide certain presumptions
regarding the status of holders when payments to the holders cannot be reliably
associated with appropriate documentation provided to the payor. To avoid backup
withholding with respect to payments made after December 31, 1998, initial
United States Holders will be required to provide certification, if applicable,
that conforms to the requirements of the Final Withholding Regulations, subject
to certain transitional rules which may apply to extend until December 31, 1999,
certification given in accordance with prior Treasury Regulations. Because the
application of the Final Withholding Regulations will vary depending on the
United States Holder's
                                       41
   42
 
particular circumstances, United States Holders are urged to consult their tax
advisors regarding the application of the Final Withholding Regulations.
 
NON-UNITED STATES HOLDERS
 
     As used herein, the term "Non-United States Holder" means any beneficial
owner of a Note or Common Stock that is not a United States Holder.
 
PAYMENT OF INTEREST
 
     Generally, interest income of a Non-United States Holder that is not
effectively connected with a United States trade or business will be subject to
a withholding tax at a 30% rate (or, if applicable, a lower treaty rate).
However, interest paid on a Note by the Company or any Paying Agent to a
Non-United States Holder will qualify for the "portfolio interest exemption" and
therefore will not be subject to United States federal income tax or withholding
tax, provided that such interest income is not effectively connected with a
United States trade or business of the Non-United States Holder and provided
that the Non-United States Holder (i) does not actually or constructively own
(pursuant to the conversion feature of the Notes or otherwise) 10% or more of
the combined voting power of all classes of stock of the Company entitled to
vote, (ii) is not a controlled foreign corporation related to the Company
actually or constructively through stock ownership, (iii) is not a bank which
acquired the Notes in consideration for an extension of credit made pursuant to
a loan agreement entered into in the ordinary course of business and (iv) either
(a) provides a Form W-8 (or a suitable substitute form) signed under penalties
of perjury that includes its name and address and certifies as to its non-United
States status, or (b) is a securities clearing organization, bank or other
financial institution that holds customers' securities in the ordinary course of
its trade or business and provides a statement to the Company or its agent under
penalties of perjury in which it certifies that a Form W-8 (or a suitable
substitute) has been received by it from the Non-United States Holder or
qualifying intermediary and furnishes the Company or its agent with a copy
thereof.
 
     Recently released Treasury Regulations provide alternative methods for
satisfying the certification requirements described in clause (iv) above. The
Treasury Regulations are effective for payments made after December 31, 1998.
Generally, any certification provided on a Form W-8 that is validly in effect
prior to January 1, 1999 will be treated as a valid certification until it
expires under the Treasury Regulations or, if earlier, until December 31, 1999.
Accordingly, the alternative methods of satisfying the certification
requirements will generally not be effective until January 1, 1999, and
subsequent years.
 
     Except to the extent that an applicable treaty otherwise provides, a
Non-United States Holder generally will be taxed in the same manner as a United
States Holder with respect to interest if the interest income is effectively
connected with a United States trade or business of the Non-United States
Holder. Effectively connected interest received by a corporate Non-United States
Holder may also, under certain circumstances, be subject to an additional
"branch profits tax" at a 30% rate (or, if applicable, a lower treaty rate).
Even though such effectively connected interest is subject to income tax, and
may be subject to the branch profits tax, it is not subject to withholding tax
if the Holder delivers a properly executed IRS Form 4224 to the payor.
 
  Sale, Exchange or Redemption of the Notes
 
     A Non-United States Holder of a Note will generally not be subject to
United States federal income tax or withholding tax on any gain realized on the
sale, exchange or redemption of the Note (including the receipt of cash in lieu
of fractional shares upon conversion of a Note into Common Stock) unless (1) the
gain is effectively connected with a United States trade or business of the
Non-United States Holder, (2) in the case of a Non-United States Holder who is
an individual, such Holder is present in the United States for a period or
periods aggregating 183 days or more during the taxable year of the disposition
and certain other conditions are met or (3) the Holder is subject to tax
pursuant to the provisions of the Code applicable to certain United States
expatriates.
 
  Conversion of the Notes
 
     In general, no United States federal income tax or withholding tax will be
imposed upon the conversion of a Note into Common Stock by a Non-United States
Holder except with respect to the receipt of cash in lieu
 
                                       42
   43
 
of fractional shares by Non-United States Holders upon conversion of a Note
where any of the conditions described above under "Non-United States
Holders -- Sale, Exchange or Redemption of the Notes" is satisfied.
 
  Sale or Exchange of Common Stock
 
     A Non-United States Holder generally will not be subject to United States
federal income tax or withholding tax on the sale or exchange of Common Stock
unless any of the conditions described above under "Non-United States
Holder -- Sale, Exchange or Redemption of the Notes" is satisfied.
 
  Dividends
 
     Distributions by the Company with respect to the Common Stock that are
treated as dividends paid (or deemed paid), as described above under "United
States Holders -- Dividends; -- Constructive Dividends" to a Non-United States
Holder (excluding dividends that are effectively connected with the conduct of a
trade or business in the United States by such Holder and are taxable as
described below) will be subject to United States federal withholding tax at a
30% rate (or lower rate provided under any applicable income tax treaty). Except
to the extent that an applicable tax treaty otherwise provides, a Non-United
States Holder generally will be taxed in the same manner as a United States
Holder on dividends paid (or deemed paid) that are effectively connected with
the conduct of a trade or business in the United States by the Non-United States
Holder. If such Non-United States Holder is a foreign corporation, it may also
be subject to a United States branch profits tax on such effectively connected
income at a 30% rate or such lower rate as may be specified by an applicable
income tax treaty. Even though such effectively connected dividends are subject
to income tax, and may be subject to the branch profits tax, they will not be
subject to U.S. withholding tax if the Holder delivers IRS Form 4224 to the
payor.
 
     Under currently applicable Treasury Regulations, dividends paid to an
address in a foreign country are presumed to be paid to a resident of that
country (unless the payor has knowledge to the contrary) for purposes of the
withholding discussed above and, under the current interpretation of Treasury
Regulations, for purposes of determining the applicability of a tax treaty rate.
Under recently issued Treasury Regulations, however, Non-United States Holders
of Common Stock who wish to claim the benefit of an applicable treaty rate would
be required to satisfy certain certification requirements, The new Treasury
Regulations are effective for payments made after December 31, 1998.
 
  Death of a Non-United States Holder
 
     A Note held by an individual who is not a citizen or resident of the United
States at the time of death will not be includable in the decedent's gross
estate for United States estate tax purposes, provided that such Holder or
beneficial owner did not at the time of death actually or constructively own 10%
or more of the combined voting power of all classes of stock of the Company
entitled to vote, and provided that, at the time of death, payments with respect
to such Note would not have been effectively connected with the conduct by such
Non-United States Holder of a trade or business within the United States.
 
     Common Stock actually or beneficially held by an individual who is a
Non-United States Holder at the time of his or her death (or previously
transferred subject to certain retained rights or powers) will be subject to
United States federal estate tax unless otherwise provided by an applicable
estate tax treaty.
 
  Information Reporting and Backup Withholding Tax
 
     The Company must report annually to the IRS and to each Non-United States
Holder any interest that is subject to withholding, or that is exempt from
United States withholding tax pursuant to a tax treaty, or interest that is
exempt from United States tax under the portfolio interest exception. Copies of
these information returns may also be made available under the provisions of a
specific treaty or agreement to the tax authorities of the country in which the
Non-United States Holder resides.
 
     Information reporting requirements and backup withholding tax, will not
apply to any payment of the proceeds of the sale of a Note or any payment of the
proceeds of the sale of Common Stock effected outside the United States by a
foreign office of a "broker" (as defined in applicable Treasury Regulations);
unless such broker (i) is a United States person, (ii) is a foreign person that
derives 50% or more of its gross income
                                       43
   44
 
for certain periods from the conduct of a trade or business in the United States
or (iii) is a controlled foreign corporation for United States federal income
tax purposes. Payment of the proceeds of any such sale effected outside the
United States by a foreign office of any broker that is described in (i), (ii)
or (iii) of the preceding sentence will not be subject to backup withholding
tax, but will be subject to information reporting requirements unless such
broker has documentary evidence in its records that the beneficial owner is a
Non-United States Holder and certain other conditions are met, or the beneficial
owner otherwise establishes an exemption. Payment of the proceed, of any such
sale to or through the United States office of a broker is subject to
information reporting and backup withholding requirements, unless the beneficial
owner of the Note provides the statement described in "Non-United States
Holders -- Payment of Interest" or otherwise establishes an exemption.
 
     If paid to an address outside the United States, dividends on Common Stock
held by a Non-United States Holder will generally not be subject the information
reporting and backup withholding requirements described in this section.
However, under recently issued Treasury Regulations, dividend payments will be
subject to information reporting and backup withholding unless applicable
certification requirements are satisfied. The new Treasury Regulations apply to
dividend payments made after December 31, 1998.
 
     Any amounts withheld under the backup withholding rules from a payment to a
Non-United States Holder will be allowed as a refund or a credit against such
Non-United States Holder's U.S. federal income tax liability, provided that the
requisite procedures are followed.
 
  United States Real Property Holding Corporations
 
     The discussion of the United States taxation of Non-United States Holders
of Notes and Common Stock assumes that the Company is at no time a United States
real property holding corporation within the meaning of Section 897(c) of the
Code. Under present law, the Company would not be a United States real property
holding corporation so long as (a) the fair market value of its United Stated
real property interests is less than (b) 50% of the sum of the fair market value
of its United States real property interests, its interests in real property
located outside the United States, and its other assets which are used or held
or use in a trade or business. The Company believes that it is not a United
States real property holding corporation and does not expect to become such a
corporation. If the Company becomes a "United States real property holding
corporation," gain recognized on a disposition of Notes or Common Stock would be
subject to United States federal income tax unless (i) the Common Stock is
"regularly traded on an established securities market' within the meaning of the
Code and (ii) either (A) the Non-United States Holder disposing of Common Stock
did not own, actually or constructively, at any time during the five-year period
preceding the disposition, more than 5% of the Common Stock, or (B) in the case
of a disposition of Notes, the Non-United States Holder did not own, actually or
constructively, Notes which, as of any date on which such holder acquired Notes,
had a fair market value greater than that of 5% of the Common Stock.
 
                                       44
   45
 
                            SELLING SECURITYHOLDERS
 
     The following table sets forth the names of the Selling Securityholders,
the number of shares of Common Stock owned by each of them as of the date of
this Prospectus and the principal amount of Notes and number of Conversion
Shares which may be offered pursuant to this Prospectus. This information is
based upon information provided by or on behalf of the Selling Securityholders.
The Selling Securityholders may offer all, some or none of their Notes or
Conversion Shares.
 


                                                                                  COMMON
                                        PRINCIPAL AMOUNT   PRINCIPAL AMOUNT       STOCK
                                         OF NOTES OWNED           OF           OWNED PRIOR         COMMON
                                            PRIOR TO            NOTES               TO             STOCK
                 NAME                     OFFERING(1)       OFFERED HEREBY    OFFERING(1)(2)   OFFERED HEREBY
                 ----                   ----------------   ----------------   --------------   --------------
                                                                                   
Alexandra Global Investment Fund I,
  Inc.                                    $ 2,000,000        $ 2,000,000           70,716                0
BancAmerica Robertson Stephens              1,250,000          1,250,000                0                0
BT Holdings (New York), Inc.                1,000,000          1,000,000                0                0
Chrysler Corporation Master Retirement
  Trust                                     2,630,000          2,630,000                0                0
Declaration of Trust for the Defined
  Benefit Plans of ICI American
  Holdings Inc.                               800,000            800,000                0                0
Declaration of Trust for the Defined
  Benefit Plan of ZENECA Holdings Inc.        500,000            500,000                0                0
Delaware State Employees' Retirement
  Fund                                      2,850,000          2,850,000                0                0
Donaldson, Lufkin & Jenrette
  Securities Corporation                    5,575,000          5,575,000                0                0
Heritage Series Trust Small Cap Stock
  Fund                                      1,000,000          1,000,000          100,000                0
Lincoln National Convertible
  Securities Fund                           2,040,000          2,040,000                0                0
LLT Limited                                    45,000             45,000                0                0
MainStay Convertible Fund                   3,000,000          3,000,000           68,800                0
Northwestern Mutual Life Insurance
  Company                                   2,000,000          2,000,000                0                0
OCM Convertible Limited Partnership           150,000            150,000                0                0
OCM Convertible Trust                       3,645,000          3,645,000                0                0
Pacific Life Insurance Company              3,000,000          3,000,000                0                0
Partner Reinsurance Company, Ltd.             375,000            375.000                0                0
Societe Generale Securities Corp.           6,500,000          6,500,000                0                0
State Employees' Retirement Fund of
  the State of Delaware                       820,000            820,000                0                0
State of Connecticut Combined
  Investment Funds                          3,120,000          3,120,000                0                0
Thermo Eletron Balanced Investment
  Fund                                        850,000            850,000                0                0
Vanguard Convertible Securities Fund,
  Inc.                                      2,260,000          2,260,000                0                0
Walker Art Center                             265,000            265,000                0                0
Weirton Trust                                 695,000            695,000                0                0
                                          -----------        -----------         --------         --------
TOTAL                                     $46,370,000        $46,370,000          239,516                0
                                          -----------        -----------         --------         --------

 
- ---------------
 
(1) Beneficial ownership is determined in accordance with the Rules of the SEC
    and generally includes voting or investment power with respect to
    securities. Except as otherwise indicated by footnote, and subject to
    community property laws where applicable, the persons named in the table
    have sole voting and investment power with respect to all shares of Common
    Stock shown as beneficially owned by them.
 
                                       45
   46
 
(2) Includes Conversion Shares based on a conversion price of $30.904 per share
    and a cash payment in lieu of any fractional interest.
 
     Because the Selling Securityholders may offer all or some of the Notes that
they hold and/or Conversion Shares pursuant to the offering contemplated by this
Prospectus, and because there are currently no agreements, arrangements or
understandings with respect to the sale of any of the Notes or Conversion Shares
by the Selling Securityholders, no estimate can be given as to the principal
amount of Notes or Conversion Shares that will be held by the Selling
Securityholders after completion of this offering.
 
                                       46
   47
 
                              PLAN OF DISTRIBUTION
 
     The Notes and the Conversion Shares offered hereby may be sold from time to
time by the Selling Securityholders to purchasers directly by any of the Selling
Securityholders in one or more transactions at a fixed price, which may be
changed, or at varying prices determined at the time of sale or at negotiated
prices. Such prices will be determined by the holders of such securities or by
agreement between such holders and underwriters or dealers who may receive fees
or commissions in connection therewith.
 
     Any of the Selling Securityholders may from time to time offer the Notes or
Conversion Shares beneficially owned by them through underwriters, dealers or
agents, who may receive compensation in the form of underwriting discounts,
commissions or concessions from the Selling Securityholders and the purchasers
of the Notes or Conversion Shares for whom they may act as agent. Each Selling
Securityholder will be responsible for payment of commissions, concessions and
discounts of underwriters, dealers or agents. The aggregate proceeds to the
Selling Securityholders from the sale of the Notes or Conversion Shares offered
by them hereby will be the purchase price of such Notes or Conversion Shares
less discounts and commissions, if any. Each of the Selling Securityholders
reserves the right to accept and, together with their agents from time to time
to reject, in whole or in part, any proposed purchase of Notes or Conversion
Shares to be made directly or through agents. The Company will not receive any
of the proceeds from this offering. Alternatively, the Selling Securityholders
may sell all or a portion of the Notes and the Conversion Shares beneficially
owned by them and offered hereby from time to time on any exchange on which the
securities are listed on terms to be determined at the times of such sales. The
Selling Securityholders may also make private sales directly or through a broker
or brokers.
 
     The Company's outstanding Common Stock is listed for trading on Nasdaq.
Prior to this offering, the Notes were eligible for trading on the Portal
market. The Notes sold pursuant to the Registration Statement of which this
Prospectus forms a part are not expected to remain eligible for trading on the
Portal system. The Company does not intend to list the Notes for trading on any
national securities exchange or on the Nasdaq Stock Market. Accordingly, no
assurance can be given as to the development of any trading market for the
Notes. See "Risk Factors -- Absence of Public Market for the Notes and
Restrictions on Resale; and -- Volatility of Notes and Common Stock Price."
 
     In order to comply with the securities laws of certain states, if
applicable, the Notes and Conversion Shares may be sold in such jurisdictions
only through registered or licensed brokers or dealers. In addition, in certain
states the Notes and Conversion Shares may not be sold unless it has been
registered or qualified for sale or an exemption from registration or
qualification requirements is available and is complied with.
 
     The Selling Securityholders and any underwriters, dealers or agents that
participate in the distribution of the Notes and Conversion Shares offered
hereby may be deemed to be underwriters within the meaning of the Securities
Act, and any discounts, commissions or concessions received by them and any
provided pursuant to the sale of shares by them might be deemed to be
underwriting discounts and commissions under the Securities Act.
 
     In addition, any securities covered by this Prospectus which qualify for
sale pursuant to Rule 144 or Rule 144A of the Securities Act may be sold under
Rule 144 or Rule 144A rather than pursuant to this Prospectus. There is no
assurance that any Selling Securityholder will sell any or all of the Notes or
Conversion Shares described herein, and any Selling Securityholder may transfer,
devise or gift such securities by other means not described herein.
 
     To the extent required, the specific Notes or Conversion Shares to be sold,
the names of the Selling Securityholders, the respective purchase prices and
public offering prices, the names of any agent, dealer or underwriter, and any
applicable commissions or discounts with respect to a particular offer will be
set forth in an accompanying Prospectus Supplement or, if appropriate, a
post-effective amendment to the Registration Statement of which this Prospectus
is a part. The Company entered into a Registration Rights Agreement for the
benefit of holders of the Notes to register their Notes and Conversion Shares
under applicable federal and state securities laws under certain circumstances
and at certain times. The Registration Rights Agreement provides for
cross-indemnification of the Selling Securityholders and the Company and their
respective directors, officers and controlling persons against certain
liabilities in connection with the offer and sale of the
 
                                       47
   48
 
Notes and the Conversion Shares, including liabilities under the Securities Act
of 1933, as amended, and to contribute to payments the parties may be required
to make in respect thereof.
 
     The Company will pay substantially all of the expenses incurred by the
Selling Securityholders and the Company incident to the offering and sale of the
Notes and the Conversion Shares excluding any underwriting discounts or
commissions.
 
                                 LEGAL MATTERS
 
     The validity of the Notes and the Conversion Shares offered hereby will be
passed upon for the Company by Cooley Godward LLP, Palo Alto, California. As of
the date of this Prospectus certain attorneys with such firm beneficially owned
approximately 2,000 shares of Common Stock of the Company.
 
                                    EXPERTS
 
     The financial statements of Aviron appearing in Aviron's Annual Report
(Form 10-K), as amended, for the year ended December 31, 1997 have been audited
by Ernst & Young LLP, independent auditors, as set forth in their report
included therein and incorporated herein by reference. Such financial statements
are incorporated herein by reference in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
 
                                       48
   49
 
     NO DEALER, SALES PERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS,
AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATION MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY SECURITY
OTHER THAN THE NOTES OR CONVERSION SHARES OFFERED HEREBY, NOR DOES IT CONSTITUTE
AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE NOTES OR
CONVERSION SHARES TO ANYONE IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM,
IT WOULD BE UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION. NEITHER THE DELIVERY
OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE
COMPANY SINCE THE DATE HEREOF OR IMPLY THAT INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
 
                               TABLE OF CONTENTS
 


                                                              PAGE
                                                              ----
                                                           
Available Information.......................................    2
Incorporation of Certain Documents by Reference.............    2
Disclosure Regarding Forward-Looking Statements.............    3
Summary.....................................................    4
Risk Factors................................................    8
Use of Proceeds.............................................   22
Price Range of Common Stock.................................   22
Dividend Policy.............................................   22
Capitalization..............................................   23
Selected Financial Data.....................................   24
Description of Notes........................................   25
Description of Capital Stock................................   36
United States Federal Income Tax Considerations.............   39
Selling Securityholders.....................................   45
Plan of Distribution........................................   47
Legal Matters...............................................   48
Experts.....................................................   48