-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, ECPLS18f/MzuGBsfLVPqwNgkoc4BPgUWHCWlaMbYUJQiUxFfkN2S/Z7XtqeJEDyG U6XUcUu8dpSx2cRNbGgXKw== 0000912057-96-011547.txt : 19960606 0000912057-96-011547.hdr.sgml : 19960606 ACCESSION NUMBER: 0000912057-96-011547 CONFORMED SUBMISSION TYPE: S-1 PUBLIC DOCUMENT COUNT: 24 FILED AS OF DATE: 19960605 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: AVIRON CENTRAL INDEX KEY: 0000949173 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 770309686 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-1 SEC ACT: 1933 Act SEC FILE NUMBER: 333-05209 FILM NUMBER: 96576823 BUSINESS ADDRESS: STREET 1: 297 NORTH BERNARDO AVE CITY: MOUNTAIN VIEW STATE: CA ZIP: 94043 BUSINESS PHONE: 4159196500 MAIL ADDRESS: STREET 1: 297 NORTH BERNARDO AVE CITY: MOUNTAIN VIEW STATE: CA ZIP: 94043 S-1 1 AVIRON CORPORATION S-1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 5, 1996 REGISTRATION NO. 333- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------------ AVIRON (Exact name of registrant as specified in its charter) CALIFORNIA 2836 77-0306986 (State or other (Primary Standard Industrial (I.R.S. Employer jurisdiction of Classification Code Number) Identification No.) incorporation or organization)
------------------------ 297 NORTH BERNARDO AVENUE MOUNTAIN VIEW, CALIFORNIA 94043 (415) 919-6500 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) ------------------------ J. LEIGHTON READ, M.D. CHAIRMAN AND CHIEF EXECUTIVE OFFICER AVIRON 297 NORTH BERNARDO AVENUE MOUNTAIN VIEW, CALIFORNIA 94043 (415) 919-6500 (Name, address and telephone number of agent for service) ------------------------ COPIES TO: ALAN C. MENDELSON, ESQ. ALAN K. AUSTIN, ESQ. ROBERT J. BRIGHAM, ESQ. ELIZABETH R. FLINT, ESQ. Cooley Godward Castro Huddleson & Tatum ELIZABETH M. KURR, ESQ. Five Palo Alto Square Wilson, Sonsini, Goodrich & Rosati 3000 El Camino Real 650 Page Mill Road Palo Alto, California 94306 Palo Alto, California 94304
------------------------ APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT. ------------------------ If any of the Securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. / / If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. / / If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. / / If delivery of the Prospectus is expected to be made pursuant to Rule 434, please check the following box. / / CALCULATION OF REGISTRATION FEE
PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF TITLE OF SECURITIES TO BE REGISTERED REGISTERED (1) SHARE (2) PRICE (2) REGISTRATION FEE Common Stock, $0.001 par value................... 3,450,000 $13.00 $44,850,000 $15,466
(1) Includes 450,000 shares of Common Stock issuable upon exercise of the Underwriters' over-allotment option. (2) Estimated solely for the purpose of calculating the amount of the registration fee in accordance with Rule 457 under the Securities Act of 1933. ------------------------ THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- AVIRON CROSS-REFERENCE SHEET PURSUANT TO ITEM 501(b) OF REGULATION S-K SHOWING LOCATION IN PROSPECTUS OF INFORMATION REQUIRED BY ITEMS OF FORM S-1
ITEM NUMBER AND HEADING IN FORM S-1 REGISTRATION STATEMENT LOCATION IN PROSPECTUS - ------------------------------------------------------------- -------------------------------------------------------- 1. Forepart of the Registration Statement and Outside Front Cover Page of Prospectus................... Outside Front Cover Page 2. Inside Front and Outside Back Cover Pages of Prospectus....................................... Inside Front and Outside Back Cover Pages 3. Summary Information; Risk Factors; and Ratio of Earnings to Fixed Charges........................ Inside Front Cover Page; Prospectus Summary; Risk Factors 4. Use of Proceeds................................... Use of Proceeds 5. Determination of Offering Price................... Outside Front Cover Page; Underwriting 6. Dilution.......................................... Dilution 7. Selling Security Holders.......................... Not Applicable 8. Plan of Distribution.............................. Outside Front Cover Page; Underwriting 9. Description of Securities to be Registered........ Prospectus Summary; Capitalization; Description of Capital Stock 10. Interests of Named Experts and Counsel............ Legal Matters; Experts 11. Information with Respect to the Registrant........ Outside Front and Inside Front Cover Pages; Prospectus Summary; Risk Factors; Dividend Policy; Capitalization; Selected Financial Data; Management's Discussion and Analysis of Financial Condition and Results of Operations; Business; Management; Certain Transactions; Principal Stockholders; Description of Capital Stock; Shares Eligible for Future Sale; Financial Statements 12. Disclosure of Commission Position on Indemnification for Securities Act Liabilities...................................... Not Applicable
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. SUBJECT TO COMPLETION, DATED JUNE 5, 1996 [LOGO] 3,000,000 SHARES COMMON STOCK All of the 3,000,000 shares of Common Stock offered hereby are being issued and sold by Aviron (the "Company"). Prior to this offering there has been no public market for the Common Stock of the Company. It is currently estimated that the initial public offering price of the Common Stock will be between $11.00 and $13.00 per share. See "Underwriting" for a discussion of the factors considered in determining the initial public offering price. Concurrent with this offering, the Company intends to sell 333,333 shares of its Common Stock to Sang-A Pharm. Co., Ltd. ("Sang-A") in a private placement at the initial public offering price (the "Sang-A Shares"), with the number of shares to be sold to Sang-A subject to adjustment under certain conditions. See "Business -- Collaborative Agreements" and "Underwriting." ---------------- THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS" BEGINNING ON PAGE 7. --------------- THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
UNDERWRITING PRICE TO DISCOUNTS AND PROCEEDS TO PUBLIC COMMISSIONS COMPANY (1) Per Share.......................................... $ $ $ Total (2).......................................... $ $ $
(1) Before deducting expenses payable by the Company estimated at $600,000. (2) The Company has granted the Underwriters a 30-day option to purchase up to an additional 450,000 shares of Common Stock, solely to cover over-allotments, if any. See "Underwriting." If such option is exercised in full, the total Price to Public, Underwriting Discounts and Commissions and Proceeds to Company will be $ , $ and $ , respectively. ---------------- The Common Stock is offered by the Underwriters as stated herein, subject to receipt and acceptance by them and subject to their right to reject any order in whole or in part and certain other conditions. It is expected that delivery of such shares will be made through the offices of Robertson, Stephens & Company LLC ("Robertson, Stephens & Company"), San Francisco, California on or about , 1996. ROBERTSON, STEPHENS & COMPANY BEAR, STEARNS & CO. INC. HAMBRECHT & QUIST The date of this Prospectus is , 1996 AVIRON USES BOTH ITS RATIONAL VACCINE DESIGN TECHNOLOGY AND CLASSICAL METHODS OF LIVE VACCINE DISCOVERY RATIONAL VACCINE DESIGN TECHNOLOGY [Virus particle containing genetic information; three segments are highlighted to correspond with methods of modifying the virus' genetic information.] DELETE VIRULENCE ADD GENETIC INFORMATION PROTEINS Insert genes to enhance Remove genes for viral components the virus' thought to be important in disease stimulation of the mechanism immune system [Virus particle containing genetic [Virus particle information; one segment of genetic containing genetic information being removed.] information; one segment of genetic information being added.] DOWN-REGULATE REPLICATION Alter genetic information used by the virus in controlling its replication ["Tree" structure comprised of 15 dots symbolizing virus replication; second structure comprised of 3 dots symbolizing virus' reduced ability to replicate.] VACCINE CANDIDATES SPECIES SELECTION FOREIGN CELL ADAPTION TO PHYSICAL Strains originate from PASSAGE CONDITIONS non-human species Human virus mutates as it Human virus mutates as it is propagated in cells is propagated in cells from non-human species under unusual conditions, e.g., cold temperature [Graphic of a chicken and [Graphic of cells (3) [Petri dishes (2), each a cow.] sequentially connected by with a corresponding arrows.] graphic representation of a thermometer. One thermometer shows a higher temperature than the other.] CLASSICAL METHODS ---------------- IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. ---------------- "Aviron" is a trademark of the Company. Certain other trademarks of the Company and other companies are used in this Prospectus. AVIRON'S PROPOSED NASAL SPRAY VACCINE FOR INFLUENZA Genes from Genes from cold naturally-occurring adapted master influenza viruses as influenza virus strain selected by public health authorities [Silhouette of human [Virus particle with box [Virus particle with box head with lines coming around 2 of 8 segments around 6 of 8 segments from nasal area leading of genetic information. of genetic information.] to virus particle to the ------------------------ right.] Dashed lines connecting to second virus particle with box around 6 of 8 segments.] [Virus particle containing 8 segments of genetic information; six segments of the same color, two segments of different colors.] AVIRON'S INFLUENZA VACCINE COMBINES GENES FROM NATURALLY OCCURRING VIRUSES WITH GENES FROM THE COLD ADAPTED MASTER STRAIN [Photograph of a human hand holding a device which is used to administer a vaccine in an aerosol spray (to the upper respitory tract-not shown). A spray effect is shown which serves as the backdrop for an image of a virus particle to the upper right.] THE POTENTIAL IMPACT OF INFLUENZA IN THE COMMUNITY [Photo of five young [Photo of one child from [Photo of woman from children playing with previous picture in bed previous picture now in blocks in a pre-school at home with mother at an office setting with 5 setting. Lines bedside. Child is ill, other adults. Lines symbolically show how a and is shown with symbolically show how the virus spreads from one thermometer in mouth, virus might spread to child to the next.] mother touching forehead, others in the room.] tissues and medication bottle by bedside. Mother is on the telephone. Lines symbolically show virus spreading from child to mother.] AGE GROUP: Children 1-18 ESTIMATED INFLUENZA ATTACK RATE: 37 per 100 BURDEN OF ILLNESS: illness, doctor visits, middle ear infections, school absenteeism, parents' lost work ESTIMATED UNITED STATES POPULATION: 69 million AVIRON PRODUCT STATUS: Phase I/II studies conducted THE COMPANY'S COLD ADAPTED NASAL SPRAY VACCINE IS AN INVESTIGATIONAL BIOLOGIC AND HAS NOT BEEN APPROVED FOR SALE IN ANY COUNTRY. THE COMPANY DOES NOT ANTICIPATE APPLYING FOR REGULATORY APPROVAL TO MARKET THIS PROPOSED VACCINE FOR SEVERAL YEARS, IF EVER, AND WILL BE REQUIRED TO SUCCESSFULLY COMPLETE CLINICAL TRIALS TO DEMONSTRATE ITS SAFETY AND EFFICACY PRIOR TO FILING FOR REGULATORY APPROVAL. SEE "RISK FACTORS." IMMUNE RESPONSE TO INFLUENZA VACCINES [Silhouette of human head and torso [Silhouette of human head and torso within which is visible the within which is visible the circulatory system (red). The figure circulatory system (red) and the is receiving an injection in the upper respiratory tract (blue). The upper arm by syringe. The injected figure is receiving an aerosol spray vaccine forms a small pool of liquid directed into the nasal passages and at the site of injection.] upper respiratory tract by nasal spray administration.] INJECTABLE INACTIVATED NASAL SPRAY VACCINE VACCINE - Strongly stimulates - Stimulates mucosal circulating antibodies immunity in respiratory tract - Stimulates cell-mediated immunity - Stimulates circulating antibodies [Photo of man from previous picture [The elderly woman from the previous (presumably infected with the virus) picture is shown ill in bed in a visiting with his elderly mother in hospital setting. Some medical her home. He is kneeling beside a equipment is visible to the left; a chair in which she is sitting and he healthcare worker or nurse is at her is presenting her with a gift. A bedside. She appears awake and line symbolically shows the virus alert.] being passed between them.] Adults 19-65 Elderly over 65 10-22 per 100 10 per 100 illness, doctor visits, lost illness, doctor visits, work hospitalization, death 159 million 32 million Phase II studies conducted Clinical trials planned for co-administration with injectable inactivated vaccine No dealer, salesperson or other person has been authorized to give any information or to make any representations other than those contained in this Prospectus and, if given or made, such information and representations must not be relied upon as having been authorized by the Company or the Underwriters. This Prospectus does not constitute an offer to sell, or the solicitation of an offer to buy, any securities other than the registered securities to which it relates or an offer to, or solicitation of, any person in any jurisdiction in which such offer or solicitation would be unlawful or to any person to whom it is unlawful. Neither the delivery of this Prospectus nor any offer or sale made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of the Company since the date hereof or that the information contained herein is correct as of any time subsequent to the date hereof. Until , 1996 (25 days after the date of this Prospectus), all dealers effecting transactions in the Common Stock, whether or not participating in the distribution, may be required to deliver a Prospectus. This delivery requirement is in addition to the obligation of dealers to deliver a Prospectus when acting as Underwriters and with respect to their unsold allotments or subscriptions. ------------------- TABLE OF CONTENTS
PAGE ---- Prospectus Summary........................................................ 4 Risk Factors.............................................................. 7 Use Of Proceeds........................................................... 18 Dividend Policy........................................................... 18 Capitalization............................................................ 19 Dilution.................................................................. 20 Selected Financial Data................................................... 21 Management's Discussion and Analysis of Financial Condition and Results of Operations............................................................... 22 Business.................................................................. 26 Management................................................................ 51 Certain Transactions...................................................... 58 Principal Stockholders.................................................... 60 Description Of Capital Stock.............................................. 63 Shares Eligible For Future Sale........................................... 66 Underwriting.............................................................. 68 Legal Matters............................................................. 69 Experts................................................................... 69 Additional Information.................................................... 69
3 SUMMARY THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS WHICH INVOLVE RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS, INCLUDING THOSE SET FORTH UNDER "RISK FACTORS" AND ELSEWHERE IN THIS PROSPECTUS. THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY AND SHOULD BE READ IN CONJUNCTION WITH THE MORE DETAILED INFORMATION, INCLUDING "RISK FACTORS" AND THE FINANCIAL STATEMENTS AND NOTES THERETO, APPEARING ELSEWHERE IN THIS PROSPECTUS. THE COMPANY Aviron is a biopharmaceutical company whose strategy is to focus on prevention of disease. The Company's goal is to become a leader in the discovery, development, manufacture and marketing of live virus vaccines which are sufficiently cost effective to justify their use in immunization programs targeting the general population. Live virus vaccines, such as those for smallpox, polio, measles, mumps and rubella, have had a long record of success in preventing, and in some cases eliminating, disease. The Company currently is analyzing data from Phase I and Phase II clinical trials in children and adults of its live cold adapted intranasal vaccine for influenza. The Company has recently in-licensed a live intranasal vaccine for Parainfluenza Virus Type 3 ("PIV-3") which has been tested by others in Phase I/II clinical trials. The Company also is developing a subunit vaccine for Epstein-Barr Virus ("EBV"). In addition, Aviron is using its proprietary "Rational Vaccine Design" technology to discover new live virus vaccines. Rational Vaccine Design involves the deletion or modification of virulence proteins, changes to the virus' genetic control signals to slow down its replication, or addition of information to enhance the virus' stimulation of the immune system. The Company is applying this technology to develop candidates for the prevention of influenza in elderly persons and diseases caused by Cytomegalovirus ("CMV"), Herpes Simplex Virus-Type 2 ("HSV-2") and Respiratory Syncytial Virus ("RSV"). Aviron's age-specific influenza programs address three distinct population groups: children, adults and the elderly. Influenza affects 20 to 50 million Americans each year resulting in approximately 20,000 deaths annually, primarily in the elderly, despite the availability of an injectable inactivated vaccine that has been reported to be 60% to 80% effective. The United States Food and Drug Administration (the "FDA") estimates that approximately 75 million doses of influenza vaccine were manufactured for use in the United States in 1995. Experts suggest that, although over half of Americans at high risk for complications from influenza receive the annual influenza vaccine, relatively few of the 70 million children under the age of 18 are vaccinated. To address the need for more convenient influenza prophylaxis, the Company has in-licensed the rights to a cold adapted influenza vaccine from the University of Michigan and the National Institute of Allergy and Infectious Disease ("NIAID"), a division of the National Institutes of Health (the "NIH"). Formulations of this vaccine were tested in over 7,000 persons prior to Aviron's acquisition of the vaccine, and subsequently have been studied in clinical trials conducted by the Company involving over 700 children and adults. The cold adapted influenza vaccine elicits an immune response similar to that of the natural infection by stimulating mucosal immunity in the nose, cellular components of the immune system and circulating antibodies. Aviron intends to develop the cold adapted influenza vaccine for widespread annual use in children and adults, and for co-administration with the inactivated vaccine for improved protection in the elderly. In addition, Aviron is developing a genetically engineered influenza vaccine that is intended to be a better immune stimulus in the elderly than either the cold adapted vaccine or the inactivated vaccine alone, and therefore more suitable for use as a single-dose vaccine in this population. Aviron also is conducting research and development on additional vaccine targets, including: PARAINFLUENZA VIRUS TYPE 3. PIV-3 is a common respiratory virus of childhood which causes croup, cough, fever and pneumonia. Over 80% of children have been infected by age four, many having experienced several cases of PIV-3 infection. The Company has in-licensed the rights to a bovine PIV-3 ("bPIV-3") vaccine from the NIH which has been tested in over 100 infants and adults. Aviron intends to develop the bPIV-3 vaccine for use in preventing childhood PIV-3 illness. 4 EPSTEIN-BARR VIRUS. EBV infects most people at some point in their lifetime. Half or more of the approximately 10% of students who first become infected with the virus in high school and college develop infectious mononucleosis. EBV also has been shown to be a contributing factor in the development of certain types of cancer and lymphoma. The Company is conducting preclinical evaluation of a subunit EBV vaccine candidate in conjunction with SmithKline Beecham Biologicals S.A. ("SmithKline Beecham"). CYTOMEGALOVIRUS. Most people also become infected with CMV at some time in their lives, but the resulting disease is typically serious only for those with impaired immune systems or for babies of women infected in the first trimester of pregnancy. The Company is developing and evaluating its engineered vaccine candidates in preclinical models to create a prophylactic vaccine. HERPES SIMPLEX VIRUS-TYPE 2. Genital herpes is an incurable disease characterized by recurrent, often painful genital sores, with over 700,000 new cases estimated in the United States each year. The Company currently is developing and evaluating vaccine candidates in preclinical models to create a prophylactic vaccine. RESPIRATORY SYNCYTIAL VIRUS. RSV is the major cause of lower respiratory tract illness in the very young, responsible for over 90,000 hospitalizations and more than 4,000 deaths per year in the United States. Aviron is using its proprietary technology to create candidate vaccines to prevent RSV disease. Aviron intends to enter into selected collaborative agreements to gain access to complementary technologies, capabilities and financial support for its programs. In addition to acquiring rights from third parties to augment its Rational Vaccine Design technology and the cold adapted influenza vaccine technology, the Company has entered into a collaborative agreement with SmithKline Beecham covering worldwide rights to its EBV vaccine, and a collaboration with Sang-A involving certain marketing and manufacturing rights to its products in Korea. The Company was incorporated in California in April 1992, and intends to reincorporate in Delaware in June 1996. The Company's executive offices are located at 297 North Bernardo Avenue, Mountain View, California 94043, and its telephone number is (415) 919-6500. 5 THE OFFERING Common Stock Offered by the 3,000,000 shares Company............................ Common Stock Outstanding After the 12,285,990 shares (1) Offering........................... Use of Proceeds..................... For research and development, including preclinical testing and clinical trials; capital expenditures; and working capital and general corporate purposes. See "Use of Proceeds." Proposed Nasdaq National Market AVIR Symbol.............................
SUMMARY FINANCIAL DATA (in thousands, except per share data)
FOR THE PERIOD FROM THREE MONTHS ENDED APRIL 15, 1992 YEAR ENDED DECEMBER 31, MARCH 31, (INCEPTION) TO ------------------------------------ ------------------------ DECEMBER 31, 1992 1993 1994 1995 1995 1996 --------------------- ----------- ----------- ---------- ----------- ----------- STATEMENT OF OPERATIONS DATA: Total revenues.......................... $ -- $ -- $ -- $ 1,707 $ -- $ 188 Operating expenses: Research and development.............. 320 2,073 4,216 10,220 3,088 3,044 General and administrative............ 470 1,874 2,493 3,252 701 1,063 ----- ----------- ----------- ---------- ----------- ----------- Total operating expenses............ 790 3,947 6,709 13,472 3,789 4,107 ----- ----------- ----------- ---------- ----------- ----------- Loss from operations.................... (790) (3,947) (6,709) (11,765) (3,789) (3,919) Interest income, net of interest expense................................ 37 175 207 362 32 183 ----- ----------- ----------- ---------- ----------- ----------- Net loss................................ $ (753) $ (3,772) $ (6,502) $ (11,403) $ (3,757) $ (3,736) ----- ----------- ----------- ---------- ----------- ----------- ----- ----------- ----------- ---------- ----------- ----------- Pro forma net loss per share (2)........ $ (0.56) $ (0.73) $ (1.24) $ (0.41) $ (0.41) ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- ----------- Shares used in computing pro forma net loss per share (2)..................... 6,696 8,948 9,183 9,062 9,223
MARCH 31, 1996 ------------------------- ACTUAL AS ADJUSTED(3) --------- -------------- BALANCE SHEET DATA: Cash, cash equivalents and short-term investments................................... $ 14,494 $ 51,374 Working capital..................................................................... 12,804 49,684 Total assets........................................................................ 17,275 54,155 Accumulated deficit................................................................. (26,192) (26,192) Total stockholders' equity.......................................................... 14,167 51,047
- ------------------------ (1) Includes the estimated 333,333 shares intended to be sold to Sang-A in a private placement concurrent with this offering. Excludes (i) 643,480 shares of Common Stock issuable upon exercise of options outstanding as of June 1, 1996, at a weighted average exercise price of approximately $1.22 per share, (ii) an aggregate of 1,556,520 shares reserved for future grants or purchases pursuant to the Company's 1996 Equity Incentive Plan, Employee Stock Purchase Plan and Non-Employee Director Stock Option Plan, (iii) 118,395 shares issuable upon exercise of warrants outstanding as of June 1, 1996 at a weighted average exercise price of $6.65 per share, and (iv) warrants to purchase 29,750 shares which become exercisable at the close of the offering at 125% of the initial public offering price. (2) See Note 1 of Notes to Financial Statements for an explanation of the method used to determine the number of shares used to compute pro forma per share amounts. (3) As adjusted to give effect to the sale of 3,000,000 shares of Common Stock at an assumed initial public offering price of $12.00 per share and the estimated 333,333 shares intended to be sold to Sang-A in a private placement concurrent with this offering and the application of the net proceeds therefrom. See "Use of Proceeds" and "Capitalization." UNLESS OTHERWISE INDICATED, ALL INFORMATION IN THIS PROSPECTUS REFLECTS A ONE-FOR-FIVE REVERSE SPLIT OF THE COMPANY'S COMMON STOCK EFFECTED IN MAY 1996 AND ASSUMES (I) REINCORPORATION OF THE COMPANY IN DELAWARE PRIOR TO THE OFFERING, (II) THE CONVERSION OF ALL OUTSTANDING SHARES OF ITS PREFERRED STOCK INTO SHARES OF COMMON STOCK UPON THE CLOSING OF THIS OFFERING AT A RATE OF ONE SHARE OF COMMON STOCK FOR FIVE SHARES OF PREFERRED STOCK, AND (III) NO EXERCISE OF THE UNDERWRITERS' OVER-ALLOTMENT OPTION. 6 RISK FACTORS This Prospectus contains forward-looking statements which involve risks and uncertainties. The Company's actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those set forth in the following risk factors and elsewhere in this Prospectus. The following risk factors should be considered carefully in evaluating the Company and its business before purchasing shares of the Common Stock offered hereby. UNCERTAINTIES RELATED TO CLINICAL TRIALS Before obtaining required regulatory approvals for the commercial sale of any of its products under development, the Company must demonstrate through preclinical testing and clinical trials that each product is safe and effective for use in each target indication. The results from preclinical testing and early clinical trials may not be predictive of results obtained in later clinical trials and large-scale testing. Companies in the pharmaceutical, biopharmaceutical and biotechnology industries have suffered significant setbacks in various stages of clinical trials, even in advanced clinical trials after promising results had been obtained in earlier trials. The Company's vaccines are intended for use primarily in healthy individuals. To obtain regulatory approval, the Company must demonstrate safety and efficacy in healthy people which likely will require a lengthier process and involve a larger number of trials and patients than would be customary for clinical trials of therapeutics for disease management. There can be no assurance that the Company's clinical trials will demonstrate sufficient safety and efficacy to obtain the requisite regulatory approvals or will result in marketable products. The Company recently completed a Phase II challenge study of its cold adapted influenza vaccine in adults. Preliminary analysis of the results indicated a very low level of illness in both the placebo and treated groups, and the Company believes that this study is unlikely to show statistically significant efficacy in preventing influenza. Regardless of the results of this study, the Company intends to discuss with the FDA its plans to proceed directly to Phase III clinical trials in adults and does not intend to conduct other challenge studies. If the Company's cold adapted influenza vaccine is not shown to be safe and effective in Aviron's clinical trials, the resulting delays in developing this and other vaccine candidates and conducting related preclinical testing and clinical trials, as well as the need for additional financing, would have a material adverse effect on the Company's business, financial condition and results of operations. The Company's cold adapted influenza vaccine is based on technology licensed from the NIH and the University of Michigan. Wyeth-Ayerst Laboratories ("Wyeth-Ayerst"), a division of American Home Products Corporation, licensed certain rights to the vaccine in 1989 and was developing it for sale in collaboration with the NIH until relinquishing its rights in 1993. In addition, Kaketsuken, a Japanese research foundation ("Kaketsuken"), licensed certain rights to the vaccine in 1993 and was developing it for sale in Japan until relinquishing such rights in 1996. Formulations of the vaccine have been the subject of a number of clinical trials performed by Wyeth-Ayerst, the NIAID of the NIH and Kaketsuken. The Company has reviewed the data from these trials and believes that it can submit such data in partial support of its application for regulatory approval from the FDA. The Company did not participate in these trials and cannot be confident in the accuracy of the data collected. Although a large proportion of this data was positive, a number of trials included results that were not. Very few of the trials involved a trivalent vaccine delivered through nasal spray. The Company will need to perform additional trials of its vaccine candidate to support its application to the FDA. There can be no assurance that the data from these third-party trials is accurate, that the Company will be able to obtain favorable results from its own trials, or that the Company can complete these trials on a timely basis, or at all. See "Business -- Influenza Clinical Trials." The rate of completion of the Company's clinical trials may be delayed by many factors. For example, delays may be encountered in enrolling a sufficient number of patients fitting the appropriate trial profile, preparing the modified vaccine strain for certain influenza seasons or in manufacturing clinical trial materials. The Company's late-stage clinical trials of its cold adapted influenza vaccine must be conducted during the influenza season and must be commenced early enough in the approximately five-month season so that subjects may be vaccinated well in advance of a challenge by the wild-type virus. Additionally, there is a risk that there will not be enough natural influenza in the community in a given influenza season to achieve statistically significant results 7 from clinical trials. As a result, if the Company is unable to commence its clinical trials on a timely basis it will be required to wait until the next influenza season, which will not occur for another year in that country. There can be no assurance that delays in, or termination of, clinical trials will not occur. Any delays in, or termination of, the Company's clinical trial efforts would have a material adverse effect on the Company's business, financial condition and results of operations. There can be no assurance that Aviron will be permitted by regulatory authorities to undertake additional clinical trials for its cold adapted influenza vaccine or initiate clinical trials for its other programs or, if any such trials are conducted, that any of the Company's product candidates will prove to be safe and effective or will receive regulatory approvals. See "Business -- Vaccine Products Under Development." UNCERTAINTIES RELATED TO EARLY STAGE OF DEVELOPMENT; TECHNOLOGICAL UNCERTAINTY Aviron commenced its operations in April 1992 and until recently was a development stage company. All of the Company's product candidates are in the research or development stage. With the exception of two in-licensed product candidates, none of the Company's proposed products has yet been approved for clinical trials. To date, the Company has had no revenue from product sales and all of its resources have been dedicated to the development of vaccines. There can be no assurance that product revenues will be realized on a timely basis, if ever. The development of safe and effective vaccines for the prevention of viral diseases such as influenza, herpes simplex and other target diseases is highly uncertain and subject to numerous risks. Potential products that appear to be promising at early stages of development may not reach the market for a number of reasons. Potential products may be found ineffective or cause harmful side effects during preclinical testing or clinical trials, fail to receive necessary regulatory approvals, be difficult to manufacture on a large scale, be uneconomical, fail to achieve market acceptance or be precluded from commercialization by proprietary rights of third parties. Aviron has not yet requested or received the regulatory approvals that are required to market its products. Aviron does not expect that any of its proposed products will be ready for commercialization for the next several years, if at all. To achieve profitability, the Company, alone or with others, must successfully identify, develop, test, manufacture and market its products. There can be no assurance that Aviron will succeed in the development and marketing of any product. Any potential product will require significant additional investment, development, preclinical testing and clinical trials prior to potential regulatory approval and commercialization. The Company's cold adapted influenza vaccine involves a complex development process. If the Company were to successfully develop an influenza vaccine, its composition would require annual modification. Influenza viruses have a high mutation rate and the surface antigens of influenza viruses that induce protective immunity are variable from year to year. Each spring, the FDA and the United States Centers for Disease Control and Prevention (the "CDC") select circulating influenza strains that will be included in the following season's influenza vaccines. As a result, manufacturers of vaccines must modify their influenza vaccines each year to include the selected strains in a form that meets FDA guidelines within an approximately six-month period in order to make it available before the influenza season. On one occasion in the past, the Company experienced difficulty in preparing modified vaccine strains in time to conduct clinical trials during the influenza season. Even if the Company is able to develop an influenza vaccine for a particular year, it must also establish a dependable process by which the vaccine may be modified and manufactured on a timely basis to include additional strains each year. If the Company were unable to develop an influenza vaccine for a particular year that meets FDA guidelines and establish a manufacturing process for the vaccine, its business, financial condition and results of operations would be materially adversely affected. No assurance can be given that delays in preparing vaccines for use in clinical trials or commercial sales will not be encountered. In addition, there can be no assurance that the Company's development efforts will be successful, that required regulatory approvals, including those with respect to Investigational New Drug ("IND") applications, will be obtained or that any products, if introduced, will be successfully marketed. See "Business -- Vaccine Products Under Development." 8 NEED FOR FUTURE FUNDING; UNCERTAINTY OF ACCESS TO CAPITAL The Company's operations to date have consumed substantial and increasing amounts of cash. The negative cash flow from operations is expected to continue and to accelerate in the foreseeable future. The development of the Company's technology and proposed products will require a commitment of substantial funds to conduct the costly and time-consuming research, preclinical testing and clinical trials necessary to develop and optimize such technology and proposed products, to establish manufacturing and marketing capabilities and to bring any such products to market. The Company's future capital requirements will depend upon many factors, including continued scientific progress in the research and development of the Company's technology and vaccine programs, the size and complexity of these programs, the ability of the Company to establish and maintain collaborative arrangements, progress with preclinical testing and clinical trials, the time and costs involved in obtaining regulatory approvals, the cost involved in preparing, filing, prosecuting, maintaining and enforcing patent claims or trade secrets, and product commercialization activities. The Company anticipates that the proceeds of this offering, together with the interest thereon, and existing capital resources, revenues from existing collaborations, cash equivalents and short-term investments will enable it to maintain its current and planned operations at least through 1997. The Company is actively seeking additional collaborative agreements with corporate partners and may seek additional funding through public or private equity or debt financing. There can be no assurance that any additional collaborative agreements will be entered into or that additional financing will be available on acceptable terms, if at all. If additional funds are raised by issuing equity securities, further dilution to stockholders may result. If adequate funds are not available, the Company may be required to delay, reduce the scope of, or eliminate one or more of its research or development programs or to obtain funds through collaborative arrangements with others that may require the Company to relinquish rights to certain of its technologies, product candidates or products that the Company would otherwise seek to develop or commercialize itself. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources." LACK OF MANUFACTURING EXPERIENCE; RELIANCE ON CONTRACT MANUFACTURERS The Company currently does not have the facilities to manufacture products for large-scale clinical trials or in commercial quantities and has no experience in commercial-scale manufacturing. To manufacture its products for large-scale clinical trials or on a commercial scale, the Company will have to build or gain access to a large-scale manufacturing facility which will require a significant amount of funds. The Company currently is evaluating the costs and benefits of developing internal manufacturing capabilities or contracting with third-party manufacturers. The production of the Company's cold adapted influenza vaccine is subject to the availability of a large number of pathogen-free hen eggs, for which there are currently a limited number of suppliers. Contamination or disruption of this source of supply would adversely affect the ability to manufacture the Company's cold adapted influenza vaccine. In addition, to make the vaccine available for clinical trials or commercial sales before the influenza season, the Company must successfully modify the vaccine within a six-month period to include selected strains for a particular year in time for manufacturing and distribution. The Company currently is considering whether to construct manufacturing facilities capable of producing both pilot-scale and commercial quantities of its potential vaccine products and is presently building a pilot manufacturing facility. This scale-up process will require the Company to develop advanced manufacturing techniques and rigorous process controls. Furthermore, the Company will be required to register its facility with the FDA and with the California Department of Health Services and will be subject to state and federal inspections confirming the Company's compliance with current Good Manufacturing Practices ("cGMP") regulations established by the FDA. No assurance can be given as to the ability of the Company to produce commercial quantities of its potential products in compliance with applicable regulations or at an acceptable cost, if at all. The Company is alternatively considering the use of contract manufacturers for the commercial production of its potential products. The Company currently relies on Evans Medical Limited, a subsidiary of Medeva plc ("Evans"), for the manufacture of its influenza vaccine for clinical trials. The Company is aware of only a limited number of manufacturers which it believes have the ability and capacity to manufacture its potential products, including the cold adapted influenza vaccine, in a timely manner. There can be no assurance that the Company would be able to contract with any of these manufacturers for the manufacture of its products on acceptable 9 terms, if at all. If the Company enters into an agreement with a third-party manufacturer, it will be required to relinquish control of the manufacturing process, which might adversely affect the Company's results of operations. Furthermore, a third-party manufacturer also will be required to manufacture the Company's products in compliance with state and federal regulations. Failure of any such third-party manufacturer to comply with state and federal regulations and to deliver the required quantities on a timely basis and at commercially reasonable prices would materially adversely affect the Company's business, financial condition and results of operations. No assurance can be given that the Company, alone or with a third party, will be able to make the transition to commercial-scale production of its potential products successfully, if at all, or that if successful, the Company will be able to maintain such production. See "Business -- Manufacturing" and "-- Government Regulation." UNCERTAINTY OF FUTURE PROFITABILITY; ACCUMULATED DEFICIT The Company has experienced significant and increasing operating losses since its inception in April 1992. As of March 31, 1996, the Company had an accumulated deficit of approximately $26.2 million. Aviron has not received any product revenue to date and does not expect to generate revenues from the sale of products for several years, if at all. The Company expects to incur significant and increasing operating losses over at least the next several years as the Company's research and development efforts and preclinical testing and clinical trial activities expand. The Company's ability to achieve profitability depends in part upon its ability, alone or with others, to complete development of its proposed products, to obtain required regulatory approvals and to successfully manufacture and market such products. To the extent that the Company is unable to obtain third-party funding for expenses, the Company expects that its increased expenses will result in increased losses from operations. There can be no assurance that Aviron will obtain required regulatory approvals or successfully identify, develop, test, manufacture and market any product candidates, or that the Company will ever achieve product revenues or profitability. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." UNCERTAINTY OF PROTECTION OF PATENTS AND PROPRIETARY RIGHTS; DEPENDENCE ON TRADE SECRETS The Company's success will depend in part on its ability to maintain its technology licenses, maintain trade secrets, obtain patents and operate without infringing the proprietary rights of others, both in the United States and in other countries. Since patent applications in the United States are maintained in secrecy until patents issue and since publication of discoveries in the scientific or patent literature often lag behind actual discoveries, the Company cannot be certain that it was the first to make the inventions covered by each of its pending patent applications or that it was the first to file patent applications for such inventions. The patent positions of biotechnology and pharmaceutical companies can be highly uncertain and involve complex legal and factual questions, and therefore the breadth of claims allowed in biotechnology and pharmaceutical patents, or their enforceability, cannot be predicted. There can be no assurance that any of the Company's patents or patent applications will issue or, if issued, will not be challenged, invalidated or circumvented, or that the rights granted thereunder will provide proprietary protection or competitive advantages to the Company. The commercial success of Aviron also will depend, in part, upon the Company's not infringing patents issued to others. A number of pharmaceutical companies, biotechnology companies, universities and research institutions have filed patent applications or received patents in the areas of the Company's programs. Some of these applications or patents may limit or preclude the Company's applications, or conflict in certain respects with claims made under the Company's applications. On May 22, 1996, the Company received notice from Chiron Corporation ("Chiron") that Chiron intends to file a lawsuit against Aviron, unless a prompt negotiated settlement can be reached, alleging that certain of Aviron's patent applications relating to its EBV program are based on Chiron proprietary information which was improperly conveyed to Aviron by a former Chiron employee. Aviron believes that Chiron's allegations are without merit and, if a complaint is filed, intends to vigorously defend itself against any such action. Aviron does not utilize the alleged proprietary information in any of its programs. The Company has received terms of a proposed settlement from Chiron and is in discussions with Chiron regarding a possible settlement of the dispute. No assurance can be given that litigation will not ensue, which could be costly and time-consuming. 10 The Company is aware of pending patent applications that have been filed by others that may pertain to certain aspects of the Company's programs or its issued or pending patent applications. If patents have been or are issued to others containing preclusive or conflicting claims and such claims are ultimately determined to be valid, the Company may be required to obtain licenses to these patents or to develop or obtain alternative technology. No assurance can be given that patents have not been issued, or will not be issued, to third parties that contain preclusive or conflicting claims with respect to the cold adapted influenza vaccine or any of the Company's other programs. The Company's breach of an existing license or failure to obtain a license to technology required to commercialize its products may have a material adverse effect on the Company's business, financial condition and results of operations. Litigation, which could result in substantial costs to the Company, may also be necessary to enforce any patents issued to the Company or to determine the scope and validity of third-party proprietary rights. If competitors of the Company prepare and file patent applications in the United States that claim technology also claimed by the Company, the Company may have to participate in interference proceedings declared by the United States Patent and Trademark Office to determine priority of invention, which could result in substantial cost to the Company, even if the eventual outcome is favorable to the Company. An adverse outcome could subject the Company to significant liabilities to third parties and require the Company to license disputed rights from third parties or to cease using such technology. The Company has no issued patents on the technology related to its cold adapted influenza vaccine. The Company's rights to this technology are based on a license of materials and know-how from the University of Michigan, which owns the master strains from which the vaccine is derived, and on a license of know-how and clinical trial data from the NIH. There can be no assurance that a third party will not reproduce the Company's cold adapted influenza vaccine or that a third party will not develop another live-virus influenza vaccine which might be comparable to Aviron's in terms of safety and effectiveness. The Company also relies on trade secrets to protect its technology, especially where patent protection is not believed to be appropriate or obtainable. Certain of the Company's licensors also rely on trade secrets to protect technology which has been licensed to Aviron, and as a result, the Company is dependent on the efforts of such licensors to protect such trade secrets. For example, the University of Michigan relies, in part, on trade secrets to protect the master strains of the cold adapted influenza virus used by the Company. Aviron protects its proprietary technology and processes, in part, by confidentiality agreements with its employees, consultants, collaborators and certain contractors. There can be no assurance that these agreements will not be breached, that the Company would have adequate remedies for any breach, or that the Company's trade secrets or those of its licensors will not otherwise become known or be independently discovered by competitors. To the extent that Aviron or its consultants or research collaborators use intellectual property owned by others in their work for the Company, disputes may also arise as to the rights in related or resulting know-how and inventions. See "Business -- Patents and Proprietary Rights." GOVERNMENT REGULATION; NO ASSURANCE OF REGULATORY APPROVALS The production and marketing of the Company's products and its ongoing research and development activities are subject to extensive regulation by numerous government authorities in the United States and other countries. Prior to marketing in the United States, any product developed by the Company must undergo rigorous preclinical testing and clinical trials and an extensive regulatory approval process implemented by the FDA under the Food, Drug and Cosmetic Act. Satisfaction of such regulatory requirements, which includes demonstrating that the product is both safe and effective, typically takes several years or more depending upon the type, complexity and novelty of the product and requires the expenditure of substantial resources. This process may be more demanding for vaccines intended for use in healthy people compared to therapeutics used for treatment of people with diseases. Preclinical studies must be conducted in compliance with the FDA's Good Laboratory Practice ("GLP") regulations. Clinical testing must meet requirements for Institutional Review Board ("IRB") oversight and informed consent, as well as FDA prior review, oversight and good clinical practice requirements. The Company has limited experience in conducting and managing the clinical trials necessary to obtain regulatory approval. Furthermore, the Company or the FDA may suspend clinical trials at any time if it believes that the subjects participating in such trials are being exposed to unacceptable health risks. 11 Before receiving FDA approval to market a product, the Company will have to demonstrate that the product is safe and effective and represents an improved form of health management compared to existing approaches. Data obtained from preclinical testing and clinical trials are susceptible to varying interpretations which could delay, limit or prevent regulatory approvals. In addition, delays or rejections may be encountered based upon additional government regulation from future legislation or administrative action or changes in FDA policy during the period of product development, clinical trials and FDA regulatory review. Similar delays may also be encountered in foreign countries. There can be no assurance that even after such time and expenditures, regulatory approval will be obtained for any products developed by the Company. If regulatory approval of a product is granted, such approval will be limited to those specific segments of the population for which the product is effective, as demonstrated through clinical trials. Furthermore, approval may entail ongoing requirements for post-marketing studies. Even if such regulatory approval is obtained, a marketed product, its manufacturer and its manufacturing facilities are subject to continual review and periodic inspections. The regulatory standards for manufacturing are currently being applied stringently by the FDA. Discovery of previously unknown problems with a product, manufacturer or facility may result in restrictions on such product or manufacturer, including costly recalls or even withdrawal of the product from the market. There can be no assurance that any product developed by the Company alone or in conjunction with others will prove to be safe and efficacious in clinical trials and will meet all of the applicable regulatory requirements needed to receive marketing approval. Outside the United States, the Company's ability to market a product is contingent upon receiving marketing authorization from the appropriate regulatory authorities. The requirements governing the conduct of clinical trials, marketing authorization, pricing and reimbursement vary widely from country to country. At present, foreign marketing authorizations are applied for at a national level, although within the European Union (the "EU"), procedures are available to companies wishing to market a product in more than one EU member state. If the regulatory authorities are satisfied that adequate evidence of safety, quality and efficacy has been presented, a marketing authorization will be granted. This foreign regulatory approval process includes all of the risks associated with FDA approval set forth above. See "Business -- Government Regulation." INTENSE COMPETITION AND RISK OF TECHNOLOGICAL OBSOLESCENCE The Company operates in a rapidly evolving field. Any product developed by the Company would compete with existing and new drugs and vaccines being created by pharmaceutical, biopharmaceutical and biotechnology companies. If the Company were able to successfully develop its vaccines, it would be competing with larger companies that have already introduced vaccines and have significantly greater marketing, manufacturing, financial and managerial resources. For example, with respect to its cold adapted influenza vaccine, the Company will be competing against larger companies such as Pasteur Merieux Connaught, Wyeth-Ayerst, Parke-Davis Group, a subsidiary of Warner-Lambert Company ("Parke-Davis") and Evans. Each of these companies sell the injectable inactivated influenza vaccine in the United States, have significantly greater financial resources than Aviron and have established marketing and distribution channels for such products. The Company is also aware of several companies that are marketing or are in late-stage development of products to prevent CMV or HSV disease, including Glaxo Wellcome plc ("Glaxo"), SmithKline Beecham and Chiron Biocine Corporation. In addition, the Company is aware of the use in Russia of a cold adapted influenza vaccine, research programs by some of the competitors listed above, among others, to develop more effective influenza vaccines and a cold adapted PIV-3 vaccine developed with NIH support which may be licensed to a large vaccine company. New developments are expected to continue in both the pharmaceutical and biotechnology industries and in academia. Other companies may succeed in developing products that are safer, more effective or less costly than any that may be developed by the Company. Such companies may also be more effective than the Company in the production and marketing of their products. Furthermore, rapid technological development by competitors may result in the Company's products becoming obsolete before the Company is able to recover its research, development or commercialization expenses incurred in connection with any such product. Many potential competitors have substantially greater financial, technical and marketing resources than the Company. Some of these companies also have considerable experience in preclinical testing, clinical trials and other 12 regulatory approval procedures. Moreover, certain academic institutions, government agencies and other research organizations are conducting research in areas in which the Company is working. These institutions are becoming increasingly aware of the commercial value of their findings and are becoming more active in seeking patent protection and licensing arrangements to collect royalties for the use of technology that they have developed. These institutions may also market competitive commercial products on their own or through joint ventures. Aviron believes that competition in the markets it is addressing will continue to be intense. The vaccine industry is characterized by intense price competition, and the Company anticipates that it will face this and other forms of competition. There can be no assurance that pharmaceutical, biopharmaceutical and biotechnology companies will not develop more effective products than those of the Company or will not market and sell their products more effectively than the Company, which would have a material adverse effect on the Company's business, financial condition and results of operations. See "Business -- Competition." DEPENDENCE ON COLLABORATIVE AGREEMENTS The Company's strategy for the development, clinical trials, manufacturing and commercialization of certain of its products includes maintaining and entering into various collaborations with corporate partners, licensors, licensees and others. There can be no assurance that the Company will be able to maintain existing collaborative agreements, negotiate collaborative arrangements in the future on acceptable terms, if at all, or that any such collaborative arrangements will be successful. To the extent that the Company is not able to maintain or establish such arrangements, the Company would be required to undertake product development and commercialization activities at its own expense, which would increase the Company's capital requirements or require the Company to limit the scope of its development and commercialization activities. In addition, the Company may encounter significant delays in introducing its products into certain markets or find that the development, manufacture or sale of its products in such markets is adversely affected by the absence of such collaborative agreements. The Company cannot control the amount and timing of resources which its collaborative partners devote to the Company's programs or potential products, which may vary because of factors unrelated to the potential products. If any of the Company's collaborative partners breach or terminate their agreements with the Company or otherwise fail to conduct their collaborative activities in a timely manner, the preclinical or clinical development or commercialization of product candidates or research programs will be delayed, and the Company would be required to devote additional resources to product development and commercialization, or terminate certain development programs. These relationships generally may be terminated at the discretion of the Company's collaborative partners, in some cases with only limited notice to the Company. The termination of collaborative arrangements could have a material adverse effect on the Company's business, financial condition and results of operations. There also can be no assurance that disputes will not arise in the future with respect to the ownership of rights to any technology developed with third parties. These and other possible disagreements between collaborators and the Company could lead to delays in the collaborative research, development or commercialization of certain product candidates, or could result in litigation or arbitration, which would be time consuming and expensive, and would have a material adverse effect on the Company's business, financial condition and results of operations. In addition, Aviron's collaborative partners may develop, either alone or with others, products that compete with the development and marketing of the Company's products. Competing products of the Company's collaborative partners may result in their withdrawal of support with respect to all or a portion of the Company's technology, which would have a material adverse effect on the Company's business, financial condition and results of operations. See "Business - -- Collaborative Agreements." UNCERTAINTY OF MARKET ACCEPTANCE Even if the requisite regulatory approvals are obtained for the Company's potential products, uncertainty exists as to whether such products will be accepted in United States or foreign markets. The Company believes, for example, that widespread use of the Company's proposed vaccines in the United States is unlikely without 13 positive recommendations from the Advisory Committee on Immunization Practices (the "ACIP") of the CDC, the American Academy of Pediatrics or the American College of Physicians. There can be no assurance that such authorities will recommend the use of the Company's proposed products. The lack of such recommendations would have a material adverse effect on the Company's business, financial condition and results of operations. A number of additional factors may affect the rate and overall market acceptance of Aviron's cold adapted influenza vaccine and any other products which may be developed by the Company, including the rate of adoption of Aviron's vaccines by health care practitioners, the rate of vaccine acceptance by the target population, the timing of market entry relative to competitive products, the availability of alternative technologies, the price of the Company's products relative to alternative technologies, the availability of third-party reimbursement and the extent of marketing efforts by the Company, collaborative partners and third-party distributors or agents retained by the Company. Side effects or unfavorable publicity concerning Aviron's products or any product incorporating live virus vaccines could have an adverse effect on the Company's ability to obtain physician, patient or third-party payor acceptance and efforts to sell the Company's products. The Company's current formulation of the cold adapted influenza vaccine for clinical trials requires frozen storage, which may adversely affect market acceptance in certain foreign countries where adequate refrigeration is not commonly available. There can be no assurance that physicians, patients or third-party payors will accept new live virus vaccine products or any of the Company's products as readily as other types of vaccines, or at all. See "Business -- Vaccine Products Under Development." LACK OF MARKETING EXPERIENCE; DEPENDENCE ON THIRD PARTIES The Company currently has no sales, marketing or distribution capability. To market any products, Aviron must either obtain the assistance of a third party with a suitable distribution system, develop a direct sales and marketing staff of its own or combine the efforts of a third party with its own efforts. Other than SmithKline Beecham and Sang-A, the Company to date has no agreements for marketing or distributing its potential products. The success and commercialization of the Company's products is dependent in part upon the ability of the Company to maintain and enter into additional collaborative agreements with corporate partners for the development, testing and marketing of certain of its vaccines and upon the ability of these third parties to perform their responsibilities. Although Aviron believes that parties to any such arrangements would have an economic motivation to succeed in performing their contractual responsibilities, the amount and timing of resources devoted to these activities will not be within the control of the Company. There can be no assurance that any such agreements or arrangements will be available on terms acceptable to the Company, if at all, that such third parties would perform their obligations as expected, or that any revenue would be derived from such arrangements. If Aviron is not able to enter into such agreements or arrangements, it could encounter delays in introducing its products into the market or be forced to limit the scope of its commercialization activities. If the Company were to market products directly, significant additional expenditures, management resources and time would be required to develop a sales and marketing staff within the Company. In addition, the Company would also be competing with other companies that currently have experienced and well-funded marketing and sales operations. There can be no assurance that the Company will be able to establish its own sales and marketing force or that any such force, if established, would be successful. See "Business - -- Marketing and Sales" and "-- Collaborative Agreements." VOLATILITY OF COMMON STOCK PRICE The market prices for securities of pharmaceutical, biopharmaceutical and biotechnology companies have historically been highly volatile. The market has from time to time experienced significant price and volume fluctuations that are unrelated to the operating performance of particular companies. In addition, factors such as fluctuations in the Company's operating results, future sales of Common Stock, announcements of technological innovations or new therapeutic products by the Company or its competitors, announcements of collaborators, clinical trial results, government regulation, developments in patent or other proprietary rights, public concern as to the safety of drugs developed by the Company or others, comments made by securities analysts and general 14 market conditions can have an adverse effect on the market price of the Common Stock. In particular, the realization of any of the risks described in these "Risk Factors" could have a significant and adverse impact on such market price. RISK OF PRODUCT LIABILITY; UNCERTAINTY OF AVAILABILITY OF INSURANCE The Company's business exposes it to potential product liability risks that are inherent in the testing, manufacturing and marketing of vaccines. The Company has obtained clinical trial liability insurance for its clinical trials, but there can be no assurance that it will be able to maintain adequate insurance for its clinical trials. The Company also intends to seek product liability insurance in the future for products approved for marketing, if any. However, no assurance can be given that the Company will be able to acquire or maintain insurance or that insurance can be acquired or maintained at a reasonable cost or in sufficient amounts to protect the Company. There can be no assurance that insurance coverage and the resources of the Company would be sufficient to satisfy any liability resulting from product liability claims. A successful product liability claim or series of claims brought against the Company could have a material adverse effect on its business, financial condition and results of operations. The Company intends to seek inclusion of certain of its products in the United States National Vaccine Injury Compensation Program, a no-fault compensation program for claims against vaccine manufacturers, which administers a trust funded by excise taxes on sales of certain recommended childhood vaccines. There can be no assurance that this government program will continue or that the Company's proposed vaccines will be included in the program. UNCERTAINTY RELATED TO PHARMACEUTICAL PRICING AND REIMBURSEMENT Political, economic and regulatory influences are subjecting the health care industry in the United States to fundamental change. Recent initiatives to reduce the federal deficit and to reform health care delivery are increasing cost-containment efforts. The Company anticipates that Congress, state legislatures and the private sector will continue to review and assess alternative benefits, controls on health care spending through limitations on the growth of private health insurance premiums and Medicare and Medicaid spending, the creation of large insurance purchasing groups, price controls on pharmaceuticals and other fundamental changes to the health care delivery system. Any such proposed or actual changes could cause the Company or its collaborative partners to limit or eliminate spending on development projects. Legislative debate is expected to continue in the future, and market forces are expected to demand reduced costs. Aviron cannot predict what impact the adoption of any federal or state health care reform measures or future private sector reforms may have on its business. In both domestic and foreign markets, sales of the Company's proposed vaccines will depend in part upon the availability of reimbursement from third-party payors, such as government health administration authorities, managed care providers, private health insurers and other organizations. In addition, other third-party payors are increasingly challenging the price and cost effectiveness of medical products and services. Significant uncertainty exists as to the reimbursement status of newly approved health care products. There can be no assurance that the Company's proposed products will be considered cost effective or that adequate third-party reimbursement will be available to enable Aviron to maintain price levels sufficient to realize an appropriate return on its investment in product development. Legislation and regulations affecting the pricing of pharmaceuticals may change before the Company's proposed products are approved for marketing. Adoption of such legislation could further limit reimbursement for medical products. If adequate coverage and reimbursement levels are not provided by the government and third-party payors for the Company's products, the market acceptance of these products would be adversely affected, which would have a material adverse effect on the Company's business, financial condition and results of operations. NEED TO ATTRACT AND RETAIN KEY EMPLOYEES AND CONSULTANTS The Company is highly dependent on the principal members of its scientific and management staff. In addition, the Company relies on consultants and advisors, including its scientific advisors, to assist the Company in formulating its research and development strategy. Attracting and retaining qualified personnel, consultants and advisors will be critical to the Company's success. To pursue its product development and marketing plans, 15 the Company will be required to hire additional qualified scientific personnel to perform research and development, as well as personnel with expertise in conducting clinical trials, government regulation, manufacturing and marketing and sales. Expansion in product development and marketing is also expected to require the addition of management personnel and the development of additional expertise by existing management personnel. The Company faces competition for qualified individuals from numerous pharmaceutical, biopharmaceutical and biotechnology companies, universities and other research institutions. There can be no assurance that the Company will be able to attract and retain such individuals. In addition, a portion of the Company's research and development is conducted under sponsored research programs with several universities and research institutions. The Company depends on the availability of a principal investigator for each such program, and the Company cannot assure that these individuals or their research staffs will be available to conduct research and development for Aviron. The Company's academic collaborators are not employees of the Company. As a result, the Company has limited control over their activities and can expect that only limited amounts of their time will be dedicated to Company activities. The Company's academic collaborators may have relationships with other commercial entities, some of which could compete with the Company. See "Business -- Scientific Advisory Board" and "Management." RISKS ASSOCIATED WITH HAZARDOUS MATERIALS The Company's research and development involves the controlled use of hazardous materials, chemicals, various radioactive substances and viruses. Although the Company believes that its safety procedures for handling and disposing of such materials comply with the standards prescribed by state and federal regulations, the risk of accidental contamination or injury from these materials cannot be completely eliminated. In the event of such an accident, the Company could be held liable for any damages that result and any such liability could exceed the resources of the Company. The Company may incur substantial costs to comply with environmental regulations if the Company develops manufacturing capacity. DILUTION The assumed initial public offering price is substantially higher than the pro forma net tangible book value per share of the Company's Common Stock. Investors purchasing shares of Common Stock in this offering and the Sang-A Shares will therefore incur immediate, substantial dilution of approximately $7.82 per share. In addition, investors purchasing shares of Common Stock in this offering will incur additional dilution to the extent outstanding options and warrants are exercised. See "Dilution." NO PRIOR PUBLIC MARKET Prior to this offering, there has been no public market for the Company's Common Stock, and there can be no assurance that a regular trading market will develop and continue after this offering or that the market price of the Common Stock will not decline below the initial public offering price. The initial public offering price will be determined through negotiations between the Company and the Representatives of the Underwriters and may not be indicative of the market price of the Common Stock following this offering. Among the factors considered in such negotiations will be prevailing market conditions, certain financial information of the Company, market valuations of other companies that the Company and the Representatives of the Underwriters believe to be comparable to the Company, estimates of the business potential of the Company, the present state of the Company's development and other factors deemed relevant. See "Underwriting." POTENTIAL ADVERSE EFFECTS OF SHARES ELIGIBLE FOR FUTURE SALE Sales of a substantial amount of Common Stock in the public market following this offering could adversely affect the market price for the Company's Common Stock. Upon completion of this offering and the sale of the Sang-A Shares, the Company will have 12,285,990 shares of Common Stock outstanding. In addition to the 3,000,000 shares of Common Stock offered hereby, approximately 149,329 shares will be available for sale in the public market upon the effective date of the Registration Statement pursuant to subsection (k) of Rule 144 promulgated under the Securities Act of 1933, as amended (the "Act"). Approximately 37,395 shares of Common 16 Stock will be available for sale in the public market pursuant to Rule 144 or Rule 701 under the Act beginning 90 days after the date of this Prospectus, subject in certain cases to volume and manner of sale restrictions. In addition, 283,160 shares subject to vested options will be available for sale 90 days after the date of this Prospectus pursuant to Rule 701. Beginning 180 days from the date of this Prospectus, 5,311,881 shares of outstanding and 33,726 shares subject to additional vested options will be available for sale, subject in certain cases to volume limitations, upon the expiration of agreements not to sell such outstanding shares or shares subject to such options. Robertson, Stephens & Company may, in its sole discretion and at any time without notice, release all or any portion of the shares subject to lock-up agreements. Additional shares held by existing shareholders will become eligible for sale from time to time in the future. After this offering, the holders of approximately 7,833,659 shares of Common Stock and warrants to purchase approximately 148,145 shares of Common Stock will be entitled to certain demand and piggyback registration rights with respect to registration of such shares under the Act. If such holders, by exercising their demand or piggyback registration rights, cause a large number of securities to be registered and sold in the public market, such sales could have an adverse effect on the market price for the Company's Common Stock. If the Company were to include in a Company-initiated registration shares held by such holders pursuant to the exercise of their piggyback registration rights, such sales may have an adverse effect on the Company's ability to raise needed capital. See "Shares Eligible for Future Sale" and "Underwriting." ANTI-TAKEOVER EFFECTS OF DELAWARE LAW AND CERTAIN CHARTER PROVISIONS The Company's Board of Directors has the authority to issue up to 5,000,000 shares of Preferred Stock and to determine the price, rights, preferences and privileges of those shares without any further vote or action by the Company's stockholders. The rights of the holders of Common Stock will be subject to, and may be adversely affected by, the rights of the holders of any Preferred Stock that may be issued in the future. While the Company has no present intention to issue shares of Preferred Stock, such issuance, while providing desirable flexibility in connection with possible acquisitions and other corporate purposes, could have the effect of making it more difficult for a third party to acquire a majority of the outstanding voting stock of the Company. In addition, the Company is subject to the anti-takeover provisions of Section 203 of the Delaware General Corporation Law, which prohibits the Company from engaging in a "business combination" with an "interested stockholder" for a period of three years after the date of the transaction in which the person became an interested stockholder, unless the business combination is approved in a prescribed manner. The application of Section 203 could have the effect of delaying or preventing a change of control of the Company. The Company's Certificate of Incorporation provides for staggered terms for the members of the Board of Directors. The staggered Board of Directors and certain other provisions of the Company's Certificate of Incorporation and Bylaws may have the effect of delaying or preventing changes in control or management of the Company, which could adversely affect the market price of the Company's Common Stock. See "Description of Capital Stock -- Delaware Anti-Takeover Law and Certain Charter Provisions." 17 USE OF PROCEEDS The net proceeds to the Company from the sale of shares of Common Stock offered hereby are estimated to be $32.9 million ($37.9 million if the Underwriters' over-allotment option is exercised in full) after deducting the estimated underwriting discounts and commissions and offering expenses payable by the Company. In addition, the net proceeds to the Company from the sale of the Sang-A Shares are estimated to be $4.0 million. The Company anticipates using approximately $24.0 million of the net proceeds from this offering and from the sale of the Sang-A Shares for product research and development, including preclinical testing and clinical trials and approximately $8.0 million for capital expenditures. The balance of the net proceeds will be used for working capital and general corporate purposes. The amounts and timing of the expenditures for these purposes may vary significantly depending on numerous factors, such as the status of the Company's research and development efforts, the regulatory approval process, technological advances, determinations as to commercial potential, the terms of collaborative agreements entered into by the Company, the status of competitive products and the possibility of the Company's construction of a commercial-scale manufacturing facility for its potential products. In addition, the Company's research and development expenditures will vary as projects are added, extended or terminated and as a result of variations in funding from existing or future collaborative agreements. The Company may also use a portion of such net proceeds to acquire or invest in businesses, products and technologies that are complementary to those of the Company, although no such acquisitions are planned or being negotiated as of the date of this Prospectus, and no portion of the net proceeds has been allocated for any specific acquisition. The Company believes that its available cash, cash equivalents and short-term investments, together with the net proceeds of this offering and from the sale of the Sang-A Shares, and the interest thereon, will be sufficient to meet its capital requirements at least through 1997. Pending application of the net proceeds as described above, the Company intends to invest the net proceeds in short-term, interest-bearing, investment-grade securities. DIVIDEND POLICY The Company has not declared or paid cash dividends on its Common Stock since inception and does not intend to pay any cash dividends in the foreseeable future. Future cash dividends, if any, will be determined by the Board of Directors. 18 CAPITALIZATION The following table sets forth, as of March 31, 1996, (i) the pro forma capitalization of the Company, giving effect to the conversion of all outstanding shares of Preferred Stock of the Company into Common Stock, and (ii) the pro forma capitalization as adjusted to reflect the receipt of the estimated net proceeds from the sale of 3,000,000 shares of Common Stock offered by the Company hereby at an assumed initial public offering price of $12.00 per share, after deducting the estimated underwriting discounts and commissions and offering expenses payable by the Company, and the estimated proceeds from the sale of the Sang-A Shares:
MARCH 31, 1996 ------------------------ PRO FORMA AS ADJUSTED ----------- ----------- (in thousands) Capital lease obligations, noncurrent.................. $ 545 $ 545 ----------- ----------- Stockholders' equity: Preferred Stock, $0.001 par value; 5,000,000 shares authorized; none issued and outstanding............. -- -- Common Stock, $0.001 par value; 30,000,000 shares authorized; 8,874,456 shares issued and outstanding pro forma, and 12,207,789 shares issued and outstanding as adjusted (1)......................... 9 12 Additional paid-in capital........................... 41,598 78,475 Notes receivable from stockholders................... (310) (310) Deferred compensation................................ (938) (938) Accumulated deficit.................................. (26,192) (26,192) ----------- ----------- Total stockholders' equity..................... 14,167 51,047 ----------- ----------- Total capitalization......................... $ 14,712 $ 51,592 ----------- ----------- ----------- -----------
- ------------------- (1) Excludes (i) 78,201 shares of Common Stock issued subsequent to March 31, 1996 upon exercise of stock options, (ii) 643,480 shares of Common Stock issuable upon exercise of options outstanding as of June 1, 1996 at a weighted average exercise price of approximately $1.22 per share, (iii) an aggregate of 1,556,520 shares reserved for future grants or purchases pursuant to the Company's 1996 Equity Incentive Plan, Employee Stock Purchase Plan and Non-Employee Director Stock Option Plan, (iv) 118,395 shares issuable upon exercise of warrants outstanding as of June 1, 1996 at a weighted average exercise price of $6.65 per share, and (v) warrants to purchase 29,750 shares which become exercisable at the close of the offering at 125% of the initial public offering price. 19 DILUTION The pro forma net tangible book value of the Company, as of March 31, 1996, was $14,167,000 or $1.60 per share of Common Stock. Pro forma net tangible book value per share is determined by dividing the pro forma net tangible book value (pro forma tangible assets less total liabilities) of the Company by the number of shares of Common Stock outstanding at that date, including shares of Common Stock to be issued upon conversion of the Preferred Stock immediately prior to the consummation of this offering. After giving effect to the receipt of the net proceeds from the sale of the 3,000,000 shares of Common Stock offered by the Company at an assumed initial public offering price of $12.00 per share and the estimated proceeds from the sale of the Sang-A Shares, the pro forma net tangible book value of the Company as of March 31, 1996 would have been $51,047,000 or $4.18 per share. This represents an immediate increase in such pro forma net tangible book value of $2.58 per share to existing stockholders and an immediate dilution of $7.82 per share to new public investors and Sang-A. The following table illustrates this per share dilution: Assumed initial public offering price.................. $ 12.00 Pro forma net tangible book value before offering.... $ 1.60 Increase attributable to new investors............... 2.58 --------- Pro forma net tangible book value after offering....... 4.18 --------- Dilution to new investors.............................. $ 7.82 --------- ---------
The following table summarizes, on a pro forma basis, as of March 31, 1996, the difference between the number of shares of Common Stock purchased from the Company, the total consideration paid and the average price per share paid by existing stockholders and by the new investors purchasing shares in this offering and purchasing the Sang-A Shares at an assumed initial public offering price of $12.00 per share and before deducting underwriting discounts and estimated offering expenses:
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE ------------------------ ------------------------- PRICE PER NUMBER PERCENT AMOUNT PERCENT SHARE ------------ ---------- ------------- ---------- ----------- Existing stockholders....................... 8,874,456 72.7% $ 41,454,000 50.9% $ 4.67 New investors............................... 3,333,333 27.3 40,000,000 49.1 12.00 ------------ ----- ------------- ----- Total................................... 12,207,789 100.0% $ 81,454,000 100.0% ------------ ----- ------------- ----- ------------ ----- ------------- -----
The foregoing table excludes (i) 78,201 shares of Common Stock issued subsequent to March 31, 1996 upon exercise of stock options, (ii) 643,480 shares of Common Stock issuable upon exercise of options outstanding as of June 1, 1996, at a weighted average exercise price of approximately $1.22 per share, (iii) an aggregate of 1,556,520 shares reserved for future grants or purchases pursuant to the Company's 1996 Equity Incentive Plan, Employee Stock Purchase Plan and Non-Employee Director Stock Option Plan, (iv) 118,395 shares issuable upon exercise of warrants outstanding as of June 1, 1996 at a weighted average exercise price of $6.65 per share, and (v) warrants to purchase 29,750 shares which become exercisable at the close of the offering at 125% of the initial public offering price. 20 SELECTED FINANCIAL DATA The selected financial data set forth below should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Financial Statements and Notes thereto included elsewhere in this Prospectus. The statement of operations data for the years ended December 31, 1993, 1994 and 1995, and the balance sheet data at December 31, 1994 and 1995, are derived from the financial statements of the Company included elsewhere in this Prospectus which have been audited by Ernst & Young LLP, independent auditors, whose report is included elsewhere in this Prospectus. The statement of operations data from inception (April 15, 1992) through December 31, 1992 and the balance sheet data as of December 31, 1992 and 1993, are derived from audited financial statements not included herein. Financial data as of March 31, 1996 and for the three-month periods ended March 31, 1995 and 1996, is derived from unaudited financial statements included elsewhere herein, and, in the opinion of management, includes all normal recurring adjustments that the Company considers necessary for a fair presentation of its results of operations. The results of operations for the interim periods are not necessarily indicative of results to be expected for any future period. The Company has not declared or paid cash dividends on its Common Stock since inception and does not intend to pay any cash dividends in the foreseeable future.
FOR THE PERIOD FROM THREE MONTHS ENDED APRIL 15, 1992 YEAR ENDED DECEMBER 31, MARCH 31, (DATE OF INCEPTION) ------------------------------------ ------------------------ TO DECEMBER 31, 1992 1993 1994 1995 1995 1996 --------------------- ----------- ----------- ---------- ----------- ----------- (in thousands, except per share data) STATEMENTS OF OPERATIONS DATA: Total revenue........................ $ -- $ -- $ -- $ 1,707 $ -- $ 188 Operating expenses: Research and development........... 320 2,073 4,216 10,220 3,088 3,044 General and administrative......... 470 1,874 2,493 3,252 701 1,063 ----- ----------- ----------- ---------- ----------- ----------- Total operating expenses......... 790 3,947 6,709 13,472 3,789 4,107 ----- ----------- ----------- ---------- ----------- ----------- Loss from operations................. (790) (3,947) (6,709) (11,765) (3,789) (3,919) ----- ----------- ----------- ---------- ----------- ----------- Interest income, net of interest expense............................. 37 175 207 362 32 183 ----- ----------- ----------- ---------- ----------- ----------- Net loss............................. $ (753) $ (3,772) $ (6,502) $ (11,403) $ (3,757) $ (3,736) ----- ----------- ----------- ---------- ----------- ----------- ----- ----------- ----------- ---------- ----------- ----------- Pro forma net loss per share (1)..... $ (0.56) $ (0.73) $ (1.24) $ (0.41) $ (0.41) ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- ----------- Shares used in computing pro forma net loss per share (1).............. 6,696 8,948 9,183 9,062 9,223
DECEMBER 31, MARCH 31, ------------------------------------------------ ---------- 1992 1993 1994 1995 1996 ------------ ---------- ---------- ---------- ---------- (in thousands) BALANCE SHEET DATA: Cash, cash equivalents and short-term investments.......... $ 1,492 $ 12,410 $ 6,449 $ 17,819 $ 14,494 Working capital............................................ 1,355 12,155 5,877 16,775 12,804 Total assets............................................... 1,901 13,206 7,789 19,878 17,275 Capital lease obligations, noncurrent...................... -- -- (750) (618) (545) Deferred compensation (2).................................. -- -- -- 180 938 Accumulated deficit........................................ (753) (4,525) (11,060) (22,444) (26,192) Total stockholders' equity................................. 1,722 12,893 6,362 17,537 14,167
- -------------- (1) See Note 1 of Notes to Financial Statements for an explanation of the method used to determine the number of shares used to compute pro forma per share amounts. (2) In May 1996, the Company recorded approximately $463,000 of deferred compensation related to grants of employee stock options. See Note 7 of Notes to Financial Statements. 21 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following Management's Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements which involve risks and uncertainties. The Company's actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those set forth under "Risk Factors" and elsewhere in this Prospectus. OVERVIEW Since its inception in April 1992, Aviron has devoted substantially all of its resources to its research and development programs. To date, Aviron has not generated any revenues from the sale of products and does not expect to generate any such revenues for at least several years, if at all. Aviron has incurred cumulative net losses of approximately $26.2 million as of March 31, 1996, and it expects to incur increasing operating losses for a number of years. Aviron has financed its operations through proceeds from private placements of Preferred Stock, revenue from its collaborative agreements, including reimbursement of certain of Aviron's research and development expenses, equipment lease financing and investment income earned on cash balances and short-term investments. The Company expects its research and development expenditures to increase substantially over the next several years as the Company expands its research and development efforts and preclinical testing and clinical trials with respect to certain of its programs. In addition, general and administrative expenses are expected to continue to increase as the Company expands its operations and incurs the additional expenses associated with operating as a public company. In October 1995, the Company signed an agreement with SmithKline Beecham defining a collaboration on the Company's EBV vaccine technology (the "SB Agreement"). Under the terms of the SB Agreement, the Company granted SmithKline Beecham an exclusive license to produce, use and sell non-live EBV vaccines incorporating the Company's technology for prophylactic and therapeutic uses on a worldwide basis, except in South and North Korea (together, "Korea"). The Company has retained the right to co-distribute a monovalent formulation of the vaccine in certain markets in the United States and to have SmithKline Beecham supply such vaccine. SmithKline Beecham has agreed to fund research and development at the Company related to the EBV vaccine, in specified minimum amounts, during the first two years of the SB Agreement. SmithKline Beecham made an initial upfront payment to the Company and agreed to make additional payments upon the achievement of certain product development milestones. The Company is entitled to royalties from SmithKline Beecham based on net sales of the vaccine. No assurance can be given, however, that the Company will receive any additional payments from SmithKline Beecham or that SmithKline Beecham will not terminate its agreement with the Company. See "Business -- Collaborative Agreements." In May 1995, the Company entered into a Development and License Agreement with Sang-A. The Company granted to Sang-A exclusive clinical development, manufacturing and marketing rights in Korea for specified products developed by Aviron, including vaccines for influenza (cold adapted and recombinant), EBV, CMV, HSV-2 and RSV. However, the Company is under no obligation to develop any product. Sang-A also will make payments to the Company upon the Company's meeting certain regulatory milestones for each product in Korea and will pay a royalty to the Company on net sales of such products in Korea. No assurance can be given, however, that the Company will receive any payments from Sang-A or that Sang-A will not terminate its agreement with the Company. See "Business -- Collaborative Agreements." The Company currently is evaluating the costs and benefits of developing internal manufacturing capabilities or contracting with third-party manufacturers. The Company presently is funding the construction of its pilot manufacturing facility through a capital lease line of credit, however, if the Company decides to establish its own commercial-scale manufacturing facility, it would require a significant amount of funds. See "Business -- Manufacturing." 22 The Company's business is subject to significant risks, including but not limited to the risks inherent in its research and development efforts, including preclinical testing and clinical trials, uncertainties associated both with obtaining and enforcing its patents and with the patent rights of others, the lengthy, expensive and uncertain process of seeking regulatory approvals, uncertainties regarding government reforms and product pricing and reimbursement levels, technological change and competition, manufacturing uncertainties and dependence on third parties. Even if the Company's product candidates appear promising at an early stage of development, they may not reach the market for numerous reasons. Such reasons include the possibilities that the products will be found unsafe or ineffective during clinical trials, will fail to receive necessary regulatory approvals, will be difficult to manufacture on a large scale, will be uneconomical to market or will be precluded from commercialization by proprietary rights of third parties. RESULTS OF OPERATIONS THREE MONTHS ENDED MARCH 31, 1996 AND 1995 REVENUES Total revenue for the three months ended March 31, 1996 was $188,000, and no revenue was earned for the three months ended March 31, 1995. Revenue in the three months ended March 31, 1996 resulted primarily from the Company's license and development agreement with SmithKline Beecham. See "Business -- Collaborative Agreements -- SmithKline Beecham Biologicals S.A." OPERATING EXPENSES Research and development expenses were $3.0 million for the three months ended March 31, 1996 and $3.1 million for the three months ended March 31, 1995. Included in research and development expenses for the three months ended March 31, 1995 is a one-time charge of $1.6 million relating to Aviron's agreement with the University of Michigan (see Note 2 of Notes to Financial Statements). Without the one-time charge, research and development expenses increased 103% between the three months ended March 31, 1996 and 1995. These increases were primarily due to increases in research and development staffing, licensing fees, expenses associated with clinical trials of the Company's cold adapted influenza vaccine and preclinical testing associated with other programs. General and administrative expenses increased 52% to $1.1 million in the three months ended March 31, 1996 from $701,000 in the three months ended March 31, 1995. These increases were incurred to support the Company's expanded research and development efforts and facilities, patent and legal expenses, and corporate development activities. NET INTEREST INCOME The Company's net interest income increased to $183,000 in the three months ended March 31, 1996, from $32,000 in the three months ended March 31, 1995. The increase reflects the effect of the Comany's higher average cash and cash equivalents and short-term investment balances. YEARS ENDED DECEMBER 31, 1995 AND 1994 REVENUES Total revenue for 1995 was $1.7 million, and no revenue was earned in the year ended December 31, 1994. Revenue in the year ended December 31, 1995 resulted primarily from the Company's license and development agreement with SmithKline Beecham. See "Business -- Collaborative Agreements -- SmithKline Beecham Biologicals S.A." OPERATING EXPENSES Research and development expenses increased 142% to $10.2 million in the year ended December 31, 1995 from $4.2 million in the year ended December 31, 1994. These increases were primarily due to increases in research and development staffing, licensing fees (including the one-time charge relating to Aviron's agreement with the University of Michigan discussed above), and expenses associated primarily with clinical trials of its cold adapted influenza vaccine and preclinical testing associated with the herpes simplex virus program. General and administrative expenses increased 30% to $3.3 million in the year ended December 31, 1995 from 23 $2.5 million in the year ended December 31, 1994. These increases were incurred to support the Company's expanded research and development efforts and facilities, patent and legal expenses, and corporate development activities. NET INTEREST INCOME The Company's net interest income increased 75% to $362,000 in the year ended December 31, 1995, from $207,000 in the year ended December 31, 1994. The increase in 1995 reflects the effect of the Company's higher average cash and cash equivalents and short-term investment balances, offset by increased interest expense related to capital lease obligations. YEARS ENDED DECEMBER 31, 1994 AND 1993 OPERATING EXPENSES Research and development expenses increased 103% to $4.2 million in the year ended December 31, 1994, from $2.1 million in the year ended December 31, 1993. These increases were primarily due to increases in research and development staffing and preclinical testing. General and administrative expenses increased 33% from $2.5 million in the year ended December 31, 1994, from $1.9 million in the year ended December 31, 1993. These increases were incurred to support the Company's expanded research and development efforts and facilities and patent and legal expenses. NET INTEREST INCOME The Company's net interest income increased 18% to $207,000 in the year ended December 31, 1994, from $175,000 in the year ended December 31, 1993. The increase reflected the effect of the Company's higher average cash and cash equivalents and short-term investment balances, offset by interest expense related to capital lease obligations in 1994. NET OPERATING LOSS CARRYFORWARD As of December 31, 1995, the Company had a federal net operating loss carryforward of approximately $20.0 million available to offset future taxable income, if any. The net operating loss carryforward will expire at various dates beginning from 2007 through 2010, if not utilized. Utilization of the net operating losses and credits may be subject to substantial annual limitation due to the "change in ownership" provisions of the Internal Revenue Code of 1986 and similar state provisions. The annual limitation may result in the expiration of net operating losses and credits before utilization. See Note 8 of Notes to Financial Statements. LIQUIDITY AND CAPITAL RESOURCES Aviron had cash, cash equivalents and short-term investments at March 31, 1996 of approximately $14.5 million. In order to preserve principal and maintain liquidity, the Company's funds are invested in United States Treasury obligations, highly-rated corporate obligations and other short-term investments. The Company has financed its operations since inception primarily through private placements of Preferred Stock. Through March 31, 1996, the Company had raised approximately $38.4 million from such sales net of offering expenses. Cash used in operations was $3.4 million, $6.1 million, $8.9 million and $3.0 million in 1993, 1994, 1995 and the first quarter of 1996, respectively. Cash expended for capital additions and to repay lease financing arrangements amounted to approximately $593,000, $472,000, $622,000 and $659,000 in 1993, 1994 and 1995 and the first quarter of 1996, respectively. The Company expects expenditures for capital additions will increase in 1996 as a result of the construction of a pilot manufacturing facility. The Company expects expenditures for research and development, clinical trials and general administrative expenditures will continue to increase in 1996 as the Company develops its products and expands its clinical trials. The Company anticipates that the proceeds of this offering, together with the interest thereon and existing capital resources, revenues from existing collaborations, cash equivalents and short-term investments, will enable it to maintain its current and planned operations at least through 1997. The Company's future cash requirements will depend on numerous factors, including continued scientific progress in the research and development of the Company's technology and vaccine programs, the size and complexity of these programs, the ability of the Company to establish and maintain collaborative arrangements, progress with preclinical 24 testing and clinical trials, the time and costs involved in obtaining regulatory approvals, the cost involved in preparing, filing, prosecuting, maintaining and enforcing patent claims, and product commercialization activities. The Company is seeking additional collaborative agreements with corporate partners and may seek access to the public or private equity markets. There can be no assurance, however, that any such agreements will be entered into or that they will reduce the Company's funding requirements or that additional funding will be available. The Company expects that additional equity or debt financings will be required to fund its operations. There can be no assurance that such funds will be available on favorable terms, if at all. If adequate funds are not available, the Company may be required to delay, reduce the scope of, or eliminate one or more of its research or development programs or to obtain funds through collaborative agreements with others that may require the Company to relinquish rights to certain of its technologies, product candidates or products that the Company would otherwise seek to develop or commercialize itself, which would materially adversely affect the Company's business, financial condition and results of operations. 25 BUSINESS The following Business section contains forward-looking statements which involve risks and uncertainties. The Company's actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those set forth under "Risk Factors" and elsewhere in this Prospectus. OVERVIEW Aviron is a biopharmaceutical company whose strategy is to focus on prevention of disease. The Company's goal is to become a leader in the discovery, development, manufacture and marketing of live virus vaccines which are sufficiently cost effective to justify their use in immunization programs targeting the general population. Live virus vaccines, such as those for smallpox, polio, measles, mumps and rubella, have had a long record of success in preventing, and in some cases eliminating, disease. The Company currently is analyzing data from Phase I and Phase II clinical trials in children and adults of its live cold adapted intranasal vaccine for influenza. The Company has recently in-licensed a live intranasal vaccine for Parainfluenza Virus Type 3 ("PIV-3") which has been tested by others in Phase I/II clinical trials. The Company also is developing a vaccine for Epstein-Barr virus ("EBV"). In addition, Aviron is using its proprietary "Rational Vaccine Design" technology to discover new live virus vaccines. Rational Vaccine Design involves the deletion or modification of virulence proteins, changes to the virus' genetic control signals to slow down its replication, or addition of information to enhance the virus' stimulation of the immune system. The Company is applying this technology to develop candidates for the prevention of influenza in elderly persons and diseases caused by Cytomegalovirus ("CMV"), Herpes Simplex Virus-Type 2 ("HSV-2") and Respiratory Syncytial Virus ("RSV"). BACKGROUND PREVENTION TECHNOLOGY IN THE ERA OF MANAGED CARE AND COST CONTAINMENT Market-based changes already underway in the United States health care system are dramatically altering prospects for technologies which can be used to manage disease or lower the cost of health care for patients in managed health plans. Medical cost-containment efforts and the reorganization of United States health care delivery into managed care systems are changing the basis of competition for producers of health care products. Health maintenance organization enrollment was approximately 54 million in the United States in 1995 and is growing rapidly. Decision makers in the United States, such as HMO medical directors, clinical practice committees, and government health authorities, are increasingly evaluating whether preventive technologies are more cost effective than treating disease once it is present. For example, vaccinations are widely used by managed care organizations and in government programs. In determining whether to use an FDA-approved vaccine, decision makers consider whether it has been recommended by the Advisory Committee on Immunization Practices (the "ACIP") of the CDC and whether it is cost effective. Health care cost containment efforts are also evident in many of the developed economies outside the United States. These efforts include physician budgets in Germany and general practice schemes in the United Kingdom, where doctors are given responsibility for the cost of their patients' overall care. THE IMMUNE SYSTEM AND VACCINES Infections occur when a pathogenic microorganism, such as a virus or bacterium, invades body tissues and begins to replicate. The human immune system responds with a battery of resources to contain and eliminate this threat. The process begins when specialized cells recognize that molecules on the surface of invading pathogens are foreign (antigens). Immune responses to contain and eliminate the threat include: - ANTIBODIES: Antigens stimulate the immune system to produce specific molecules (antibodies) which bind to and neutralize the virus or bacterium. - CELL-MEDIATED RESPONSE: An effective immune response typically also leads to the multiplication of specific types of white blood cells (a cell-mediated response) which have the ability to inactivate the pathogen or to destroy infected cells, thereby limiting replication of the virus or bacterium. 26 - MUCOSAL IMMUNITY: In addition to circulating antibodies and the cell-mediated response, antibodies are produced in the mucous membranes, such as those which line the nose and throat. Mucosal immunity is important in protecting against pathogens which cause disease in the respiratory, gastrointestinal and genitourinary systems, or which enter the body through these portals. Vaccines are designed to stimulate a person's immune system through one or more of the above mechanisms to induce memory of specific antigens prior to the invasion of a pathogen. This memory primes the immune system so that it can inactivate the specific pathogen if encountered again. This may be achieved through one of several techniques, including introduction of a live attenuated (weakened) virus or bacterium, administration of an antigen fragment (a subunit), or administration of an inactivated (killed) virus. HISTORY OF VACCINES The first successful vaccine against an infectious disease was created by Edward Jenner who, in 1796, demonstrated that introduction of infected material from a diseased cow could be used to protect humans from the deadly smallpox virus. Smallpox vaccination programs based on this live virus vaccine were gradually adopted by industrialized countries, and a concerted global effort by public health authorities in this century succeeded in eradicating smallpox from the human population in the 1970s. Vaccines against two life-threatening bacterial diseases, diphtheria and tetanus, came into use early in this century. These vaccines consist of bacterial toxins which have been chemically inactivated. These are often administered in combination with an inactivated pertussis bacterium vaccine to prevent whooping cough. This combination is known as the "DTP" vaccine. Just prior to World War II, a live attenuated virus vaccine was developed against yellow fever, used primarily in protecting military personnel and those traveling to areas where this disease is endemic. In the years after the war following several widespread polio epidemics, Jonas Salk created the first successful polio vaccine by growing the wild-type virus and inactivating it before injection. Salk's vaccine was introduced into widespread use in the early 1950s, but was supplanted in the United States and many other countries by the orally administered live attenuated polio virus vaccine developed by Albert Sabin and first introduced in 1961. In the 1960s and 1970s, live attenuated virus vaccines against measles, mumps and rubella (German measles) were successfully developed and recommended by the ACIP to be included in childhood immunization programs. After a period of almost two decades during which no new vaccines came into widespread use, a genetically engineered subunit vaccine for hepatitis B was introduced in the mid-1980s and is now part of the ACIP-recommended childhood immunization program. In 1990, a vaccine for bacterial meningitis was also added to this program. Two inactivated vaccines against the hepatitis A virus were approved in the United States in 1995 and 1996. In 1995, the ACIP also recommended that children be vaccinated against chicken pox using a live virus vaccine recently approved by the FDA. Current challenges for vaccine innovation include providing effective protection against the major infectious diseases for which no vaccines are currently available and improving on current vaccines to achieve higher efficacy or greater ease of administration. TYPES OF VACCINES LIVE VIRUS VACCINES Live virus vaccines expose the immune system to an attenuated form of the virus which is sufficiently infectious to stimulate a lasting immune response to the natural (or wild-type) virus. All of the live virus vaccines in use today are strains derived from natural infections of humans. Attenuation of live viruses, including polio, yellow fever, measles, mumps and rubella, and chicken pox vaccines was accomplished by "passaging," or propagating, the virus repeatedly in non-human cells. As a result of this process, viruses may acquire mutations that decrease the ability of the virus to cause disease in humans. After an arbitrary number of passages, the mutated strain is tested for attenuation in animal models, if available, or directly in human subjects. Following assessment of safety and immunogenicity (stimulation of an immune response) in a limited number of human subjects, larger-scale trials are used to demonstrate efficacy in preventing naturally acquired infections. 27 Live virus vaccines mimic the natural disease-causing infection and therefore may activate the same protective mechanisms of the human immune system as the disease itself. This process results in a balanced immune response activating all parts of the immune system including systemic and local antibodies as well as cell-mediated immunity. As a result, live viruses are often considered to be more effective than other types of vaccines in providing immunity to natural variations in the wild-type viruses which cause disease. For example, the live polio vaccine is believed to be more effective in eliminating wild-type polio virus than inactivated polio vaccines. The basis of these advantages is that live vaccines typically present all of the surface and internal antigens associated with the natural pathogen. Live virus vaccines may also be easier to administer through their natural route of infection, intranasally or orally, as in the case of the oral polio vaccine. However, an attenuated live vaccine could cause disease resembling natural infection, as might occur in people with an immune system impaired by a congenital disease, HIV infection or drug treatment for cancer or organ transplantation. To date, the live virus vaccines in widespread use rarely have been associated with significant adverse events. For example, the 19 million doses of live attenuated polio vaccine administered annually in the United States are thought to be responsible for only eight to 10 cases of clinical polio per year. To further reduce the number of these cases, the ACIP is recommending that the inactivated polio vaccine be given for the initial infant dose, now that wild-type polio has been virtually eradicated in the United States. Live virus strains can change as they replicate in human hosts, and it is possible that a vaccine virus could revert to the wild-type characteristics. This reversion potential is a small but recognized problem for some of the current live vaccines, including polio. Finally, there are two theoretical concerns regarding live attenuated viruses. First, an attenuated vaccine virus may exchange genetic information with wild-type strains after immunization, with the resulting strain being more dangerous than either alone. Second, the DNA of a live virus vaccine could integrate into the genome of the host and cause cancer or other problems in the future. INACTIVATED AND SUBUNIT VIRUS VACCINES Inactivated virus vaccines are produced by killing a virus using chemicals. Some vaccines, such as the hepatitis A vaccine, are based on the whole, inactivated virus. Other vaccines are the result of various degrees of purification to concentrate certain surface glycoproteins (subunits) most responsible for producing immunity. A different approach is used to make the current hepatitis B vaccine, the first successful recombinant subunit vaccine. For this vaccine, the tools of molecular biology were applied to clone and express the dominant hepatitis surface glycoprotein in a yeast production system. Inactivated and subunit vaccines offer the advantage of little or no risk of infection from the vaccine itself, assuming the virus has been adequately inactivated. Good manufacturing techniques also minimize the possibility of contamination with other viruses or fragments of DNA which could integrate into the recipient's genes. The principle disadvantage of inactivated and subunit vaccines for many viruses has been a lack of success in creating protective immunity. A successful subunit vaccine requires knowledge of which specific antigens are responsible for providing protection. Subunit and inactivated vaccines may produce reasonable levels of circulating antibodies, but are less able to stimulate antibodies in the mucosal sites of viral entry, such as the lining of the respiratory, gastrointestinal or genitourinary tracts. To improve stimulation of the cellular components of the immune system, adjuvants (non-specific immune stimulants) are typically added to inactivated or subunit vaccines. Only alum (an aluminum salt preparation) is approved for use as an adjuvant in the United States. Several new adjuvants are in clinical testing and show promise for boosting the immune response to subunit antigens. The mechanism by which adjuvants work is still poorly understood, so each vaccine-adjuvant combination must be evaluated in a trial and error process in animal models and clinical trials. Finally, certain inactivated vaccines in clinical trials left recipients more vulnerable to disease after vaccination, due to an unbalanced immune response. For example, in trials of experimental inactivated vaccines against RSV and measles, some children were shown to experience more severe, atypical disease when they later acquired the natural viral infection following vaccination. EMERGING VACCINE TECHNOLOGIES Several companies and academic scientists have reported that direct injection of DNA encoding viral antigens can be used to stimulate an immune response. Although at an early stage, this approach shows promise. 28 However, it is not clear whether the sustained expression of viral antigens obtainable by this approach is advantageous in eliciting a better immune response. In addition, it is possible that the administered DNA may integrate into the genes of the recipient and cause potential unwanted effects. Another new technology for vaccination is based on genetic engineering to modify one virus so that it carries antigens which may stimulate an immune response to protect against other pathogens. For example, pox virus vector strains, related to the virus used successfully to eradicate smallpox, have shown usefulness in protecting dogs and cats against rabies. Other pox virus vectors are being evaluated in experimental models of human malaria and in a hybrid regimen combining doses of a modified live virus with a subunit HIV vaccine to protect high-risk individuals. AVIRON'S TECHNOLOGY Aviron's vaccine programs are based on both classical live virus vaccine attenuation techniques and the Company's proprietary genetic engineering technology. COLD ADAPTED INFLUENZA TECHNOLOGY The Company is applying its expertise in the molecular biology of influenza to develop a live virus vaccine discovered using classical cold-adaption techniques. This cold adapted influenza vaccine technology was first developed by Dr. H.F. Maassab at the University of Michigan in 1967. Dr. Maassab created attenuated influenza strains by propagating the virus in progressively colder conditions until these strains had lost the ability to grow well at human body temperature. The Company has obtained exclusive rights to this cold adapted influenza vaccine technology. The cold adapted influenza vaccine technology includes the master strains for influenza A and B, as well as techniques useful for updating the vaccine each year according to recommendations of the CDC and the FDA. Updated strains are made by mating the master strains with recent strains to obtain viruses with the attenuated properties of the cold adapted master strain and the antigenic properties of the current wild-type strain. This process is called genetic reassortment. After cultured cells are infected with two different strains of virus, the eight RNA genes of influenza mix at random in the cells and it is possible to select the two genes for the antigens of the expected epidemic strain and the six remaining genes from the cold adapted master donor strain. The Company has received the technology for updating the cold adapted master strains from the University of Michigan and has extended this approach by the introduction of Aviron's proprietary techniques, including those of reverse genetics, which may facilitate the annual process of creating a reassorted vaccine. RATIONAL VACCINE DESIGN Since the Company's founding, its core vaccine discovery strategy has been to apply genetic engineering techniques to create live attenuated virus vaccine candidates for targets where traditional discovery techniques have been inadequate. The Company believes that this "Rational Vaccine Design" approach is more flexible and systematic than traditional methods of live vaccine discovery and is a platform that can be applied to many viral targets and, potentially, to the creation of viruses used in gene therapy and the treatment of cancer. Furthermore, Aviron believes that a particular advantage of Rational Vaccine Design is that engineered viruses can be designed so that they are less likely to revert to wild-type characteristics than classically derived vaccines. Three ways of implementing this approach are: - DELETING OR MODIFYING SPECIFIC VIRAL GENES WHICH ENCODE VIRULENCE PROTEINS. Virulence proteins are viral components thought to be particularly important in the mechanism of disease, but which are not required for the virus to replicate and stimulate a strong immune response. An example of this strategy is the Company's program to create a live attenuated vaccine against the HSV-2 virus which causes genital herpes. One of the Company's founders, Dr. Bernard Roizman, discovered a particular protein important in the ability of HSV-2 to grow in nerve cells. Since nerve ganglia are the reservoir from which HSV-2 reseeds itself to cause painful skin lesions, deletion of the gene encoding this protein is the basis of the Company's Rational Vaccine Design program for development of a vaccine for this target. - ALTERING THE GENETIC INFORMATION USED BY THE VIRUS IN CONTROLLING ITS REPLICATION. An example of this strategy is work by Company scientists to create live attenuated vaccine candidates for influenza. Until recently, it 29 was impossible to genetically engineer vaccine strains of influenza because influenza genes are composed of negative-strand RNA rather than DNA or positive-strand RNA. Dr. Peter Palese, one of the Company's founders, discovered how to create recombinant negative-strand RNA viruses using reverse genetics. Company scientists have employed this reverse genetics technology to engineer mutations into a gene used by the influenza virus to make copies of itself. The resulting strains are attenuated in animal models and at least one strain has been identified as a potential candidate for clinical trials. - ADDING ANTIGENIC INFORMATION DISPLAYED BY THE VACCINE VIRUS. An example of this strategy is the Company's approach to the creation of a live attenuated CMV vaccine, which begins with a vaccine candidate thought to be over-attenuated and thus insufficiently immunogenic. Aviron recently discovered genes for certain antigen structures present in wild-type CMV viruses. These genes are being engineered into an over-attenuated vaccine candidate to create a potentially more immunogenic vaccine. The Company believes this technique of adding antigen structures may enable the Company to create combination vaccines expressing antigens of more than one virus in a single vaccine strain. BUSINESS STRATEGY Aviron's objective is to become a leader in the discovery, development, manufacture and marketing of live virus vaccines which are sufficiently cost effective to justify their use in immunization programs targeting the general population. The Company's strategy is to: ADDRESS INFECTIOUS DISEASES WHICH MERIT WIDESPREAD IMMUNIZATION PROGRAMS. The concept of universal immunization is well established for certain infectious diseases where safe and effective vaccines are already available, including immunization against pathogens such as polio, measles, mumps, rubella and hepatitis B. For each of its potential products, the Company's objective is to produce vaccine strains which are sufficiently safe and cost effective to obtain official recommendations for universal use in childhood vaccine regimens or, in the case of influenza, annual use in the general population. APPLY RATIONAL VACCINE DESIGN TECHNOLOGY TO A RANGE OF VIRAL TARGETS. Aviron believes that its proprietary genetic engineering technologies may be used to create live attenuated vaccines for a wide range of viral targets, such as viruses related to influenza and herpes viruses. SELECT PROGRAMS AND MARKET VACCINES BASED ON PHARMACOECONOMIC DATA. Public health agencies and managed care systems are increasingly concerned with the economic impact of potential new mandates for vaccines. In setting its internal product development priorities, the Company considers the costs of implementing widespread vaccine programs based on its products in relation to potential cost savings to the government and managed health care systems and intends to perform rigorous cost-effectiveness analyses on its products. IN-LICENSE PROMISING VACCINE TECHNOLOGY. Aviron evaluates in-licensing opportunities and intends to add programs which complement the Company's core technologies and capabilities. For example, the Company obtained exclusive rights to the cold adapted influenza vaccine technology from the University of Michigan and the NIH, and to the PIV-3 vaccine from the NIH. ESTABLISH COLLABORATIVE ARRANGEMENTS TO ENHANCE PRODUCT DEVELOPMENT EFFORTS. Aviron intends to enter into collaborative arrangements to gain access to specific technologies and skills which may accelerate product development and provide additional financial resources to support its research and development and commercialization efforts, particularly outside of the United States. The Company has entered into collaborative arrangements with SmithKline Beecham for development of an EBV vaccine and with Sang-A for certain rights to the Company's products in Korea. 30 VACCINE PRODUCTS UNDER DEVELOPMENT The following table summarizes Aviron's most advanced potential products under research and development. This table is qualified in its entirety by reference to the more detailed descriptions appearing elsewhere in this Prospectus.
COMMERCIAL PROGRAM VACCINE TYPE STATUS (1) RIGHTS (2) ---------------------------- ---------------------------------------- ------------------ -------------- Influenza Adults Cold adapted live virus Phase II Conducted Aviron Children Cold adapted live virus Phase I/II Aviron Conducted Elderly Cold adapted live virus Clinical Trials Aviron (co-administered with inactivated Planned vaccine) Genetically engineered live virus Preclinical Aviron Parainfluenza Virus Type 3 Bovine live virus IND Planned Aviron Epstein-Barr Virus Recombinant subunit glycoprotein Preclinical SmithKline Beecham/ Aviron (3) Cytomegalovirus Genetically engineered live virus Preclinical Aviron Herpes Simplex Virus-Type 2 Genetically engineered live virus Preclinical Aviron Respiratory Syncytial Virus Genetically engineered live virus Research Aviron ---------------- (1) "Phase II Conducted" means Aviron is evaluating data from multi-center, double-blind, placebo-controlled clinical trials for safety, immunogenicity and efficacy and the Company intends to proceed directly to Phase III clinical trials. "Phase I/II Conducted" means Aviron is evaluating data from multi-center, double-blind, placebo-controlled clinical trials for safety and immunogenicity in a limited patient population and the Company intends to proceed directly to Phase III clinical trials. "Clinical Trials Planned" indicates that no clinical trials have been conducted by Aviron to date. Aviron intends to discuss with the FDA its plans to proceed directly to Phase III clinical trials. "Preclinical" includes assessment of specific vaccine candidates for growth properties in cell culture and for attenuation and immunogenicity in animal models. "IND Planned" indicates that no clinical trials have been conducted by Aviron to date. The Company is evaluating the timing and level of commitment for Aviron-sponsored clinical trials. "Research" includes identification of vaccine candidates and approaches to create new candidate strains. See "Government Regulation." (2) Commercial rights for Korea for most listed programs are licensed to Sang-A. See "-- Collaborative Agreements." (3) Worldwide rights licensed to SmithKline Beecham; Aviron retains certain United States co-promotion rights.
31 INFLUENZA Every year in mid- to late-winter, influenza spreads across the globe, infecting an average of approximately 10% to 20% of the United States population. In the United States, 20 to 50 million cases of influenza occur annually. Influenza cases are associated with symptoms lasting for at least three to five days, an average of approximately three days of lost work or missed school, and approximately 20,000 deaths each year. Field studies indicate the attack rate ranges from a low of 10% in persons over age 65 to a high of 37% in children aged one to 18. Children are also a major factor in spreading influenza to other population segments, including those at high risk of contracting the disease. At the peak of a typical epidemic, reportedly 9% to 22% of all physician office visits are for flu-like symptoms. Over 90% of influenza-related deaths occur in people over age 65, but children under age five and women in the third trimester of pregnancy are also at higher risk for serious complications. Several times this century, influenza has appeared as a much more serious pandemic. These major pandemics occur when the influenza virus undergoes "antigenic shift" in which one influenza subtype is replaced by a different strain for which the population has not developed antibodies and, therefore, for which it is extremely susceptible to infection. The variability of certain components of the influenza virus requires that the influenza vaccine be modified annually. The CDC and the World Health Organization (the "WHO") maintain a global network which generates data required to select strains for the coming influenza season's vaccine and monitor the occurrence of especially severe epidemics. Based on these data, the FDA and the CDC discuss circulating influenza strains which are candidates for inclusion in the following season's influenza vaccine. A similar process is undertaken in Europe by the WHO and various national authorities. Currently available inactivated influenza vaccines contain three strains of influenza virus (two strains of influenza A and one strain of influenza B) and are therefore called trivalent vaccines. Typically one or sometimes two of the strains in these trivalent vaccines are recommended for updating annually. Current vaccines have been variously reported to be 60% to 80% effective in preventing illness, pneumonia, hospitalization and death due to complications from influenza. The ACIP has identified the principal target groups for the current influenza vaccine as those at increased risk for influenza-related complications: persons age 65 or older, residents of chronic-care facilities, adults and children with chronic disorders of the pulmonary or cardiovascular system, adults and children who have required regular medical follow-up or hospitalization during the preceding year because of chronic metabolic diseases or immunosuppression, and children and teenagers receiving long-term aspirin therapy and therefore at risk of developing Reye's syndrome. The next level of priority for vaccination identified by the ACIP includes certain groups, such as health care personnel and household members (including children), that may transmit influenza to high-risk persons. Furthermore, the ACIP recommends that physicians administer influenza vaccine to any person who wishes to reduce the chance of becoming ill with influenza. The FDA estimates that over 75 million influenza vaccine doses were manfactured for use in the United States in 1995. According to the CDC, over half of the 34 million Americans over age 65 received the annual influenza vaccine for the 1993 influenza season, up from less than approximately 25% a few years ago. The Company believes that a lower percentage of high-risk individuals under age 65 were vaccinated in 1994, and that the majority of influenza doses used in the United States are being administered to healthy adults under age 65, many of whom participate in voluntary work place immunization programs. Experts suggest that very few of the 70 million children under age 18 receive the annual influenza vaccine. In addition to the currently available vaccines, two oral drugs are currently approved for use in the prevention and treatment of influenza A: amantadine, which has been on the market for many years, and rimantidine, a closely related compound which produces fewer side effects. Both agents have been shown to be effective in reducing the severity of influenza A disease and the number of days of disability, but are not effective against influenza B. Both are also recommended for daily use during the influenza season by certain high-risk persons for whom the influenza vaccine is contraindicated. However, there is a concern that widespread prophylactic use could lead to emergence of drug-resistant strains. AVIRON'S COLD ADAPTED INFLUENZA VACCINE. The Company's most advanced program is based on the live cold adapted influenza vaccine technology licensed from the University of Michigan and on a Cooperative Research and Development Agreement ("CRADA") with the NIH. The cold adapted influenza vaccine is 32 currently undergoing extensive clinical trials by Aviron with a network of NIH-sponsored investigators. Prior to Company-initiated trials, at least 65 clinical trials of the cold adapted influenza vaccine technology have been performed since 1977, involving more than 15,000 volunteers, of whom over 7,000 received the cold adapted influenza vaccine. See "-- Influenza Clinical Trials." The Company intends to develop the cold adapted influenza vaccine for widespread annual use in children and adults, and for co-administration with the inactivated vaccine for improved protection in the elderly. The quality of the immune response induced by cold adapted influenza vaccine differs from that induced by inactivated influenza vaccines. The cold adapted influenza vaccine elicits an immune response to multiple viral proteins mimicking the natural immunobiology of influenza, whereas the response to the classical inactivated vaccine is directed primarily to one component of the virus. Because the cold adapted influenza vaccine is delivered as a nasal spray, the Company believes it would provide the first practical way to immunize children on an annual basis. Children are an important target because, while the elderly experience the greatest mortality from the annual influenza epidemic, much of the morbidity and illness occurs in young children. Children are also thought to be important in the spread of influenza in the population. In addition to its proposed use in physician's offices, Aviron believes that the nasal spray delivery of this vaccine will enable it to be administered by adults without special medical training, so that it will be practical to consider delivery via pharmacies, schools, day care centers, and possibly in the home. Aviron also is targeting healthy adults, many of whom are being offered influenza prophylaxis by their employer and who may prefer Aviron's intranasal administration to injection. The Company believes that many adults who regularly receive the inactivated influenza vaccine will select the intranasal vaccine if given the choice, and that people who have avoided "flu shots" in the past will receive a vaccination if the intranasal alternative is available. In addition, the Company is developing its vaccine for co-administration by nasal spray with the inactivated influenza vaccine injection for the elderly. While efficacy in the elderly has not been conclusively demonstrated, nursing home studies suggest that simultaneous administration of the intranasal cold adapted influenza vaccine with an injection of the inactivated vaccine offers added protection compared to administration of the inactivated vaccine alone. Aviron intends to seek recommendations from the ACIP and the American Academy of Pediatrics for use of the cold adapted influenza vaccine in the appropriate population. The Company has completed enrollment of 259 adults and 356 children in multicenter Phase I/II clinical trials designed to show that Aviron's trivalent formulation and nasal spray delivery system are generally safe, well tolerated and immunogenic. These studies were followed by a Phase II challenge study in 92 adults. Data from these studies are under analysis. Additional large-scale clinical trials are planned for the influenza seasons of 1996 through 1998. In addition, the Company intends to discuss with the FDA its plans for Phase III clinical trials to demonstrate efficacy of the co-administration with the inactivated influenza vaccine in the elderly. No assurances can be given that the Company will commence clinical trials as planned, or that if commenced, such trials can be successfully completed on a timely basis, if at all. See "-- Clinical Trials." AVIRON'S NEXT-GENERATION GENETICALLY ENGINEERED INFLUENZA VACCINE. The Company is using its proprietary reverse genetics technology to engineer future generations of influenza vaccines which are designed to the needs of various age groups in the population. The Company's first priority is to develop strains which offer improved protection in the elderly compared to the currently available inactivated vaccines. Since most elderly persons have had experience with several influenza infections in their lifetime, pre-existing antibodies may prevent the cold adapted virus from multiplying sufficiently to be used as an alternative to the currently available vaccines in the elderly. To address this problem, Aviron scientists have created new strains of influenza vaccine candidates which have been evaluated and shown to be attenuated in ferrets, an animal model for influenza. Vaccinated animals were protected from subsequent challenge with a virulent strain of influenza. Some of the Company's genetically engineered strains have been found to better replicate in the upper respiratory tract of these animals than the cold adapted influenza vaccine, while retaining the property of restricted growth in the lower respiratory tract. Work with the cold adapted influenza vaccine has shown that these features are associated with desirable characteristics of attenuation in humans. However, animal model results are not necessarily predictive of results in humans. The Company believes that these strains may be more 33 immunogenic than the cold adapted vaccine and, therefore, more suitable for use as a single-dose vaccine for the elderly. No assurance can be given that the Company will be able to commence or successfully complete clinical trials on a timely basis, if at all. PARAINFLUENZA VIRUS TYPE 3 PIV-3 is a common respiratory virus of childhood which causes croup, cough, fever and pneumonia. Every year, primarily during the spring and summer months, PIV-3 infects infants, children and adults. In the United States, at least 60% of children are infected by the time they reach two years of age, and 80% by four years of age. These cases are associated with symptoms lasting from three to eight days and approximately 17,000 hospitalizations per year. Children are also a major factor in introducing PIV-3 infection into the family setting. PIV-3 frequently reoccurs and children typically experience two to three infections of decreasing severity. Unlike influenza, PIV-3 undergoes only a very minor degree of variation in the surface proteins from year to year; therefore, a PIV-3 vaccine will not require annual updates. Both serum and nasal antibodies directed to PIV-3 surface proteins play a role in protection against PIV-3 disease. It is thought that protection of the lower respiratory tract from PIV-3 replication and disease requires high serum antibody levels, whereas resistance to infection and protection against disease in the upper respiratory tract requires mucosal antibodies in the nose. There is currently no available vaccine to protect against PIV-3 infection, and no drug for treatment of PIV-3 disease. AVIRON'S LIVE PARAINFLUENZA VIRUS TYPE 3 VACCINE. The Company's live PIV-3 vaccine program utilizes bovine PIV-3 ("bPIV-3") vaccine technology licensed from the NIH. Use of bPIV-3 as a vaccine to protect humans against human PIV-3 strains is based on the successful strategy first used by Jenner for smallpox vaccination, in which an animal virus is used to protect humans from the analogous human virus. It is thought that the attenuation of bPIV-3 in primates is due to mutations sustained throughout its genome during its long evolutionary adaptation to the bovine host. Prior to the Company's in-licensing of the bPIV-3 vaccine, it had been tested in Phase I/II clinical trials in adults, children and infants. In all age groups, the bPIV-3 vaccine appeared satisfactorily attenuated, safe and genetically stable. Eighty-five percent of seronegative children (six to 60 months of age) were infected by the tested dose, and 61% of bPIV-3 recipients developed a level of antibody to PIV-3 previously associated with protection from disease. The vaccine strain infected 92% of infants younger than six months of age, even in the presence of maternally-derived PIV-3 antibodies. Infection with the bPIV-3 vaccine stimulated an immune response to PIV-3 in 42% of these young infants. The Company is evaluating the timing and level of commitment for Aviron-sponsored Phase II clinical trials of bPIV-3 using the existing bPIV-3 vaccine supply produced and tested for the NIAID. There can be no assurance that this vaccine supply will be suitable for clinical trials or that these or any additional clinical trials will be commenced or, if commenced, will be successful, or that the Company will develop successfully and receive FDA approval of its bPIV-3 vaccine. EPSTEIN-BARR VIRUS Epstein-Barr virus, a herpes virus that causes infectious mononucleosis, infects most people at some point in their lifetime. Infection at a young age may cause mild symptoms, but the debilitating syndrome of infectious mononucleosis is most common where infection first occurs in adolescence or young adulthood via exchange of saliva. Sore throat and swollen neck glands are followed by a period of fatigue and lethargy which can last for weeks or even months. Approximately 10% of high school and college students become infected with EBV each year in the United States, of which half or more may develop infectious mononucleosis. The disease usually runs its course without significant medical intervention; however, the long duration of infectious mononucleosis can be a serious problem for high school and college students and workers. Enlargement of the liver and spleen are also common, so doctors typically prohibit participation in athletic activities to prevent serious injuries. EBV is one of the viruses implicated as a contributing cause of cancer in humans, including Hodgkin's disease, post-transplant and other lymphomas, nasopharyngeal carcinoma (the most common head and neck cancer in large regions of Asia) and Burkitt's lymphoma (a significant disease in Africa). 34 The Company is developing a subunit vaccine for EBV based on the single surface antigen responsible for most of the neutralizing antibodies stimulated by EBV infection. Quantities of this antigen have been expressed, purified and evaluated in a rabbit model, where preliminary results indicate that the antigen is immunogenic when combined with an adjuvant. In 1995, the Company entered into a collaboration with SmithKline Beecham, whereby SmithKline Beecham will fund the development of Aviron's EBV vaccine in exchange for certain marketing rights. See "-- Collaborative Agreements." CYTOMEGALOVIRUS Most people become infected with CMV, another member of the herpes virus family, at some time in their life, and in the United States 40% to 60% of infections occur in childhood. These infections are typically asymptomatic or result in mild illness with sore throat, headache, fatigue and swollen glands. CMV also can cause an infectious mononucleosis syndrome clinically indistinguishable from that associated with EBV infection. More serious CMV disease is also often associated with a weakened immune system, as is often found in AIDS, cancer and transplant patients, which may be due to reactivation of CMV acquired early in life or a primary infection. In addition, if a woman is first exposed to this virus early in pregnancy, the resulting infection can cause serious fetal abnormalities. Approximately 40,000 infants in the United States are infected each year, resulting in varying levels of brain damage or deafness in over 10% of these infants. Congenital CMV syndrome results in significant expenditures for neonatal intensive care. No vaccine currently is available for CMV. Antibodies from persons with high levels of immunity are available in the form of hyperimmune globulins for certain high-risk patients, but use of these products can be costly and of limited efficacy. The Company believes that widespread vaccination of children with a safe effective CMV vaccine is justified for the same reason that children in the United States are vaccinated against rubella: to protect unborn children from birth defects by reducing the risk that mothers are exposed to infected children. A live attenuated CMV vaccine candidate, known as the Towne strain, has been tested by third parties in several hundred people. This strain was reported to be well tolerated, but did not provide sufficient protection in pregnant mothers of children in day care who were at risk for congenital CMV, or in transplant recipients at risk of acquiring CMV from the donor organs. Aviron scientists have discovered differences between the genome of the Towne strain and that of wild-type CMV. Based on this knowledge, the Company has used its Rational Vaccine Design approach to create new recombinant CMV vaccine candidates in an attempt to strike the appropriate balance between attenuation and protection. Some of these vaccine candidates have been made and tested by Aviron in a specialized animal model. The Company expects to select a vaccine candidate to prevent CMV infection for testing in clinical trials. However, no assurance can be given that the Company will be successful in identifying a CMV vaccine candidate. HERPES SIMPLEX VIRUS-TYPE 2 It is estimated that HSV-2, the cause of genital herpes, infects one out of five persons in the United States. Only one-third of those infected experience symptoms, but a significant portion of new infections are caused by transmission from asymptomatic individuals. Genital herpes is a non-lethal but incurable disease that invades the body once and settles in for a lifetime, often manifesting its presence several times a year with painful sores in the genital area. It is estimated that there are over 700,000 new cases of genital herpes per year in the United States, and that the disease is responsible for over 500,000 physician visits per year. Genital herpes also can be acquired by newborn babies as they pass through the birth canal of infected mothers. Neonatal herpes simplex infection can result in serious damage to the brain and many other organs. Even with therapy, over 20% of the 1,500 infants infected each year in the United States die, and many of the survivors are seriously impaired. In addition, efforts to prevent neonatal herpes contribute significantly to the cost of the disease. Thousands of women in the United States with a history of genital herpes are advised to undergo a Cesarean section when prenatal cultures or examinations suggest a recurrence near the time of delivery. HSV-2 infection can also lead to serious and fatal complications in adults with impaired immune systems due to AIDS or drug therapy for organ transplants. 35 The most widely used drug therapy for HSV-2 disease is acyclovir (Zovirax), which has been shown to reduce the severity and duration of herpetic lesions, although most patients treated still experience symptoms for several days. When taken several times a day as a prophylaxis for HSV-2, acyclovir also has been shown to reduce the frequency of recurrences. Several additional therapeutics are available or are in the late stages of clinical trials, and several prophylactic vaccines are in clinical trials; however, no vaccine currently is available to prevent genital herpes. At least two companies are in Phase III clinical trials of subunit vaccines for the primary prevention of genital herpes. Aviron is using its Rational Vaccine Design approach to create an injectable live attenuated vaccine to be used in uninfected children and young adults to prevent genital herpes. Two of the Company's founders, Dr. Bernard Roizman and Dr. Richard Whitley, in collaboration with Pasteur Merieux Serums et Vaccins, developed a prototype live herpes vaccine based on an oral herpes virus (HSV-1) backbone. After extensive preclinical testing, the virus was tested in humans; however, the immune response following vaccination was deemed insufficient. This insufficiency was attributed to the use of the HSV-1 backbone from which too many important genes had been deleted, thus rendering the virus over-attenuated. Aviron has licensed this technology, along with patents covering strategies for more specific deletions, from ARCH Development Corporation. Aviron has used this technology to create live vaccine candidates using an HSV-2 backbone, which it currently is evaluating in preclinical models. Several candidates have shown attenuation in various rodent models, as well as efficacy in protecting guinea pigs and primates from challenge with a lethal dose of wild-type HSV-2. The Company intends to use the results of animal studies to select these or other strains under development for evaluation in clinical trials. There can be no assurance, however, that the Company will commence or successfully complete clinical trials on a timely basis, if at all. Aviron is currently in discussions with a third party to license certain of Aviron's patent rights covering or related to the use of HSV for cancer and gene therapy (excluding vaccines). RESPIRATORY SYNCYTIAL VIRUS RSV is the major cause of lower respiratory tract illness in the very young, responsible for over 90,000 hospitalizations and more than 4,000 deaths a year in the United States. Infection is manifested as cough and fever and, in some cases, pneumonia. While RSV infection can occur at any time of year, epidemics generally occur in the winter. Most cases are in children under age four, with the peak of severe illness under six months of age, particularly in infants with pre-existing heart and lung disease. No vaccine for RSV currently is available, although certain third parties are testing a cold adapted live attenuated RSV vaccine in infants. Available drug therapy is reserved for the most serious cases as it has significant side effects. Aviron is developing a genetically engineered live attenuated virus vaccine for RSV using its proprietary reverse genetics technology. Aviron's objective is to use this technology to create a number of live virus vaccine candidates which can be tested in animal models before selecting a candidate for testing in humans. However, no assurance can be given that the Company will be successful in identifying a vaccine candidate. INFLUENZA CLINICAL TRIALS CLINICAL TRIALS CONDUCTED BY OTHERS The Company's most advanced vaccine product is based on the cold adapted influenza vaccine technology licensed from the University of Michigan and the NIH. The Company has obtained from the NIH and the University of Michigan exclusive rights to trial results and data from the work at the Vaccine Treatment Evaluation Units (the "VTEUs") and Wyeth-Ayerst. Aviron has reviewed the data from over 65 previous clinical trials of influenza vaccine viruses derived from the University of Michigan master strains. These studies, performed since 1976, involved more than 15,000 volunteers, of whom over 7,000 received the cold adapted influenza vaccine. Most of these trials were conducted by academic investigators to explore the biology of the vaccines and were not designed to support an application to the FDA for approval to market a product. Each of the 15 vaccine strains that were tested were derived from the master strains and typically corresponded to the contemporaneous inactivated influenza vaccine for the year of testing. 36 Those who received the cold adapted vaccine ranged in age from two months to over 80 years. More than 50 of these trials studied strains of influenza A vaccine, involving more than 13,000 volunteers, and 15 of the trials studied strains of influenza B vaccines, involving approximately 2,200 volunteers. In the aggregate, these clinical trials involved over 2,000 children. Nearly all of these trials used monovalent (one strain) or bivalent (two strains) formulations, containing only one or two of the three strains usually found in the current trivalent inactivated vaccine. These trials used either placebo or an inactivated virus vaccine as controls. In these clinical trials, trivalent formulations were administered to about 350 adults and 200 children. The cold adapted influenza vaccine was given in most of these clinical trials as nose drops, although in some instances it was given as a nasal spray. The effectiveness of the cold adapted influenza vaccine in preventing influenza infection in adults and children has been evaluated in seven adult and three pediatric challenge studies. Six of these adult challenge studies were placebo-controlled and involved 254 seronegative (relatively low levels of prior antibodies to the influenza strains used in the study) adults who were challenged within six months of vaccination. A challenge study is a clinical trial in which, typically, 20 to 30 adult volunteers are given wild-type influenza by nose drops, one to two months following immunization with the experimental or control vaccine preparation. Compared to placebo rates, the cold adapted influenza strains resulted in significant reduction (66% to 100%) in systemic illness compared to the placebo group and a reduction (17% to 100%) in infection as measured by evidence of challenge virus replication, or virus shedding, in the nose of the recipient. Two of these six studies included a comparison group of subjects treated with the inactivated virus vaccines. While these studies did not have a sufficient number of patients to detect a statistical difference between the cold adapted and inactivated vaccines, the cold adapted vaccine protection rates were equal or better than those seen for the inactivated vaccine in each of the five studies. In one study where adults were challenged seven months after immunization, less protection was seen as measured by infection or any illness for both inactivated and cold adapted vaccines. However, protection rates against systemic illness, such as fever, were 79% to 100% for the cold adapted vaccine and 67% to 84% for the inactivated vaccine. Children are challenged in such studies using the cold adapted influenza vaccine as the challenge virus rather than virulent wild-type virus. The endpoint measured in children is protection from infection, defined as vaccine virus growth in the nose after challenge. Of the three placebo-controlled studies in 86 children, prior immunization with the cold adapted influenza vaccine was associated with a significant reduction (52% to 100%) in the percent of children infected with the challenge virus compared to placebo. In the only children's study that included a comparison to inactivated vaccine, the cold adapted vaccine resulted in a 52% reduction in virus shedding, whereas the inactivated vaccine reduced shedding by 6% compared to the placebo. Cold adapted influenza vaccines also have been tested in field trials where children and adults were vaccinated before the influenza season, and are then followed during the next six months in order to assess protection against influenza disease. The largest study was conducted over four consecutive influenza seasons. Approximately 1,500 children and adults from ages three to 65 were randomly assigned to each arm of this double-blind, placebo-controlled study. This study design only allowed comparison of the inactivated and cold adapted influenza A components. Both vaccines were considered to be well-tolerated, with slightly increased redness and tenderness at the injection site in those receiving the inactivated vaccine and slightly increased sore throat or runny nose, lethargy and aches in those receiving the vaccine nose drops. This study showed that both cold adapted and inactivated influenza vaccines were well tolerated and reduced infection and morbidity due to influenza A. The relative efficacy of the two vaccines differed from one epidemic year to another and according to which measurement was used to assess efficacy. As measured by rises in circulating antibodies during the influenza season (seroconversion), the inactivated vaccine appeared more effective. However, it is not clear how well this correlates with actual protection, as the cold adapted and inactivated vaccines both protected recipients from culture-positive disease at rates which did not differ by an amount which was statistically significant. CLINICAL TRIALS BY AVIRON The Company intends to conduct additional clinical trials to demonstrate safety and efficacy of its cold adapted influenza vaccine. While the Company believes that it can use the previous data to support its regulatory filings, the Company's use of the previous trial data to establish safety and efficacy of its proposed 37 vaccine is limited because very few of the clinical trials involved a trivalent vaccine delivered through a nasal spray. The additional studies will relate to the safety of the formulation as well as the safety of its delivery by intranasal spray. Aviron enrolled a total of 615 patients in Phase I/II clinical trials and 92 patients in a Phase II challenge study in five VTEUs as part of the Company's CRADA with the NIH. The first study, conducted at three university research laboratories, was a safety and immunogenicity study involving 259 healthy adults. Patients were randomly assigned to receive either Aviron's trivalent cold adapted influenza vaccine by nasal spray or nose drops, or placebo by nasal spray or nose drops. No serious adverse events were seen in any subjects. In a preliminary analysis based on approximately 80% of the patients enrolled, there were no statistically significant differences in the occurrence of fever, sore throat, runny nose, cough, headache or any other potential reaction assessed in the study between the vaccine or placebo or between the different types of administration. The Company is in the process of assessing additional safety and immunogenicity data from this study. Two hundred thirty-eight children between the ages of 18 months and five years were enrolled at four VTEUs and 118 children were enrolled at the Center for Vaccine Development in Santiago, Chile, in a Phase I/ II safety, immunogenicity and dose-escalation study. The study design and endpoints were similar to the adult study, except that the initial phases used a dose lower than that given to adults. No serious adverse events were seen in any subjects in any of the three phases of the dose escalation. Based on a statistical analysis of safety data by an NIH-appointed data monitoring and safety committee following each of the escalating dose phases of the children's study, the Company received notification from the committee that it had no objection to the Company proceeding with a larger-scale Phase III pivotal trial in children at the highest dose tested. The Company intends to initiate such a large-scale field trial in the second half of the year. However, the FDA must review data from its completed Phase I/II trials before the Company can enroll subjects in the pivotal trial. The Company intends to enroll approximately 900 children who will be vaccinated with either the cold adapted influenza vaccine or a placebo and observed for evidence of illness or infection during the 1996-1997 influenza season and, if required, revaccinated and observed during the 1997-1998 influenza season. Aviron's trivalent intranasal spray formulation of the cold adapted influenza vaccine also has been tested in a Phase II challenge study at two VTEUs involving ninety-two healthy young adults. Subjects were randomized to receive either the trivalent cold adapted intranasal vaccine, the trivalent inactivated vaccine injection or a placebo. There were no serious adverse events attributed to the study vaccine seen in any subjects. The Company is in the process of analyzing safety and efficacy data from this study. Preliminary analysis of clinical illness and viral shedding following exposure to the challenge virus indicates that a lower than expected percentage of subjects in the placebo group experienced influenza-like illness than had been seen in previous challenge studies. The Company believes that this may have been due to a problem with the challenge virus used to produce influenza in the subjects or to a problem with selection of subjects based on their prior exposure to influenza. Therefore, the Company believes that the challenge study is unlikely to show statistically significant efficacy on the primary endpoint of preventing laboratory-confirmed influenza. Regardless of the results of this study, the Company intends to discuss with the FDA its plans to proceed directly to Phase III clinical trials in adults and does not intend to conduct other challenge studies. Additional trials in children, adults and the elderly will be required to assess the safety and efficacy of the Company's cold adapted influenza vaccine. There can be no assurance that these or any additional trials will be successful or that the Company will successfully develop and receive FDA approval of its cold adapted influenza vaccine. ADDITIONAL RESEARCH PROGRAMS LIVE VIRUSES AS VECTORS Aviron believes that its virus engineering technology may be used to create strains which carry "foreign" genes and are able to deliver genetic or antigenic information to specific tissues in the host. For example, it is possible to engineer antigens from other viruses into influenza, as has already been demonstrated for small antigenic regions from agents such as HIV and malaria. RSV and PIV-3 are two other important causes of childhood infections which may be targeted by using the influenza virus as a vector to deliver antigens. 38 Members of the herpes virus family may also serve as vectors to deliver antigens to make vaccines which protect against other viruses. Due to the natural properties of this virus, it may be useful to delivery genetic information to the central nervous system. Aviron is considering entering into a collaboration to develop the Company's proprietary technology for the use of herpes simplex virus as a vector in gene therapy. There can be no assurance that the Company will be able to enter into a collaboration or that the Company, alone or with others, will be successful in developing this technology. MODIFIED HERPES SIMPLEX VIRUSES TO TREAT BRAIN CANCER The Company's proprietary technology to modify herpes simplex viruses has been evaluated by others in animal models for the treatment of brain cancer. Malignant glioma is the most lethal of the common tumors originating in the brain. In spite of surgical therapy, radiotherapy and chemotherapy, five-year survival rates of approximately 5% are seen. Many new therapies have been investigated, including radiation, hyperthermia, phototherapy, immunotherapy, novel drug delivery for chemotherapy and gene therapy. Two of Aviron's founders, Dr. Richard Whitley and Dr. Bernard Roizman, modified the herpes simplex virus using genetic engineering and have tested this virus in an animal model of malignant glioma. Preliminary results show that tumor size was reduced by the modified viruses, resulting in a survival benefit for the treated animals. However, no assurance can be given that the Company will be successful in developing this technology. MANUFACTURING All of the vaccine material being used in the Company's current clinical trials is being supplied by Evans Medical Limited, a subsidiary of Medeva plc ("Evans"). Evans is one of the four companies licensed by the FDA to produce influenza vaccine for sale in the United States. Evans has also agreed to supply clinical vaccine material for the 1996-1997 influenza season. The Company currently does not have facilities to manufacture products for large-scale clinical trials or in commercial quantities and has no experience in commercial-scale manufacturing. To manufacture its products for large-scale clinical trials or on a commercial scale, the Company will have to build or gain access to a large-scale manufacturing facility which will require a significant amount of funds. The production of the Company's cold adapted influenza vaccine is subject to the availability of a large number of pathogen-free hen eggs, for which there are currently a limited number of suppliers. Contamination or disruption of this source of supply would adversely affect the ability to manufacture the Company's cold adapted influenza vaccine. In addition, to make the vaccine available for clinical trials or commercial sales before the influenza season, the Company must successfully modify the vaccine within a six-month period to include selected strains for a particular year. The Company currently is considering whether to construct manufacturing facilities capable of producing both pilot-scale and commercial quantities of its potential vaccine products and is presently building a pilot manufacturing facility for its potential vaccine products other than cold-adapted influenza. This scale-up process will require the Company to develop advanced manufacturing techniques and rigorous process controls. Furthermore, the Company will be required to register its facility with the FDA and with the California Department of Health Services and will be subject to state and federal inspections confirming the Company's compliance with cGMP regulations established by the FDA. However, no assurance can be given as to the ability of the Company to produce commercial quantities of its potential products in compliance with applicable regulations or at an acceptable cost, or at all. The Company is alternatively considering the use of contract manufacturers for the commercial production of its potential products. The Company is aware of only a limited number of manufacturers which it believes have the ability and capacity to manufacture its potential products, including the cold adapted influenza vaccine, in a timely manner. There can be no assurance that the Company would be able to contract with any of these companies for the manufacture of its products on acceptable terms, if at all. If the Company enters into an agreement with a third-party manufacturer, it will be required to relinquish control of the manufacturing process, which might adversely affect the Company's results of operations. Furthermore, a third-party manufacturer also will be required to manufacture the Company's products in compliance with state and federal regulations. Failure of any such third-party manufacturer to comply with state and federal regulations and to deliver the required quantities on a timely basis and at commercially reasonable prices would materially 39 adversely affect the Company's business, financial condition and results of operations. No assurance can be given that the Company, alone or with a third party, will be able to make the transition to commercial-scale production of its potential products successfully, if at all, or that if successful, the Company will be able to maintain such production. In November 1995, the Company and Evans entered into a manufacturing and development agreement (the "Evans Agreement"). Under the terms of the Evans Agreement, Evans is performing the development of a manufacturing process for production of a cold adapted influenza vaccine and will produce such vaccine in sufficient quantities to enable the Company to conduct its planned field trials and large-scale clinical trials of the vaccine, subject to certain limitations. In addition, in the event that the Company seeks to offer manufacturing rights to a third party, Evans has a right of first negotiation to supply a portion of the Company's commercial requirements for the vaccine in certain European markets. The Company also granted Evans a right of first negotiation with respect to distribution rights for the vaccine in Europe. After December 31, 1996, either party may terminate the Evans Agreement upon six months notice to the other party. MARKETING AND SALES The current purchasers of vaccines are principally physicians, large HMOs and state and federal government agencies. However, the United States health care system is undergoing significant changes and the relative proportion that each group will represent in the future will depend on factors such as legislative changes and the economy. The Company intends to sell its products directly to HMOs and state and federal health care agencies, and to other buyers through partners with strong capabilities in local markets. Outside the United States, the Company plans to sell its potential products through collaborative agreements with strategic partners. Aviron intends to use rigorous cost-effectiveness analysis as a guide for its pricing strategy and in support of its marketing plans. The Company currently has no marketing, sales or distribution capabilities. To market any products, Aviron must either obtain the assistance of a third party with a suitable distribution system, develop a direct sales and marketing staff of its own or combine the efforts of a third party with its own efforts. Other than SmithKline Beecham and Sang-A, the Company to date has no agreements for marketing or distributing its potential products. The success and commercialization of the Company's products is dependent in part upon the ability of the Company to maintain and enter into additional collaborative agreements with corporate partners for the development, testing and marketing of certain of its vaccines and upon the ability of these third parties to perform their responsibilities. Although Aviron believes that parties to any such arrangements would have an economic motivation to succeed in performing their contractual responsibilities, the amount and timing of resources devoted to these activities will not be within the control of the Company. There can be no assurance that any such agreements or arrangements would be available on terms acceptable to the Company, if at all, that such third parties would perform their obligations as expected, or that any revenue would be derived from such arrangements. If Aviron is not able to enter into such agreements or arrangements, it could encounter delays in introducing its potential products into the market or be forced to limit the scope of its commercialization activities. If the Company were to market products directly, significant additional expenditures, management resources and time would be required to develop a marketing and sales staff within the Company. In addition, the Company would also be competing with other companies that currently have experienced and well-funded marketing and sales operations. There can be no assurance that the Company will be able to establish its own marketing and sales force or that any such force, if established, would be successful. COLLABORATIVE AGREEMENTS The Company's strategy for the development, clinical trials, manufacturing and commercialization of certain of its products includes maintaining and entering into various collaborations with corporate partners, licensors, licensees and others. There can be no assurance that the Company will be able to maintain existing 40 collaborative agreements, negotiate collaborative arrangements in the future on acceptable terms, if at all, or that any such collaborative arrangements will be successful. To date the Company has entered into the following collaborative agreements. NATIONAL INSTITUTE OF ALLERGY AND INFECTIOUS DISEASES -- PARAINFLUENZA VIRUS TYPE 3 In May 1996, the Company obtained exclusive rights from the NIAID of the NIH to certain biological materials and clinical trial data for its PIV-3 program. The NIH granted to the Company exclusive rights in specific strains of bovine parainfluenza virus (the "Licensed Materials") to develop, test, manufacture, use and sell products for vaccination against human parainfluenza virus and other human and animal diseases ("Licensed Products"). In addition, the Company obtained from the NIAID the right to reference an existing IND and certain data relating to the Licensed Materials. The NIH retained certain rights to the Licensed Materials on behalf of the United States Government to conduct research and to grant research licenses to third parties under certain circumstances. In return for the rights granted by NIH, the Company will make payments to NIH on the achievement of specified milestones and will make certain royalty payments to NIH. Unless otherwise terminated, the Agreement will terminate on cessation of commercial sales of Licensed Products by the Company or its sublicensee. The Company has the unilateral right to terminate the Agreement in any country upon providing 60 days notice to NIH. SMITHKLINE BEECHAM BIOLOGICALS S.A. In October 1995, the Company signed an agreement with SmithKline Beecham defining a collaboration on the Company's EBV vaccine technology (the "SB Agreement"). Under the terms of the SB Agreement, the Company granted SmithKline Beecham an exclusive license to produce, use and sell non-live EBV vaccines incorporating the Company's technology for prophylactic and therapeutic uses on a worldwide basis, except in South and North Korea (together, "Korea"). The Company has retained the right to co-distribute a monovalent formulation of the vaccine in certain markets in the United States and to have SmithKline Beecham supply such vaccine. In addition, SmithKline Beecham obtained a right of first refusal to an exclusive, worldwide (except Korea) license under any intellectual property rights relating to any live EBV vaccine technology developed or controlled by the Company during the term of the SB Agreement. SmithKline Beecham has agreed to fund research and development at the Company related to the EBV vaccine, in specified minimum amounts, during the first two years of the SB Agreement. SmithKline Beecham made an initial upfront payment to the Company and agreed to make additional payments upon the achievement of certain product development milestones. The Company is entitled to royalties from SmithKline Beecham based on net sales of the vaccine. Unless otherwise terminated, the SmithKline Beecham Agreement will expire upon the expiration or invalidation of the last remaining patent covered by the SB Agreement or 10 years from the date of first commercial sale of the vaccine, whichever is later. The SB Agreement may be terminated by SmithKline Beecham with respect to any country at any time. SANG-A PHARM. CO., LTD. In May 1995, the Company entered into a Development and License Agreement with Sang-A. The Company granted to Sang-A exclusive clinical development, manufacturing and marketing rights in Korea for specified products developed by Aviron, including vaccines for influenza (cold adapted and recombinant), EBV, CMV, HSV-2 and RSV. However, the Company is under no obligation to develop any product. Sang-A also will make payments to the Company upon the Company's meeting certain regulatory milestones for each product in Korea and will pay a royalty to the Company on net sales of such products in Korea. Sang-A also is obligated to establish a manufacturing facility with at least enough capacity to meet demand for all Korean product requirements for each product that reaches commercialization, if any. In the event that Sang-A's manufacturing capabilities satisfy certain objective criteria and subject to an obligation to cooperate with the Company's future corporate partners for any given products, Sang-A has a right of first refusal to 41 manufacture a portion of the total requirements of the Company, its affiliates and sublicensees for the specified products, with the exception of the EBV vaccine, in specified countries, including the United States, provided that it can do so at a competitive price, quality and timeline. The term of this agreement extends, on a product-by-product basis, until 10 years from the date of first commercial sale of each product in Korea. At the conclusion of the term, Sang-A has an option to extend the agreement on a product-by-product basis, for the longer of an additional 10 years or the expiration of the patents covering such product. During any such extension, Sang-A will have either no royalty obligation to the Company or a reduced royalty obligation, depending on the product. Aviron may terminate the Agreement on a product-by-product basis for material breach by Sang-A of certain provisions of the Agreement, and may terminate the agreement in its entirety for material breach of certain other provisions. In return for the rights granted to Sang-A, Sang-A made an equity investment in the Company in May 1995 of approximately $4.0 million. Sang-A subsequently made an additional equity investment of approximately $1.6 million in the Company's private placement of Series C Preferred Stock and currently owns 4,265,480 shares of the Company's Series C Preferred Stock, convertible into 853,096 shares of the Company's Common Stock, representing approximately 9% of the Company's Common Stock (on an as-converted basis) outstanding prior to this offering. In addition, Sang-A has agreed to purchase, if so requested by Aviron, 10% of any subsequent offerings by the Company of new securities at the same price offered to other purchasers in any such offering. This purchase obligation expires following the closing of the first firmly underwritten public offering of the Company's Common Stock. Concurrent with this offering, Aviron intends to sell to Sang-A in a private placement, at the initial public offering price, a number of shares of Common Stock equal to 10% of the aggregate number of shares sold in the offering and in the private placement, provided however, that the total number of shares to be purchased by Sang-A will not exceed $5,000,000 divided by the initial public offering price. NATIONAL INSTITUTE OF ALLERGY AND INFECTIOUS DISEASES -- COLD ADAPTED INFLUENZA VACCINE Following a competitive application process, the Company entered into a CRADA in March 1995 with the National Institute of Allergy and Infectious Diseases of the NIH to conduct clinical trials of the Company's cold adapted influenza vaccine. Wyeth-Ayerst licensed certain rights to the vaccine from the NIH in 1989 and was developing it for sale in collaboration with the NIH until relinquishing its rights in 1993. Aviron has obtained from the NIH and the University of Michigan exclusive rights to trial results and data from the work at the VTEUs and Wyeth-Ayerst. The NIH has agreed to support the trials by enrolling subjects in its network of VTEUs. In addition, the Company acquired exclusive commercial rights to data generated from all previous clinical trials conducted by the NIH and Wyeth-Ayerst using the vaccine. The term of the CRADA will not exceed five years without a written amendment by the parties. Either party may terminate the CRADA for material breach. UNIVERSITY OF MICHIGAN In February 1995, the Company entered into a materials transfer and intellectual property agreement (the "Michigan Agreement") with the University of Michigan. Pursuant to the Michigan Agreement, the University of Michigan granted the Company exclusive rights to certain intellectual property and technology relating to a cold adapted influenza vaccine and proprietary donor strains of influenza viruses useful in the production of products for vaccination against influenza and potentially for gene therapy and other uses (the "Master Strains"). Specifically, the Company obtained the exclusive right to develop, manufacture, use, market and sell products incorporating any such intellectual property or utilizing the Master Strains in all countries of the world except Japan. Aviron is in the process of acquiring the Japanese rights from the University of Michigan for no additional consideration. In consideration for the rights granted to the Company, the Company (i) made an initial cash payment to the University of Michigan; (ii) agreed to pay a royalty to the University of Michigan on net sales of products subject to the license; (iii) entered into a sponsored research agreement with the University of Michigan for a period of at least two years; and (iv) issued to the University of Michigan 1,323,734 shares of Series B Preferred Stock, convertible into 264,746 shares of the Company's Common Stock, representing approximately 3% of the Company's Common Stock (on an as-converted basis) outstanding prior to this offering. 42 In addition, in the event that Aviron receives approval to commercially market a product based on the University of Michigan technology, the Company has agreed to issue a warrant to the University of Michigan to purchase shares of the Company's Common Stock, for a number of shares to be based on 1.25% of the Common Stock outstanding on the date of the first commercial sale of the product incorporating the University of Michigan technology. See "Description of Capital Stock -- Warrants." Pursuant to the Michigan Agreement, the Company is required to grant to the University of Michigan an irrevocable, royalty-free license for research purposes, or for transfer to a subsequent licensee should the Michigan Agreement be terminated, to (i) all improvements developed by the Company, its affiliates or sublicensees, whether or not patentable, relating to delivery mechanisms and processes for administration and manufacturing of products, as well as packaging, storage and preservation processes for the Master Strains, and (ii) all new technical information acquired by the Company, its affiliates or sublicensees relating to the Master Strains and products. The term of the Michigan Agreement is until the later of the last to expire of the the University of Michigan patents licensed to the Company or 20 years from the date of first commercial sale of a product incorporating the Michigan technology. The Company has the further right to terminate for any reason upon 12 months notice to the University of Michigan. THE MOUNT SINAI SCHOOL OF MEDICINE In February 1993, the Company entered into a technology transfer agreement with The Mount Sinai School of Medicine of the City University of New York ("Mount Sinai"). Under this agreement, Mount Sinai assigned to the Company all of its rights, title and interest in and to certain patents and patent applications, as well as all associated know-how and other technical information, relating to recombinant negative strand RNA virus expression systems and vaccines, attenuated influenza viruses and certain other technology. Mount Sinai also granted the Company (i) an option to acquire any improvements to the inventions disclosed in the assigned patents and patent applications thereafter developed by Mount Sinai and (ii) a right of first negotiation for a license or assignment to certain additional related technology. In consideration for the rights granted to the Company, the Company issued to Mount Sinai 35,000 shares of the Company's Common Stock. The Company also issued to Mount Sinai three warrants to purchase up to a total of 225,000 shares of the Company's Series A Preferred Stock, each exercisable for a term of five years commencing upon the occurrence of certain milestone events which accelerate upon the effectiveness of this offering. Warrants to purchase 45,000 of the shares of Series A Preferred Stock (convertible into 9,000 shares of Common Stock) are exercisable at a purchase price of $4.50 per share of Common Stock. Warrants to purchase 148,750 shares of Series A Preferred Stock (convertible into 29,750 shares of Common Stock), will become exercisable at the effective date of this offering at a price per share of Common Stock of 125% of the initial public offering price of the Company's Common Stock. The warrant to purchase the remaining 31,250 shares of Series A Preferred Stock will be cancelled on the effective date of this offering. See "Capital Stock -- Warrants." ARCH DEVELOPMENT CORPORATION In July 1992, the Company entered into a license agreement with ARCH Development Corporation ("ARCH"), an Illinois not-for-profit corporation associated with the University of Chicago, pursuant to which the Company obtained an exclusive, worldwide commercialization license, with the right to sublicense, to certain patent rights and related intellectual property and materials pertaining to the herpes simplex viruses, EBV and various recombinant methods and materials. In return for the rights granted to the Company under this agreement, the Company will make payments to ARCH upon the achievement of certain milestones in the development of products covered by the license and will pay royalties to ARCH on net sales of such products. ARCH also granted the Company certain rights to improvements and additional related technology. The term of this agreement extends until the expiration of the last-to-expire patent rights covered under the license. In connection with this agreement, ARCH purchased 40,000 shares of the Company's Common Stock. Subsequent to this agreement, affiliates of ARCH made equity investments in Aviron, purchasing 700,000, 300,000 and 113,999 shares of the Company's Series A, B and C Preferred Stock, respectively, convertible into a total of 43 222,799 shares of the Company's Common Stock. ARCH and its affiliates together own shares representing approximately 2.5% of the Company's Common Stock (on an as-converted basis) outstanding prior to this offering. PATENTS AND PROPRIETARY RIGHTS Aviron believes that patent and trade secret protection is important to its business and that its future will depend in part on its ability to maintain its technology licenses, maintain trade secret protection, obtain patents and operate without infringing the proprietary rights of others. The Company owns or has licensed rights to United States and foreign patents and patent applications covering aspects of technology relating to herpes viruses, including EBV, CMV, and HSV-2 and negative strand RNA viruses, such as influenza and RSV technologies. The Company has no issued patents on the technology related to its cold adapted influenza vaccine. The Company's rights to this technology are based on a license of materials and know-how from the University of Michigan, which owns the master strains from which the vaccine is derived, and on a license of know-how and clinical trial data from the NIH. There can be no assurance, that a third party will not reproduce the Company's cold adapted influenza vaccine or that a third party will not develop another live-virus influenza vaccine which might be comparable to Aviron's in terms of safety and efficacy. The Company also relies on trade secrets to protect its technology, especially where patent protection is not believed to be appropriate or obtainable. Certain of the Company's licensors also rely on trade secrets to protect technology which has been licensed to Aviron, and as a result, the Company is dependent on the efforts of these licensors to protect such trade secrets. For example, the University of Michigan relies in part on trade secrets to protect the master strains of the cold adapted influenza virus used by the Company and the NIH relies in part on trade secrets to protect the master strains of the bPIV-3 virus. Aviron protects its proprietary technology and processes, in part, by confidentiality agreements with its employees, consultants, collaborators and certain contractors. There can be no assurance that these agreements will not be breached, that the Company would have adequate remedies for any breach, or that the Company's trade secrets or those of its licensors will not otherwise become known or be independently discovered by competitors. To the extent that Aviron or its consultants or research collaborators use intellectual property owned by others in their work for the Company, disputes may also arise as to the rights in related or resulting know-how and inventions. The Company's success also will depend in part on its ability to obtain patents, both in the United States and in other countries. Since patent applications in the United States are maintained in secrecy until patents issue and since publication of discoveries in the scientific or patent literature often lag behind actual discoveries, the Company cannot be certain that it was the first to make the inventions covered by each of its pending patent applications or that it was the first to file patent applications for such inventions. The patent positions of biotechnology and pharmaceutical companies can be highly uncertain and involve complex legal and factual questions, and therefore the breadth of claims allowed in biotechnology and pharmaceutical patents or their enforceability cannot be predicted. Although Aviron has acquired or licensed rights to over a dozen patent applications pending in the United States, and seven issued United States patents, there can be no assurance that any of the Company's patents or patent applications will issue, or if issued, will not be challenged, invalidated or circumvented, or that the rights granted thereunder will provide proprietary protection or competitive advantages to the Company. The commercial success of Aviron additionally will depend, in part, upon the Company's not infringing patents issued to others. A number of pharmaceutical companies, biotechnology companies, universities and research institutions have filed patent applications or received patents in the areas of the Company's programs. Some of these applications or patents may limit or preclude the Company's applications, or conflict in certain respects with claims made under the Company's applications. The Company is aware of pending patent applications that have been filed by others that may pertain to certain aspects of the Company's programs, including a genetically engineered influenza vaccine, the Company's herpes virus program or other of its issued or pending patent applications. If patents are issued to others containing preclusive or conflicting claims and such claims are ultimately determined to be valid, the Company 44 may be required to obtain licenses to these patents or to develop or obtain alternative technology. The Company's breach of an existing license or failure to obtain a license to technology required to commercialize its products may have a material adverse effect on the Company's business, financial condition and results of operations. Litigation, which could result in substantial costs to the Company, may also be necessary to enforce any patents issued to the Company or to determine the scope and validity of third-party proprietary rights. If competitors of the Company prepare and file patent applications in the United States that claim technology also claimed by the Company, the Company may have to participate in interference proceedings declared by the United States Patent and Trademark Office to determine priority of invention, which could result in substantial cost to the Company, even if the eventual outcome is favorable to the Company. An adverse outcome could subject the Company to significant liabilities to third parties and require the Company to license disputed rights from third parties or to cease using such technology. On May 22, 1996, the Company received notice from Chiron that Chiron intends to file a lawsuit against Aviron, unless a prompt negotiated settlement can be reached, alleging that certain of Aviron's patent applications relating to its EBV program are based on Chiron proprietary information which was improperly conveyed to Aviron by a former Chiron employee. Aviron believes that Chiron's allegations are without merit and, if a complaint is filed, intends to vigorously defend itself against any such action. Aviron does not utilize the alleged proprietary information in any of its programs. The Company has received terms of a proposed settlement from Chiron and is in discussions with Chiron regarding a possible settlement of the dispute. No assurance can be given that litigation will not ensue, which could be costly and time-consuming. GOVERNMENT REGULATION Regulation by government authorities in the United States and other countries will be a significant factor in the manufacturing and marketing of any products that may be developed by the Company. All of the Company's products will require regulatory approval by government agencies prior to commercialization. The Company's vaccine products are subject to rigorous preclinical testing and clinical trial and other approval procedures by the FDA and similar health authorities in foreign countries. Various federal statutes and regulations also govern or influence the manufacturing, safety, labeling, storage, record keeping and marketing of such products. The Company believes that its vaccine products will be classified by the FDA as "biologic products," as opposed to "drug products." The steps ordinarily required before a drug or biological product may be marketed in the United States include (a) preclinical testing and clinical trials; (b) the submission to the FDA of an IND, which must become effective before clinical trials may commence; (c) adequate and well-controlled clinical trials to establish the safety and efficacy of the drug; (d) the submission to the FDA of a Product License Application ("PLA") together with an Establishment License Application ("ELA"); and (e) FDA approval of the application, including approval of all product labeling and, in some instances, advertising. Preclinical testing includes laboratory evaluation of product chemistry, formulation and stability, as well as animal studies to assess the potential safety and efficacy of each product. Preclinical safety tests must be conducted by laboratories that comply with FDA regulations regarding Good Laboratory Practice. The results of the preclinical tests are submitted to the FDA as part of an IND and are reviewed by the FDA before the commencement of clinical trials. Unless the FDA objects to an IND, the IND will become effective 30 days following its receipt by the FDA. There can be no assurance that submission of an IND will result in FDA authorization to commence clinical trials or that the lack of an objection means that the FDA will ultimately approve an application for marketing approval. Clinical trials involve the administration of the investigational product to humans under the supervision of a qualified principal investigator. Clinical trials must be conducted in accordance with Good Clinical Practices under protocols submitted to the FDA as part of the IND. In addition, each clinical trial must be approved and conducted under the auspice of an Institutional Review Board and with patient informed consent. The Institutional Review Board will consider, among other things, ethical factors, the safety of human subjects and the possible liability of the institution conducting the clinical trial. Phase I clinical trials are generally performed in healthy human subjects. The goal of the Phase I clinical trials is to establish initial data about safety and tolerance of the vaccine in humans. Also, the data regarding the 45 immune response to a vaccine may be obtained. In Phase II clinical trials, evidence is sought about the desired therapeutic efficacy of a drug or antibody, or the immune response to a vaccine, in limited studies with small numbers of carefully selected subjects. Efforts are made to evaluate the effects of various dosages and to establish an optimal dosage level and dosage schedule. Additional safety data are also gathered from these studies. The Phase III clinical trial program consists of expanded, large-scale, multicenter studies of persons who are susceptible to the disease. The goal of these studies is to obtain definitive statistical evidence of the efficacy and safety of the proposed product and dosage regimen. All data obtained from this comprehensive development program are submitted as a PLA to the FDA and the corresponding agencies in other countries for review and approval. FDA approval of the PLA and the associated ELA is required before marketing may begin in the United States. The FDA will present to the Vaccine and Related Biological Products Advisory Committee documentation on most of Aviron's products for review and recommendation before PLA approval. Although the FDA's policy is to review priority applications within 180 days of their filing, in practice longer times may be required. The FDA frequently requests that additional information be submitted requiring significant additional review time. All proposed products of the Company will be subject to demanding and time-consuming PLA or similar approval procedures in the countries where the Company intends to market its products. These regulations define not only the form and content of the development of safety and efficacy data regarding the proposed product, but also impose specific requirements regarding manufacture of the product, quality assurance, packaging, storage, documentation and record keeping, labelling and advertising, and marketing procedures. Effective commercialization also requires inclusion of the Company's products in national, state, provincial, or institutional formularies or cost reimbursement systems. FDA approval of the Company's products, including a review of the manufacturing processes and facilities used to produce such products, will be required before such products may be marketed in the United States. The process of obtaining approvals from the FDA can be costly, time consuming and subject to unanticipated delays. The FDA may refuse to approve an application if it believes that applicable regulatory criteria are not satisfied. The FDA may also require additional testing for safety and efficacy of the drug. Moreover, if regulatory approval of a drug product is granted, the approval will be limited to specific indications. There can be no assurance that approvals of the Company's proposed products, processes or facilities will be granted on a timely basis, if at all. Any failure to obtain or delay in obtaining such approvals would have a material adverse effect on the Company's business, financial condition and results of operations. Moreover, even if regulatory approval is granted, such approval may include significant limitations on indicated uses for which a product could be marketed. In addition to regulations enforced by the FDA, the Company also is subject to regulation under the Occupational Safety and Health Act, the Environmental Protection Act, the Toxic Substances Control Act, the Nuclear Regulatory Commission, the Resource Conservation and Recovery Act and other present and potential future federal, state or local regulations. The Company's research and development involves the controlled use of hazardous materials and chemicals. Although the Company believes that its safety procedures for handling and disposing of such materials comply with the standards prescribed by state and federal regulations, there can be no assurance that accidental contamination or injury from these materials will not occur. In the event of such an accident, the Company could be held liable for any damages that result and any such liability could exceed the resources of the Company. Whether or not FDA approval has been obtained, approval of a product by comparable regulatory authorities may be necessary in foreign countries prior to the commencement of marketing of the product in such countries. The approval procedure varies among countries, can involve additional testing, and the time required may differ from that required for FDA approval. Although there is now a centralized European Union approval mechanism in place, each European country may nonetheless impose its own procedures and requirements, many of which are time consuming and expensive. Thus, there can be substantial delays in obtaining required approvals from both the FDA and foreign regulatory authorities after the relevant applications are filed. The Company expects to rely on corporate partners and licensees, along with Company expertise, to obtain governmental approval in foreign countries of drug formulations utilizing its candidates. 46 The Company believes that the approval process for vaccines may be longer than for other therapeutic products. In addition, regulatory scrutiny may be particularly intense for products, such as Aviron's cold-attenuated influenza vaccine, which are designed to be given to otherwise healthy children. COMPETITION The Company operates in a rapidly evolving field. Any product developed by the Company would compete with existing and new drugs and vaccines being created by pharmaceutical, biopharmaceutical and biotechnology companies. If the Company were able to successfully develop its vaccines, it would be competing with larger companies that have already introduced vaccines and have significantly greater marketing, manufacturing, financial and managerial resources. For example, with respect to its cold adapted influenza vaccine, the Company will be competing against larger companies such as Pasteur Merieux Connaught, Wyeth-Ayerst, Parke-Davis and Evans. Each of these companies sells the inactivated injectable influenza vaccine in the United States, has significantly greater financial resources than Aviron and has established marketing and distribution channels for such products. The Company is also aware of several companies that are marketing or are in late-stage development of products to prevent HSV disease, including Glaxo, SmithKline Beecham and Chiron Biocine Corporation. In addition, the Company is also aware of the use in Russia of a cold adapted influenza vaccine, research programs by some of the competitors listed above, among others, to develop more effective influenza vaccines and a cold adapted PIV-3 vaccine developed with NIH support which may be licensed to a large vaccine company. New developments are expected to continue in both the pharmaceutical and biotechnology industries and in academia. Other companies may succeed in developing products that are safer, more effective or less costly than any that may be developed by the Company. Such companies may also be more effective than the Company in the production and marketing of their products. Furthermore, rapid technological development by competitors may result in the Company's products becoming obsolete before the Company is able to recover its research, development or commercialization expenses incurred in connection with any such product. Many potential competitors have substantially greater financial, technical and marketing resources than the Company. Some of these companies also have considerable experience in preclinical testing, clinical trials and other regulatory approval procedures. Moreover, certain academic institutions, government agencies and other research organizations are conducting research in areas in which the Company is working. These institutions are becoming increasingly aware of the commercial value of their findings and are becoming more active in seeking patent protection and licensing arrangements to collect royalties for the use of technology that they have developed. These institutions may also market competitive commercial products on their own or through joint ventures. Aviron believes that competition in the markets it is addressing will continue to be intense. The vaccine industry is characterized by intense price competition, and the Company anticipates that it will face this and other forms of competition. There can be no assurance that pharmaceutical, biopharmaceutical and biotechnology companies will not develop more effective products than those of the Company or will not market and sell their products more effectively than the Company, which would have a material adverse effect on the Company's business, financial condition and results of operations. PHARMACEUTICAL PRICING AND REIMBURSEMENT Political, economic and regulatory influences are subjecting the health care industry in the United States to fundamental change. Recent initiatives to reduce the federal deficit and to reform health care delivery are increasing cost-containment efforts. The Company anticipates that Congress, state legislatures and the private sector will continue to review and assess alternative benefits, controls on health care spending through limitations on the growth of private health insurance premiums and Medicare and Medicaid spending, the creation of large insurance purchasing groups, price controls on pharmaceuticals and other fundamental 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 47 continue in the future, and market forces are expected to demand reduced costs. Aviron cannot predict what impact the adoption of any federal or state health care reform measures or future private sector reforms may have on its business. In both domestic and foreign markets, sales of the Company's proposed vaccines will depend in part upon the availability of reimbursement from third-party payors, such as government health administration authorities, managed care providers, private health insurers and other organizations. In addition, other third-party payors are increasingly challenging the price and cost effectiveness of medical products and services. Significant uncertainty exists as to the reimbursement status of newly approved health care products. There can be no assurance that the Company's proposed products will be considered cost effective or that adequate third-party reimbursement will be available to enable Aviron to maintain price levels sufficient to realize an appropriate return on its investment in product development. Legislation and regulations affecting the pricing of pharmaceuticals may change before the Company's proposed products are approved for marketing. Adoption of such legislation could further limit reimbursement for medical products. If adequate coverage and reimbursement levels are not provided by the government and third-party payors for the Company's products, the market acceptance of these products would be adversely affected, which would have a material adverse effect on the Company's business, financial condition and results of operations. Several of the Company's proposed vaccines are intended for use in children. Widespread use of these proposed vaccines is unlikely without recommendations for their use in childhood immunization programs from authorities such as the ACIP, the American Academy of Pediatrics and the American College of Physicians. The ACIP has a role in making recommendations which affect the market for most, if not all, of the products Aviron intends to make. The CDC develops epidemiologic data in support of the need for new vaccines and monitors vaccine usage and changes in disease incidence. In addition, CDC staff frequently act as key advisors to the FDA in their review process. There can be no assurance that such authorities will recommend the use of the Company's proposed products, which would have a material adverse effect on the Company's business, financial condition and results of operations. EMPLOYEES As of June 1, 1996, the Company had 70 full-time employees. Thirty-eight of the Company's employees were in research and development 16 were in regulatory affairs, quality assurance and quality control, and 16 were in administration. No Company employee is represented by a labor union, and the Company has not experienced any work stoppages. The Company considers its employee relations to be good. FACILITIES Aviron occupies approximately 52,800 square feet of office and laboratory space in Mountain View, California. The Company has leased this facility through October 2005 and has two options to extend the lease for successive five-year terms. The Company currently subleases approximately 15,000 square feet of space to three subtenants. The subleases run through June 1996 and may be extended at Aviron's discretion. The Company believes that this facility is adequate to meet its needs for the foreseeable future. LEGAL PROCEEDINGS The Company is not a party to any material legal proceedings. However, on May 22, 1996, the Company received notice from Chiron that Chiron intends to file a lawsuit against Aviron, unless a prompt negotiated settlement can be reached, alleging that certain of Aviron's patent applications relating to its EBV program are based on Chiron proprietary information which was improperly conveyed to Aviron by a former Chiron employee. Aviron believes that Chiron's allegations are without merit and, if a complaint is filed, intends to vigorously defend itself against any such action. Aviron does not utilize the alleged proprietary information in any of its programs. The Company has received terms of a possible settlement from Chiron and is in discussions with Chiron regarding a proposed settlement of the dispute. No assurance can be given that litigation will not ensue, which could be costly and time-consuming. 48 SCIENTIFIC ADVISORY BOARD Aviron's scientific advisors are consultants who devote six to 20 days per year to the Company. Some meet frequently with Company employees to discuss specific projects and others participate primarily via the Company's two annual meetings of the Scientific Advisory Board. ANN ARVIN, M.D., Professor of Pediatrics, Microbiology and Immunology at the Stanford University School of Medicine, has been a member of the Company's Scientific Advisory Board since 1992. Dr. Arvin has conducted research on the epidemiology of maternal-to-infant transmission of HSV-2 and she directs one of the leading laboratories in the study of the interaction of the human immune system with the varicella zoster (chicken pox) virus in natural and vaccine infections. HARRY GREENBERG, M.D., Professor of Medicine, Microbiology and Immunology and Chief of the Division of Gastroenterology and Associate Chairman for Academic Affairs, Department of Medicine at the Stanford University School of Medicine, has been a member of the Company's Scientific Advisory Board since 1992. Dr. Greenberg's research deals with the immunology and pathogenesis of the principal viruses which cause infectious diarrhea and hepatitis. ELLIOT KIEFF, M.D., PH.D., Albee Professor of Medicine, Microbiology and Molecular Genetics and Chairman of the Virology Program at Harvard University, and Director of Infectious Disease at the Brigham and Women's Hospital, has been a member of the Company's Scientific Advisory Board since 1992. Dr. Kieff's laboratory conducts research on the molecular mechanisms of how EBV is a contributory cause of cancer in humans. JOSHUA LEDERBERG, PH.D., the Raymond and Beverly Sackler Foundation Scholar and former President of The Rockefeller University, has been a member of the Company's Scientific Advisory Board since 1992. He received the Nobel Prize in Physiology or Medicine for his discovery of genetic recombination in bacteria. His laboratory at the Rockefeller University studies molecular genetics and he is active in formulation of national policy concerning emerging infections. HUNEIN F. MAASSAB, PH.D., Chairman of the Department of Epidemiology, School of Public Health, at the University of Michigan, has been a member of the Company's Scientific Advisory Board since 1995. He is the inventor of the cold adapted influenza vaccine licensed to the Company by the University of Michigan and has published numerous papers on this subject. His laboratory is studying the molecular basis of influenza virus attenuation and is involved in development of new vaccines for other respiratory viruses. EDWARD MOCARSKI, JR., PH.D., Professor and Chairman of the Department of Microbiology and Immunology at the Stanford University School of Medicine, has been a member of the Company's Scientific Advisory Board since 1992. His laboratory engineered the first recombinant CMV providing the first demonstration of this virus as a vector and is one of the leading groups conducting research on CMV gene regulation. PETER PALESE, PH.D., a founder of the Company and member of the Scientific Advisory Board since 1992, is Professor and Chairman of the Department of Microbiology at The Mount Sinai School of Medicine of the City University of New York. His laboratory developed the first successful strategy for making genetically engineered influenza viruses. This invention is the subject of a United States patent issued in 1992 covering the genetic engineering of negative strand RNA viruses rights to which patent have been acquired by the Company. Dr. Palese's research group has been responsible for developing a genetic map for influenza virus, elucidating the function of viral proteins, and the creation of recombinant influenza strains which demonstrate the use of this virus as a vector. GERALD V. QUINNAN, JR., M.D., Professor of Preventive Medicine, Medicine and Microbiology, Department of Preventive Medicine and Biometrics at the Uniformed Services University of the Health Sciences in Bethesda, Maryland, has been a member of the Company's Scientific Advisory Board since 1995. Dr. Quinnan was employed by the FDA from 1977 until 1993. From 1980 to 1988, he was Director of the Virology Division, subsequently serving as Deputy Director and Acting Director, of the Center for Biologics Evaluation and Research. Dr. Quinnan's research concerns aspects of HIV immunology related to vaccine development. BERNARD ROIZMAN, SC.D., a founder and director of the Company and member of the Scientific Advisory Board since 1992, is the Joseph Regenstein Distinguished Service Professor of the Departments of Molecular 49 Genetics and Cell Biology and of Biochemistry and Molecular Biology at The University of Chicago. His laboratory is a leading center of research on neurovirulence of the herpes simplex viruses, created the first example of a large DNA virus which had been genetically engineered and provided the first demonstration of herpes simplex virus as a vector. Dr. Roizman is a member of the United States National Academy of Sciences. The Company's HSV-2 vaccine program is based on his patented technology, licensed to Aviron. JOHN SKEHEL, PH.D., FRS, Director of the National Institute of Medical Research of the Medical Research Council and the WHO Influenza Surveillance Center in Mill Hill near London, has been a member of the Company's Scientific Advisory Board since 1992. His laboratory has contributed new knowledge on the structure of the influenza virus as well as the molecular epidemiology of this virus. RICHARD WHITLEY, M.D., a founder of the Company and member of the Scientific Advisory Board since 1992, is Professor of Pediatrics, Microbiology, and Medicine and Vice Chairman of the Department of Pediatrics at the University of Alabama School of Medicine in Birmingham. He has conducted pharmacologic and clinical studies on many antiviral drugs and his laboratory is a leading center of research on the mechanism by which herpes simplex virus causes disease, and he is studying the use of modified herpes viruses to treat brain cancer. Dr. Whitley is former Chairman of the NIH Data Monitoring and Safety Committee for AIDS Therapy and a member of the Committee on Infectious Disease of the American Academy of Pediatrics (The Redbook Committee). MAX WILHELM, PH.D., is a consultant to the biotechnology industry and has been a member of the Company's Scientific Advisory Board since 1993. He has retired from a 35-year career at Ciba-Geigy where he was most recently a member of the Pharmaceuticals Division Committee overseeing worldwide research and development operations. He was involved in the formation of The Biocine Company, a joint venture vaccine company between Ciba-Geigy and Chiron, serving as one of its original directors, and is currently Chairman of the Board of Directors of Genelabs Technologies, Inc. 50 MANAGEMENT EXECUTIVE OFFICERS AND DIRECTORS The executive officers and directors of the Company as of June 1, 1996 is set forth below:
NAME AGE POSITION --------------------------------- --- ----------------------------------- J. Leighton Read, M.D............ 45 Chairman, Chief Executive Officer and Chief Financial Officer Martin L. Bryant, M.D., Ph.D..... 47 Vice President, Research Victor Jegede, Ph.D.............. 51 Vice President, Technical Affairs Vera Kallmeyer, M.D., Ph.D....... 37 Vice President, Corporate Development Paul M. Mendelman, M.D........... 48 Vice President, Clinical Research Eric J. Patzer, Ph.D............. 47 Vice President, Development Reid W. Dennis (1)(2)............ 70 Director Paul H. Klingenstein (1)(2)...... 40 Director Jane E. Shaw, Ph.D............... 57 Director L. James Strand, M.D. (1)(2)..... 54 Director Bernard Roizman, Sc.D............ 67 Director Alan C. Mendelson................ 48 Secretary
- ------------------- (1) Member of the Compensation Committee. (2) Member of the Audit Committee. J. LEIGHTON READ, M.D., a founder of the Company, has been Chairman, Chief Executive Officer and Chief Financial Officer of the Company since 1992. In 1989, he co-founded Affymax N.V. with Dr. Alejandro Zaffaroni, serving initially as its Executive Vice President and Chief Operating Officer and later, from 1990 to 1991, as President of the Pharma Division and as a Managing Director of the parent company. From 1991 to 1993, Dr. Read was a principal with Interhealth Limited, an investment partnership. Prior to 1989, Dr. Read held appointments at the Harvard Medical School and School of Public Health, where his research dealt with techniques for assessing the cost effectiveness of pharmaceutical products. He has served on the boards of a number of private biotechnology companies and is currently on the board of a private biotechnology company. Dr. Read holds a B.S. in Biology and Psychology from Rice University and an M.D. from the University of Texas Health Science Center at San Antonio. MARTIN L. BRYANT, M.D., PH.D., has been Vice President, Research of the Company since 1995. Dr. Bryant also currently is Consulting Associate Professor of Pediatrics, Microbiology and Immunology at the Stanford University School of Medicine and Adjunct Associate Professor of Molecular Microbiology at the Washington University School of Medicine. From 1991 to 1995, he was Director, Infectious Disease Research for G. D. Searle & Co./Monsanto, a pharmaceutical company. From 1990 to 1991, he was an Instructor in Pediatric Infectious Diseases at the Washington University School of Medicine. Dr. Bryant holds a B.A. in Chemistry from Duke University, an M.A. in Chemistry from San Diego State University, and an M.D. and a Ph.D. from the University of Southern California. VICTOR JEGEDE, PH.D., has been Vice President, Technical Affairs of the Company since 1995. From 1992 to 1994, Dr. Jegede was Vice President, Regulatory Affairs and Quality for Creative BioMolecules, Inc., a biopharmaceuticals company, and from 1989 to 1992, he was Director, Regulatory Affairs and Quality for WelGen Manufacturing Partnership (BW Manufacturing, Inc.), a division of Burroughs Welcome Manufacturing, Inc., a pharmaceutical manufacturer. Dr. Jegede holds a B.S. and an M.S. in Biology, and a Ph.D. in Bacteriology from Boston College. 51 VERA KALLMEYER, M.D., PH.D., has been Vice President, Corporate Development of the Company since 1994. From 1993 to 1994, Dr. Kallmeyer was Vice President, Healthcare Banking/Biotech at Flemings, a London-based merchant bank. From 1990 to 1993, she was an Associate in Investment Banking at Wasserstein Perella and Company. In 1994, she co-founded Pacific Futures, an investment advisory business located in Hong Kong, for which she currently serves as Senior Advisor. Dr. Kallmeyer holds an M.D. and a Ph.D. in Pediatric Cardiology from Ludwig-Alexander University in Erlangen, Germany, and an M.B.A. from Stanford University. She has also studied at the Harvard Medical School and the Royal Postgraduate Medical School in London. PAUL M. MENDELMAN, M.D., has been Vice President, Clinical Research of the Company since May 1996. Prior to joining the Company, Dr. Mendelman was Director, Clinical Research, Infectious Diseases for Merck Research Laboratories, a pharmaceutical company, since September 1991. From 1983 to 1991, Dr. Mendelman was Clinical Instructor, Assistant Professor and then Associate Professor of Pediatrics at the University of Washington. Dr. Mendelman holds a B.S. and an M.D. from Ohio State University and is a fellow of the American Academy of Pediatrics. ERIC J. PATZER, PH.D., has been Vice President, Development of the Company since 1996. Prior to joining the Company, Dr. Patzer had held various positions with Genentech, Inc., a pharmaceutical company, since 1981, most recently as Vice President, Development. Dr. Patzer holds a B.S. in Mechanical Engineering from The Pennsylvania State University and a Ph.D. in Microbiology from the University of Virginia. REID W. DENNIS has been a director of the Company since 1992. Mr. Dennis has been active in venture capital investments since 1952. He founded Institutional Venture Partners ("IVP"), a venture capital firm, in 1980, and has acted as general partner of IVP since that time. He is currently a director of Collagen Corporation, as well as several private companies. Mr. Dennis holds a B.S. in Electrical Engineering and an M.B.A. from Stanford University. PAUL H. KLINGENSTEIN has been a director of the Company since 1993. Mr. Klingenstein has been associated with Accel Partners, a venture capital firm, since 1986, where he has been a General Partner since 1988. He is a director of several private health care and biopharmaceutical companies. Mr. Klingenstein holds an A.B. from Harvard University and an M.B.A. from Stanford University. BERNARD ROIZMAN, SC.D., has been a director of the Company since 1992. Dr. Roizman has been the Joseph Regenstein Distinguished Service Professor of Virology at the University of Chicago since 1984. He holds B.A. and M.S. degrees from Temple University and an Sc.D. from The Johns Hopkins University. Dr. Roizman is also a member of the Company's Scientific Advisory Board. JANE E. SHAW, PH.D., has been a Director of the Company since May 1996. Dr. Shaw has been associated with The Stable Network, a biopharmaceutical consulting company, since she founded it in 1995. From 1987 to 1994, Dr. Shaw was President and Chief Operating Officer of ALZA Corporation, a pharmaceutical company, where she began her career as a research scientist in 1970. Dr. Shaw is also a director of Intel Corporation, McKesson Corporation and Boise Cascade Corporation. Dr. Shaw holds a B.Sc. and a Ph.D. in physiology from Birmingham University, England, and an honorary Doctorate of Science degree from the Worcester Polytechnic Institute. L. JAMES STRAND, M.D., has been a director of the Company since 1992. Dr. Strand began consulting for IVP, a venture capital firm, in 1986, was named Life Sciences Venture Partner of IVP in 1993 and a General Partner in 1994. From 1983 to 1993, Dr. Strand was President of Advanced Marketing Decisions, a biomedical marketing and product development consulting company. Dr. Strand is a director of Microcide Pharmaceuticals, Inc. and several privately-held health care and biomedical companies. He holds B.S., M.A. and M.D. degrees from the University of California at San Francisco and an M.B.A. from Santa Clara University and is a fellow of the American College of Physicians. ALAN C. MENDELSON has served as Secretary of the Company since 1992. He has been a partner of Cooley Godward Castro Huddleson & Tatum, counsel to the Company, since 1980 and served as Managing Partner of its Palo Alto office from 1990 to 1995. Mr. Mendelson also served as Secretary and Acting General Counsel of Amgen Inc., a biopharmaceutical company, from 1990 to 1991, and served as Acting General Counsel at 52 Cadence Design Systems, Inc., an electronic design automation software company, from 1995 to 1996. He is a director of Acuson Corporation, CoCensys, Inc., Elexsys International, Inc. and Isis Pharmaceuticals, Inc. Mr. Mendelson holds a B.A. from the University of California at Berkeley, and a J.D. from the Harvard Law School. The Board of Directors has an Audit Committee which consists of Messrs. Dennis, Klingenstein and Strand. The Audit Committee makes recommendations to the Board regarding the selection of independent accountants, reviews the results and scope of the audit and other services provided by the Company's independent accountants, and reviews and evaluates the Company's control functions. The Board of Directors has a Compensation Committee which consists of Messrs. Dennis, Klingenstein and Strand. The Compensation Committee makes recommendations to the Board concerning salaries and incentive compensation for employees and consultants of the Company. The Board of Directors presently consists of six members who hold office until the annual meeting of stockholders and until a successor is duly elected and qualified. Effective upon the Company's reincorporation into Delaware, the Board of Directors will be divided into three classes of equal size. One class of directors will be elected annually and its members will hold office for a three year term or until their successors are duly elected and qualified, or until their earlier removal or resignation. The number of directors will initially be six and may be changed by a resolution of the Board of Directors. Executive officers are elected by the Board of Directors. There are no family relationships among any of the directors and executive officers of the Company. DIRECTOR COMPENSATION Directors currently receive no cash compensation from the Company for their services as members of the Board of Directors. They are reimbursed for certain expenses in connection with attendance at Board and Committee meetings. All of Aviron's non-employee directors are entitled to receive non-discretionary annual stock option grants under the Company's 1996 Non-Employee Directors' Stock Option Plan (the "Directors' Plan"). Each option granted pursuant to the Directors' Plan has an exercise price equal to the fair market value of the Common Stock on the date of grant, and is subject to three-year vesting in equal annual installments. The Directors' Plan provides for initial grants of options to purchase 15,000 shares for each non-employee director who joins the Board following the offering, plus annual grants of options to purchase 3,000 shares. EXECUTIVE COMPENSATION The following table sets forth certain compensation awarded or paid by the Company during the fiscal year ended December 31, 1995 to its President and Chief Executive Officer and four of the Company's other executive officers who earned more than $100,000 during the year ended December 31, 1995 (collectively, the "Named Executive Officers"): SUMMARY COMPENSATION TABLE
ALL OTHER ANNUAL COMPENSATION COMPENSATION (1) ------------------------ ---------------- OTHER ANNUAL NAME AND PRINCIPAL POSITION SALARY COMPENSATION - -------------------------------------------------- -------- -------------- J. Leighton Read, M.D. ........................... $210,000 $ -- $ 743 Chairman, Chief Executive Officer and Chief Financial Officer Francis R. Cano, Ph.D. (2) ....................... 222,500 -- 20,381 President and Chief Operating Officer Martin L. Bryant, M.D., Ph.D. (3) ................ 153,333 121,351(4)(5) 940 Vice President, Research Victor Jegede, Ph.D. (6) ......................... 156,667 94,195(4) 1,555 Vice President, Technical Affairs Vera Kallmeyer, M.D., Ph.D. ...................... 148,167 -- 304 Vice President, Corporate Development
53 - ------------------- (1) Includes group term life insurance paid by the Company and reimbursement by the Company of $18,120 paid by Dr. Cano as a premium payment on his split dollar life insurance policy. (2) Dr. Cano resigned as a director, officer and employee of the Company in April 1996. (3) Dr. Bryant began his employment with the Company on January 16, 1995. (4) Includes reimbursement of moving, housing and other expenses incurred in connection with relocating to California as follows: for Dr. Bryant, $45,308 in direct reimbursement, $16,000 in relocation assistance, $8,000 in monthly housing assistance, and $25,953 in federal income tax gross-up; for Dr. Jegede, $47,042 in direct reimbursement, $16,000 in relocation assistance, $6,500 in monthly housing assistance, and $23,097 in federal income tax gross-up. (5) Includes $25,000 paid to Dr. Bryant in March 1995 as reimbursement for a bonus forfeited upon Dr. Bryant's leaving his former employer. (6) Dr. Jegede began his employment with the Company on January 9, 1995. OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS ----------------------------- NUMBER OF % POTENTIAL REALIZABLE VALUE AT ASSUMED SECURITIES OF TOTAL ANNUAL RATES OF STOCK PRICE UNDERLYING OPTIONS GRANTED EXERCISE APPRECIATION FOR OPTION TERM (3) OPTIONS TO EMPLOYEES IN PRICE PER EXPIRATION -------------------------------------- NAME GRANTED FISCAL YEAR (1) SHARE (2) DATE 0% 5% 10% - ----------------------------------- ------------ --------------- ----------- ---------- ---------- ------------ ------------ J. Leighton Read, M.D.............. 60,000 19.4% $ 0.50 05/08/05 $ 690,000 $ 1,124,700 $ 1,787,100 20,000(4) 6.5 0.50 05/08/05 230,000 374,900 595,700 20,000(4) 6.5 1.25 12/12/05 215,000 350,450 556,850 Francis R. Cano, Ph.D. (5)......... 40,000 12.9 0.50 05/08/05 460,000 749,800 1,191,400 Martin L. Bryant, Ph.D............. 24,000 7.8 0.50 03/14/05 276,000 449,880 714,840 Victor Jegede, Ph.D................ 24,000 7.8 0.50 03/14/05 276,000 449,880 714,840 Vera Kallmeyer, M.D., Ph.D......... 4,000 1.3 0.50 05/08/05 46,000 74,980 119,140 5,000 1.6 0.50 05/08/05 57,500 93,725 148,925 15,000 4.9 0.50 05/08/05 172,500 281,175 446,775 20,000 6.5 1.25 12/12/05 215,000 350,450 556,850
- ------------------- (1) Based on an aggregate of 309,000 options granted to employees and directors of the Company in fiscal 1995, including the Named Executive Officers set forth in the "Summary Compensation Table" above and directors set forth in "Director Compensation" above. (2) The exercise price is equal to 100% of the fair market value of the Common Stock at the date of grant. (3) The potential realizable value is calculated based on the term of the option at the time of grant (ten years). Stock price appreciation of five percent and ten percent is assumed pursuant to rules promulgated by the Securities and Exchange Commission and does not represent the Company's prediction of its stock price performance. The potential realizable value of 0% appreciation measures the value of the option at effectiveness based on the assumed initial public offering price per share of $12.00 less the exercise price. The potential realizable value at 5% and 10% appreciation is calculated by assuming that the assumed initial public offering price appreciates at the indicated rate for the entire term of the option and that the option is exercised at the exercise price and sold on the last day of its term at the appreciated price. (4) Options granted outside of the 1996 Equity Incentive Plan. (5) Dr. Cano resigned as a director, officer and employee of the Company in April 1996. 54 AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS SHARES AT DECEMBER 31, 1995 AT DECEMBER 31, 1995 ACQUIRED ON VALUE -------------------------- ----------------------------- NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE (1) - ------------------------------ ------------- --------- ----------- ------------- ------------ --------------- J. Leighton Read, M.D......... 60,000(2) $ 15,000 40,000 -- $ 445,000 $ -- Francis R. Cano, Ph.D......... -- -- 110,000 30,000 1,282,500 352,500 Martin L. Bryant, Ph.D........ -- -- -- 24,000 -- 276,000 Victor Jegede, Ph.D........... -- -- -- 24,000 -- 276,000 Vera Kallmeyer, M.D., Ph.D.... -- -- 14,780 49,220 169,970 551,030
- ------------------- (1) Based on the assumed initial public offering price of $12.00 per share, minus the exercise price, multiplied by the number of shares underlying the option. (2) As of June 1, 1996, 34,200 of the shares acquired upon exercise were subject to repurchase by the Company. EMPLOYMENT CONTRACTS The Company's offer of employment to Martin L. Bryant, Ph.D., the Company's Vice President, Research, in December 1994, provided for an initial annual salary of $160,000 and payment of $25,000 as reimbursement for a bonus forfeited by Dr. Bryant when he left his previous employer. The Company also agreed to pay certain relocation expenses and to loan Dr. Bryant up to $50,000 in aggregate principal amount, at 7.75% simple interest, to assist him in the purchase of a home. Interest on this loan will be forgiven annually, and principal will be forgiven annually at the rate of 20% per year as long as Dr. Bryant remains with the Company. The Company's offer of employment to Victor A. Jegede, Ph.D., the Company's Vice President, Technical Affairs, in December 1994, provided for an initial annual salary of $160,000. The Company also agreed to pay certain relocation expenses and to loan Dr. Jegede up to $50,000 in aggregate principal amount, at 7.75% simple interest, to assist him in the purchase of a home. Interest on this loan will be forgiven annually, and principal will be forgiven annually at the rate of 20% per year as long as Dr. Jegede remains with the Company. The Company's offer of employment to Eric J. Patzer, Ph.D., the Company's Vice President, Development, in December 1995, provided for an initial annual salary of $185,000 and a bonus payment of $25,000 upon signing of the agreement and $25,000 after the completion of one year of service. The Company also agreed to pay certain relocation expenses and to loan Dr. Patzer up to $100,000 in aggregate principal amount, at 7.75% simple interest, to assist him in the purchase of a home. Interest on this loan, when made, will be forgiven annually, and principal will be forgiven annually at the rate of 20% per year as long as Dr. Patzer remains with the Company. The Company's offer of employment to Paul M. Mendelman, M.D., the Company's Vice President, Clinical Research, in April 1996, provided for an initial annual salary of $185,000 and a bonus payment of $25,000 upon Dr. Mendelman's acceptance of the offer. The Company also agreed to reimburse Dr. Mendelman for certain relocation expenses and to loan Dr. Mendelman up to $100,000 in aggregate principal amount, at 7.75% simple interest, to assist him in the purchase of a home. Interest on this loan, when made, will be forgiven annually at the rate of 20% per year as long as Dr. Mendelman remains with the Company. Francis R. Cano, Ph.D. resigned as Director, President and Chief Operating Officer of the Company effective April 19, 1996. Pursuant to an agreement between Dr. Cano and the Company, Dr. Cano will continue to be employed as a consultant by the Company until April 18, 1997. In consideration for Dr. Cano's consulting services, the Company will continue to pay Dr. Cano's salary and benefits during the consulting period. 55 STOCK OPTION PLANS EQUITY INCENTIVE PLAN. In March 1996, the Board adopted the 1996 Equity Incentive Plan (the "Incentive Plan") as an amendment and restatement of its 1992 Stock Option Plan and increased the number of shares reserved for issuance under the Incentive Plan to 1,750,000 shares. The Incentive Plan provides for grants of incentive stock options to employees (including officers and employee directors) and nonstatutory stock options, restricted stock purchase awards, stock bonuses and stock appreciation rights to employees (including officers and employee directors) and consultants of the Company. It is intended that the Incentive Plan will be administered by the Compensation Committee, which determines recipients and types of awards to be granted, including the exercise price, number of shares subject to the award and the exercisability thereof. The term of a stock option granted under the Incentive Plan generally may not exceed 10 years. The exercise price of options granted under the Incentive Plan is determined by the Board of Directors, but, in the case of an incentive stock option, cannot be less than 100% of the fair market value of the Common Stock on the date of grant or, in the case of 10% stockholders, not less than 110% of the fair market value of the Common Stock on the date of grant. Options granted under the Incentive Plan to new employees and consultants generally will vest at the rate of of the shares subject to the option on the first annual anniversary of the date of hire and 1/48th of such shares at the end of each calendar month thereafter. No option may be transferred by the optionee other than by will or the laws of descent or distribution or, in certain limited instances, pursuant to a qualified domestic relations order. An optionee whose relationship with the Company or any related corporation ceases for any reason (other than by death or permanent and total disability) may exercise options in the three-month period following such cessation (unless such options terminate or expire sooner by their terms) or in such longer period as may be determined by the Board of Directors. Shares subject to options which have lapsed or terminated may again be subject to options granted under the Incentive Plan. Furthermore, the Board of Directors may offer to exchange new options for existing options, with the shares subject to the existing options again becoming available for grant under the Incentive Plan. In the event of a decline in the value of the Company's Common Stock, the Board of Directors has the authority to offer optionees the opportunity to replace outstanding higher priced options with new lower priced options. Restricted stock purchase awards granted under the Incentive Plan may be granted pursuant to a repurchase option in favor of the Company in accordance with a vesting schedule determined by the Board. The purchase price of such awards will be at least 85% of the fair market value of the Common Stock on the date of grant. Stock bonuses may be awarded in consideration for past services without a purchase payment. Stock appreciation rights authorized for issuance under the Incentive Plan may be tandem stock appreciation rights, concurrent stock appreciation rights or independent stock appreciation rights. Upon any merger or consolidation in which the Company is not the surviving corporation, all outstanding awards under the Incentive Plan shall either be assumed or substituted by the surviving entity. If the surviving entity determines not to assume or substitute such awards, the time during which such awards may be exercised shall be accelerated and the awards terminated if not exercised prior to the merger or consolidation. As of June 1, 1996, 643,480 options were outstanding under the Incentive Plan, with 1,106,520 shares reserved for future grants or purchases. The Incentive Plan will terminate in January 2006, unless terminated sooner by the Board of Directors. See Note 7 of Notes to Financial Statements. EMPLOYEE STOCK PURCHASE PLAN. In March 1996, the Board adopted the Employee Stock Purchase Plan (the "Purchase Plan") covering an aggregate of 250,000 shares of Common Stock. The Purchase Plan is intended to qualify as an employee stock purchase plan within the meaning of Section 423 of the Code. Under the Purchase Plan, the Board of Directors may authorize participation by eligible employees, including officers, in periodic offerings following the adoption of the Purchase Plan. The offering period for any offering will be no more than 27 months. Employees are eligible to participate if they are employed by the Company, or an affiliate of the Company designated by the Board of Directors, for at least 20 hours per week and are employed by the Company, or an affiliate of the Company designated by the Board, for at least five months per calendar year. Employees who 56 participate in an offering can have up to 15% of their earnings withheld pursuant to the Purchase Plan. The amount withheld will then be used to purchase shares of the Common Stock on specified dates determined by the Board of Directors. The price of Common Stock purchased under the Purchase Plan will be equal to 85% of the lower of the fair market value of the Common Stock on the commencement date of each offering period or on the specified purchase date. Employees may end their participation in the offering at any time during the offering period. Participation ends automatically on termination of employment with the Company. In the event of a merger, reorganization, consolidation or liquidation involving the Company, in which the Company is not the surviving corporation, the Board of Directors has discretion to provide that each right to purchase Common Stock will be assumed or an equivalent right substituted by the successor corporation, or the Board may shorten the offering period and provide for all sums collected by payroll deductions to be applied to purchase stock immediately prior to such merger or other transaction. The Purchase Plan will terminate at the Board's discretion. The Board has the authority to amend or terminate the Purchase Plan, subject to the limitation that no such action may adversely affect any outstanding rights to purchase Common Stock. See Note 7 of Notes to Financial Statements. 1996 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN. In March 1996, the Board adopted the 1996 Non-Employee Directors' Stock Option Plan (the "Directors' Plan") to provide for the automatic grant of options to purchase shares of Common Stock to non-employee directors of the Company. The Directors' Plan is administered by the Board of Directors, unless the Board delegates administration to a committee comprised of members of the Board. The maximum number of shares of Common Stock that may be issued pursuant to options granted under the Directors' Plan is 200,000. Pursuant to the terms of the Directors' Plan, each director of the Company not otherwise employed by the Company and who is first elected as a non-employee director after the completion of this offering automatically will be granted an option to purchase 15,000 shares of Common Stock upon such election. Finally, each director who continues to serve as a non-employee director of the Company will be granted an additional option to purchase 3,000 shares of Common Stock on December 31 of each year. All such options vest one-third on the first anniversary of the date of grant and one-third per year thereafter. In the event of a merger, consolidation, reverse reorganization, dissolution, sale of substantially all of the assets of the Company, or certain changes in the beneficial ownership of the Company's securities representing at least a 50% change of such ownership, then options outstanding under the Directors' Plan will automatically become fully vested and will terminate if not exercised prior to such event. No option granted under the Directors' Plan may be exercised after the expiration of ten years from the date it was granted. The exercise price of options under the Directors' Plan will equal the fair market value of the Common Stock on the date of grant. The Directors' Plan will terminate in January 2006, unless earlier terminated by the Board. See Note 7 of Notes to Financial Statements. 57 CERTAIN TRANSACTIONS In June and July 1992, 14 investors purchased an aggregate of 5,000,000 shares of the Company's Series A Preferred Stock at a per share price of $0.50. Institutional Venture Partners V and Institutional Venture Management V, each affiliated with Institutional Venture Partners ("IVP"), purchased 2,955,000 and 45,000 shares, respectively, of Series A Preferred Stock. IVP is a 5% stockholder of the Company, and Reid W. Dennis and L. James Strand, directors of the Company, are each General Partners of IVP. J. Leighton Read, M.D., Chairman of the Board of Directors, Chief Executive Officer and Chief Financial Officer of the Company, and Bernard Roizman, a director of the Company, purchased 500,000 and 100,000 shares, respectively, of Series A Preferred Stock. Albert L. Zesiger, a member of Zesiger Capital Group LLC, a 5% stockholder of the Company, purchased 300,000 shares of Series A Preferred Stock. Peter Palese and Richard Whitley, two of the founders of the Company, purchased 100,000 and 10,000 shares, respectively, of Series A Preferred Stock. The Series A Preferred Stock purchased by the IVP affiliates and by Drs. Read, Roizman, Palese and Whitley were purchased on the same terms and conditions as Series A Preferred Stock purchased by other investors. The Series A Preferred Stock is convertible into Common Stock of the Company at the rate of one share of Common Stock for each five shares of Series A Preferred Stock owned. In September 1993, 34 investors purchased an aggregate of 16,666,667 shares of the Company's Series B Preferred Stock at a per share price of $0.90. Institutional Venture Partners V and Institutional Venture Management V purchased 1,361,667 and 27,767 shares, respectively, of Series B Preferred Stock. In addition, Institutional Venture Partners V and Institutional Venture Management V received 1,633,333 shares and 33,333 shares, respectively, of Series B Preferred Stock upon conversion of promissory notes, bearing interest at a 4% annualized rate and aggregating $1,500,000, which the Company issued to these entities in connection with bridge loan financing in June 1993. Entities affiliated with Accel Partners, a 5% stockholder of the Company, purchased shares of Series B Preferred Stock as follows: Accel IV L.P., 2,811,111 shares and Accel Japan L.P., 244,444 shares. Paul H. Klingenstein, a director of the Company, is a General Partner of Accel Partners. Entities controlled by Zesiger Capital Group LLC, an affiliate of Abingworth Bioventures SICAV, purchased 2,065,000 shares of Series B Preferred Stock. Abingworth Bioventures, a 5% stockholder of the Company, purchased 2,777,778 shares of Series B Preferred Stock. Entities affiliated with Brinson Partners, Inc., a 5% stockholder of the Company, purchased shares of Series B Preferred Stock as follows: Brinson Trust Company as trustee of the Brinson MAP Venture Capital Fund III, 311,598 shares, and Brinson Venture Capital Fund III, 1,910,624 shares. Peter Palese also purchased 55,556 shares of Series B Preferred Stock. The Series B Preferred Stock purchased by the affiliates of 5% stockholders of the Company and by Dr. Palese were purchased on the same terms and conditions as the Series B Preferred Stock purchased by other investors. The Series B Preferred Stock is convertible into Common Stock of the Company at the rate of one share of Common Stock for each five shares of Series B Preferred Stock owned. In September 1993, the Company issued warrants to purchase 400,000 shares of its Series B Preferred Stock at an exercise price of $1.25 per share to entities affiliated with IVP. The warrants expired unexercised in June 1995. In May 1995, Sang-A Pharm. Co., Ltd., a 5% stockholder of the Company, purchased 2,941,863 shares of Series C Preferred Stock at $1.35 per share. The Series C Preferred Stock is convertible into Common Stock of the Company at the rate of one share of Common Stock for each five shares of Series C Preferred Stock owned. From July through November 1995, 66 investors purchased an aggregate of 13,099,707 shares of the Company's Series C Preferred Stock at a per share price of $1.35. Dr. Bernard Roizman purchased 20,000 shares of Series C Preferred Stock. Institutional Venture Partners V and Institutional Venture Management V purchased 653,332 and 13,335 shares, respectively, of Series C Preferred Stock. Various entities affiliated with Accel Partners purchased shares of Series C Preferred Stock as follows: Accel Investors '93 L.P., 41,112 shares; Accel IV L.P., 930,000 shares; Accel Japan L.P., 88,890 shares; Accel Keiretsu L.P., 20,000 shares; Ellmore C. Patterson Partners, 24,444 shares; and Prosper Partners, 6,666 shares. Sang-A Pharm. Co., Ltd. purchased 1,187,295 shares of Series C Preferred Stock. Orefund, whose investment in the Company is controlled by Zesiger Capital Group LLC, purchased 1,481,400 shares of Series C Preferred Stock. Abingworth Bioventures SICAV purchased 370,370 shares of Series C Preferred Stock. Biotech Growth, a 5% stockholder of the 58 Company, purchased 3,000,000 shares of Series C Preferred Stock. Entities affiliated with Brinson Partners, Inc. purchased shares of Series C Preferred Stock as follows: First National Bank of Chicago, as custodian to the Brinson MAP Venture Capital Fund III, 36,872 shares, and First National Bank of Chicago, as custodian to the Brinson Venture Capital Fund III, 226,091 shares. Sally Whitley, wife of Richard Whitley purchased 10,000 shares of Series C Preferred Stock. The Series C Preferred shares purchased by the 5% stockholders of the Company and their affiliates and by Dr. Roizman and Mrs. Whitley were purchased on the same terms and conditions as Series C Preferred shares purchased by other investors. The Series C Preferred Stock is convertible into Common Stock of the Company at the rate of one share of Common Stock for each five shares of Series C Preferred Stock owned. In March 1996, Sang-A Pharm Co., Ltd. purchased 136,326 shares of Series C Preferred Stock, at a price of $1.35 per share. The Series C Preferred Stock is convertible into Common Stock of the Company at the rate of one share of Common Stock for each five shares of Series C Preferred Stock owned. Vera Kallmeyer, Vice President, Corporate Development of the Company, is a founder, senior advisor, and 15% shareholder of Pacific Futures (formerly Pacific Century), a Hong Kong-based investment advisory business. Pacific Futures received a sales commission on the sale of Series C Preferred Stock to Sang-A, in an aggregate amount of $334,462 during 1995. Dr. Kallmeyer received no portion of such sales commission, and is currently receiving no salary from Pacific Futures. Pursuant to certain offer letters to certain of its senior officers, the Company made loans to these officers to facilitate home purchases and certain other commitments. As of June 1, 1996, the amounts outstanding for principal and interest on these loans was $40,388 to Martin L. Bryant and $40,388 to Victor A. Jegede. See "Management -- Employment Contracts." In January 1996, the Company extended loans to certain senior officers to facilitate the early exercise of options to purchase shares of Common Stock, including loans of $70,000 to Dr. Patzer; $65,000 to Dr. Bryant; $65,000 to Dr. Jegede; $70,000 to Dr. Cano; and $40,000 to Dr. Kallmeyer. The loans bear simple interest at a rate of 5.73% per year. Principal on each loan is due on the earlier of 50 months from the date of the underlying option grant or the date of employment termination. See also "Management -- Employment Contracts." 59 PRINCIPAL STOCKHOLDERS The following table sets forth certain information regarding beneficial ownership of the Company's Common Stock as of June 1, 1996 held by (i) each person who is known by the Company to own beneficially more than 5% of the outstanding shares of Common Stock, (ii) each director and Named Executive Officer of the Company, and (iii) all directors and executive officers of the Company as a group. Unless otherwise indicated below, to the knowledge of the Company, all persons listed below have sole voting and investment power with respect to their shares of Common Stock, except to the extent authority is shared by spouses under applicable law. Except as otherwise noted below, the address of each person listed below is c/o the Company, 297 North Bernardo Avenue, Mountain View, California 94043.
PERCENTAGE OF SHARES BENEFICIALLY OWNED (1) SHARES ------------------- BENEFICIALLY PRIOR TO AFTER BENEFICIAL OWNER OWNED (1) OFFERING OFFERING - ---------------------------------------------------------------------------- ------------ -------- -------- Entities affiliated with Institutional Venture Partners (2) ................ 1,344,553 15.02% 10.94% 3000 Sand Hill Road Building 2, Suite 290 Menlo Park, CA 94025 Sang-A Pharm. Co., Ltd. (3) ................................................ 853,096 9.53% 9.66% 640-9 Deung Chon Dung Kangseo-Ku Seoul, South Korea Entities affiliated with Accel Partners (4) ................................ 833,330 9.31% 6.78% One Embarcadero Center, Suite 3820 San Francisco, CA 94111 Entities controlled by Zesiger Capital Group LLC (5) ....................... 769,280 8.59% 6.26% 320 Park Avenue New York, NY 10022 Abingworth Bioventures SICAV ............................................... 629,629 7.03% 5.12% 26 St. James's Street London SW1A 1HA England Biotech Growth ............................................................. 600,000 6.70% 4.88% Bellevue Asset Management Grundstrasse 12 CH-6343 Rotkreuz Switzerland Entities affiliated with Brinson Partners, Inc. (6) ........................ 497,035 5.55% 4.05% 209 South LaSalle Street, Suite 114 Chicago, IL 60604-1295 J. Leighton Read, M.D. (7).................................................. 395,000 4.41% 3.22% Martin L. Bryant, M.D., Ph.D. (8)........................................... 34,640 * * Victor Jegede, Ph.D. (9).................................................... 34,640 * * Vera Kallmeyer, M.D., Ph.D. (10)............................................ 45,673 * * Eric J. Patzer, Ph.D. (11).................................................. 40,000 * * Reid W. Dennis (2).......................................................... 1,344,553 15.02% 10.94% Paul H. Klingenstein (4).................................................... 833,330 9.31% 6.78% Bernard Roizman, Sc.D. (12)................................................. 175,200 1.96% 1.43% Jane E. Shaw, Ph.D. (13).................................................... 4,000 * * L. James Strand, M.D. (14).................................................. 1,354,553 15.12% 11.02% All directors and executive officers as a group (11 persons) (15)......................................................... 2,917,036 32.38% 23.63%
- ------------------- * Represents beneficial ownership of less than 1% of the outstanding shares of the Company's Common Stock. 60 (1) Calculated as if all outstanding shares of Preferred Stock have been converted into Common Stock at a ratio of five shares of Preferred Stock for one share of Common Stock. Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission and generally includes voting or investment power with respect to securities. Beneficial ownership also includes shares of stock subject to options and warrants currently exercisable or convertible, or exercisable or convertible within 60 days of the date of this table. Percentage of beneficial ownership is based on 8,952,657 shares of Common Stock outstanding as of June 1, 1996, and 12,285,990 shares of Common Stock outstanding after completion of this offering and the concurrent sale of the Sang-A Shares. (2) Includes 1,320,666 shares held by Institutional Venture Partners V and 23,887 shares held by Institutional Venture Management V, of which Mr. Dennis, a Director of the Company is a general partner. Institutional Venture Management V is the general partner of Institutional Venture Partners V. Mr. Dennis disclaims beneficial ownership of the shares held by Institutional Venture Partners V and Institutional Venture Management V, except to the extent of his pecuniary interests therein. (3) Percentage of shares beneficially owned after offering includes the estimated 333,333 shares Sang-A intends to purchase concurrent with the offering. (4) Includes 697,500 shares held by Accel IV, L.P., 66,666 shares held by Accel Japan, L.P., 30,833 shares held by Accel Investors '93, L.P., 18,332 shares held by Ellmore C. Patterson Partners, 15,000 shares held by Accel Keiretsu, L.P. and 4,999 shares held by Prosper Partners. Mr. Klingenstein, a Director of the Company is a general partner of Accel Partners. Mr. Klingenstein disclaims beneficial ownership of the shares held by Accel IV, L.P., Accel Japan, L.P., Accel Investors '93, L.P., Ellmore C. Patterson Partners, Prosper Partners and Accel Keiretsu, L.P., except to the extent of his pecuniary interests therein. (5) Includes 8,000 shares held by A. Carey Zesiger Revocable Trust, 22,000 shares held by Atwell & Co., 11,000 shares held by Batrus & Co., 11,000 shares held by Booth & Co., 11,000 shares held by Calmont & Co., 100,000 shares held by Comply & Co., 33,000 shares held by Daly & Co., 28,000 shares held by Heil & Co., 17,000 shares held by J.C. Orr & Co., 90,000 shares held by Kane & Co., 17,000 shares held by Domenic Mizio, 296,280 shares held by Orefund, 28,000 shares held by Sigler & Co., 60,000 shares held by Albert L. Zesiger, 7,000 shares held by Alexa L. Zesiger, 22,000 shares held by Barry Ramsay Zesiger and 8,000 shares held by Nicola L. Zesiger. Zesiger Capital Group LLC disclaims beneficial ownership of all such shares. (6) Includes 427,342 shares held by Brinson Venture Capital Fund III, L.P. and 69,693 shares held by Brinson Trust Company as Trustee of The Brinson MAP Venture Capital Fund III. (7) Includes 40,000 shares Dr. Read acquired pursuant to the exercise of stock options. Also includes an aggregate of 110,000 shares acquired pursuant to an early exercise of stock options, of which an aggregate of 76,400 will be subject to repurchase by the Company as of July 31, 1996. Also includes an aggregate of 32,000 shares held by The Travis Read 1993 Trust and The Haley Read 1993 Trust (the "Trusts") of which Robert Fitzwilson is the trustee. Dr. Read disclaims beneficial ownership of the shares held by the Trusts. (8) Includes 26,000 shares acquired pursuant to an early exercise of stock options, of which 22,880 will be subject to repurchase by the Company as of July 31, 1996. Also includes 8,640 shares Dr. Bryant has the right to acquire pursuant to options exercisable as of July 31, 1996. (9) Includes 26,000 shares acquired pursuant to an early exercise of stock options, of which 22,880 will be subject to repurchase by the Company as of July 31, 1996. Also includes 8,640 shares Dr. Jegede has the right to acquire pursuant to options exercisable as of July 31, 1996. (10) Includes 16,000 shares acquired pursuant to an early exercise of stock options, of which 14,080 will be subject to repurchase by the Company as of July 31, 1996. Also includes 29,673 shares Dr. Kallmeyer has the right to acquire pursuant to options exercisable as of July 31, 1996. (11) Includes 40,000 shares acquired pursuant to an early exercise of stock options, all of which are subject to repurchase by the Company. 61 (12) Includes 12,000 shares which are subject to repurchase by the Company and 1,200 shares Dr. Roizman has the right to acquire pursuant to options exercisable as of July 31, 1996. (13) Includes 4,000 shares Dr. Shaw has the right to acquire pursuant to options exercisable as of July 31, 1996. (14) Includes 1,320,666 shares held by Institutional Venture Partners V ("IVP V"), of which Dr. Strand is a limited partner, and 23,887 shares held by Insitutional Venture Management V, which is the general partner of IVP V, and 5,000 shares Dr. Strand has the right to acquire pursuant to options exercisable as of July 31, 1996. Dr. Strand disclaims beneficial ownership of the shares held by IVP V and Institutional Venture Management V. (15) Includes 2,177,883 shares held by entities affiliated with certain directors of the Company as described in footnotes 2 and 3 above and 57,153 shares subject to options exercisable as of July 31, 1996. 62 DESCRIPTION OF CAPITAL STOCK The following description of the capital stock of the Company and certain provisions of the Company's Certificate of Incorporation and Bylaws to be effective upon completion of this offering is a summary and is qualified in its entirety by the provisions of the Certificate of Incorporation and Bylaws, which have been filed as exhibits to the Company's Registration Statement, of which this Prospectus is a part. Upon the closing of this offering, the authorized capital stock of the Company will consist of 30,000,000 shares of Common Stock, par value $0.001 and 5,000,000 shares of Preferred Stock, par value $0.001. COMMON STOCK Upon completion of this offering, there will be 12,285,990 shares of Common Stock outstanding (plus up to 38,888 shares that may be issued upon exercise of outstanding warrants). The holders of Common Stock are entitled to one vote for each share held of record on all matters submitted to a vote of the stockholders. The holders of Common Stock are not entitled to cumulative voting rights with respect to the election of directors, and as a consequence, minority stockholders will not be able to elect directors on the basis of their votes alone. Subject to preferences that may be applicable to any then outstanding shares of Preferred Stock, holders of Common Stock are entitled to receive ratably such dividends as may be declared by the Board of Directors out of funds legally available therefore. See "Dividend Policy." In the event of liquidation, dissolution or winding up of the Company, holders of the Common Stock are entitled to share ratably in all assets remaining after payment of liabilities and the liquidation preference of any then outstanding shares of Preferred Stock. Holders of Common Stock have no preemptive rights and no right to convert their Common Stock into any other securities. There are no redemption or sinking fund provisions applicable to the Common Stock. All outstanding shares of Common Stock are, and all shares of Common Stock to be outstanding upon completion of this offering will be, fully paid and nonassessable. PREFERRED STOCK Upon the closing of this offering, all outstanding Preferred Stock of the Company will be converted into Common Stock. The Board of Directors will have the authority, without further action by the stockholders, to issue up to 5,000,000 shares of Preferred Stock in one or more series and to fix the rights, preferences, privileges and restrictions thereof, including dividend rights, conversion rights, voting rights, terms of redemption, liquidation preferences, sinking fund terms and the number of shares constituting any series or the designation of such series, without any further vote or action by the stockholders. The issuance of Preferred Stock could adversely affect the voting power of holders of Common Stock and the likelihood that such holders will receive dividend payments and payments upon liquidation may have the effect of delaying, deferring or preventing a change in control of the Company, which could have a depressive effect on the market price of the Company's Common Stock. The Company has no present plan to issue any shares of Preferred Stock. WARRANTS In February 1993, the Company entered into an agreement with The Mount Sinai School of Medicine of the City University of New York ("Mount Sinai"), under which Mount Sinai transferred to the Company rights to certain patents, patent applications, and associated know-how and other technical information. Mount Sinai also granted the Company (i) an option to acquire any improvements to the inventions disclosed in the licensed patents and patent applications thereafter developed by Mount Sinai and (ii) a right of first negotiation for a license or assignment to certain related technology. In connection with these agreements, the Company issued to Mount Sinai warrants (the "Mount Sinai Warrants") to purchase, in the aggregate, 225,000 shares of the Company's Series A Preferred Stock (45,000 shares of Common Stock upon conversion of the Series A Preferred Stock). Each Mount Sinai Warrant is exercisable for a period of five years commencing upon the occurrence of specified milestone events, which accelerate upon the effectiveness of this offering. Warrants to purchase 45,000 of the shares are exercisable at a purchase price of $0.90 per share (convertible into 9,000 shares of Common Stock) issuable upon exercise of the warrants. Warrants to purchase 148,750 of the shares will become exercisable upon the effective date of this offering, at a purchase price per share of Common Stock receivable upon 63 conversion of the Series A Preferred Stock issuable upon exercise of the warrants equal to 125% of the per share price of this offering. Warrants to purchase the remaining 31,250 shares will be canceled on the effective date of this offering. See "Business -- Collaborative Agreements -- The Mount Sinai School of Medicine of the City University of New York." In connection with an agreement entered into in February 1995 with the University of Michigan ("Michigan"), under which Michigan transferred to the Company certain intellectual property rights and technology (the "Michigan Technology"), the Company agreed to issue to Michigan a warrant (the "Michigan Warrant") to purchase shares of its Common Stock upon the first commercial sale of a product incorporating the Michigan Technology, for a number of shares equal to 1.25% of the total issued and outstanding shares of the Company's Common Stock as of the date of such first commercial sale (excluding shares of the Company's Common Stock issued by the Company in connection with its acquisition of another company, in connection with any corporate partnering transaction, issued in connection with other technology transfers not involving the Michigan Technology, or unvested employee or director option shares), at a per share exercise price equal to 125% of the price of this Offering. See "Business -- Collaborative Agreements -- University of Michigan." In connection with a private placement of Series C Preferred Stock, the Company issued to the placement agent a warrant to purchase 352,536 shares of its Series C Preferred Stock at an exercise price of $1.62 per share (convertible into 70,507 shares of Common Stock), exercisable at any time through November 9, 2000. REGISTRATION RIGHTS The holders (or their permitted transferees) ("Holders") of approximately 7,833,634 shares of Common Stock and warrants to purchase approximately 148,145 shares of Common Stock are entitled to certain rights with respect to the registration of such shares under the Securities Act. If the Company proposes to register any of its securities under the Securities Act, either for its own account or for the account of other security holders, the Holders are entitled to notice of the registration and are entitled to include, at the Company's expense, such shares therein. In addition, certain of the Holders may require the Company at its expense on not more than two occasions to file a Registration Statement under the Securities Act, with respect to their shares of Common Stock, and the Company is required to use its best efforts to effect the registration, subject to certain conditions and limitations. Further, the Holders may require the Company at its expense to register their shares on Form S-3 when such form becomes available to the Company, subject to certain conditions and limitations. DELAWARE ANTI-TAKEOVER LAW AND CERTAIN CHARTER PROVISIONS Upon completion of the Company's reincorporation in Delaware, the Company will be subject to the provisions of Section 203 of the Delaware General Corporation Law (the "Delaware Law"), an anti-takeover law. In general, the statute prohibits a publicly-held Delaware corporation from engaging in a "business combination" with an "interested stockholder" for a period of three years after the date of the transaction in which the person became an interested stockholder, unless the business combination is approved in a prescribed manner. A "business combination" includes a merger, asset sale or other transaction resulting in a financial benefit to the stockholder. For purposes of Section 203, an "interested stockholder" is a person who, together with affiliates and associates, owns (or within three years prior, did own) 15% or more of the corporation's voting stock. Upon completion of the Company's reincorporation in Delaware, the Company's Certificate of Incorporation will provide that each director will serve for a three-year term, with approximately one-third of the directors to be elected annually. Candidates for director may be nominated only by the Board of Directors or by a stockholder who gives written notice to the Company at least 20 days before the annual meeting. The Company may have the number of directors as determined from time to time to pursuant to a resolution of the Board, which currently consists of six members. Between stockholder meetings, the Board may appoint new directors to fill vacancies or newly created directorships. The Certificate will not provide for cumulative voting at stockholder meetings for election of directors. As a result, stockholders controlling more than 50% of the outstanding Common Stock can elect the entire Board of Directors, while stockholders controlling 49% of the outstanding Common Stock may not be able 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. 64 Upon completion of the Company's reincorporation in Delaware, the Company's Certificate of Incorporation will require that any action required or permitted to be taken by stockholders of the Company must be effected at a duly called annual or special meeting of stockholders and may not be effected by a consent in writing. The Company's Certificate of Incorporation also provides that the authorized number of directors may be changed only by resolution of the Board of Directors. See "Management -- Directors and Executive Officers." Delaware Law and these charter provisions may have the effect of deterring hostile takeovers or delaying changes in control or management of the Company, which could have a depressive effect on the market price of the Company's Common Stock. LIMITATION OF LIABILITY AND INDEMNIFICATION Upon completion of the Company's reincorporation in Delaware, the Company's Certificate of Incorporation will contain certain provisions permitted under Delaware Law relating to the liability of directors. These provisions eliminate a director's personal liability for monetary damages resulting from a breach of fiduciary duty, except in certain circumstances involving certain wrongful acts, such as (i) for any breach of the director's duty of loyalty to the Company or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the Delaware General Corporation Law, or (iv) for any transaction from which the director derives an improper personal benefit. These provisions do not limit or eliminate the rights of the Company or any stockholder to seek non-monetary relief, such as an injunction or rescission, in the event of a breach of director's fiduciary duty. These provisions will not alter a directors liability under federal securities laws. The Company's Certificate of Incorporation also contains provisions indemnifying the directors and officers of the Company to the fullest extent permitted by Delaware General Corporation Law. The Company believes that these provisions will assist the Company in attracting and retaining qualified individuals to serve as directors. TRANSFER AGENT The transfer agent for the Common Stock of the Company is The First National Bank of Boston. 65 SHARES ELIGIBLE FOR FUTURE SALE Prior to this offering, there has not been any public market for the Common Stock of the Company. Further sales of substantial amounts of Common Stock in the open market may adversely affect the market price of the Common Stock offered hereby. Upon completion of this offering, based on the number of shares outstanding as of June 1, 1996, the Company will have outstanding an aggregate of 12,285,990 shares of Common Stock assuming (i) the issuance by the Company of 3,000,000 shares of Common Stock offered hereby, (ii) the issuance of the 333,333 Sang-A Shares, (iii) no issuance of 148,145 shares of Common Stock relating to outstanding warrants to purchase Common Stock, (iv) no exercise of outstanding options exercisable to purchase 643,480 shares of Common Stock, and (v) no exercise of the Underwriters' over-allotment option to purchase 450,000 shares of Common Stock. Of these shares, 3,000,000 shares sold in this offering will be freely tradable without restriction or further registration under the Securities Act, except for shares held by "affiliates" of the Company as that term is defined in Rule 144 under the Securities Act (whose sales would be subject to certain limitations and restrictions described below) and the regulations promulgated thereunder. The remaining 8,952,657 shares held by officers, directors, employees, consultants and other shareholders of the Company were sold by the Company in reliance on exemptions from the registration requirements of the Securities Act and are "restricted" securities within the meaning of Rule 144 under the Securities Act. Approximately 149,329 of these shares of Common Stock will be eligible for sale in the public market upon the effective date of the Registration Statement of which this Prospectus is a part (the "Effective Date") in reliance on Rule 144(k) under the Securities Act. Beginning 90 days after the Effective Date, an additional 37,395 of these shares will become eligible for sale subject to the provisions of Rule 144 and Rule 701 of the Securities Act. Beginning 180 days after the Effective Date, an additional 5,311,881 of these shares will become eligible for sale subject to the provisions of Rule 144 or Rule 701 upon the expiration of agreements not to sell such shares. In addition, 90 days after the Effective Date, 283,160 shares subject to vested options will be available for sale, subject to compliance with Rule 701, and an additional 33,726 shares subject to additional vested options will be available for sale upon the expiration of the Lock-Up Period described below. Each officer, director and certain stockholders of the Company have agreed with the representatives of the Underwriters for a period of 180 days after the effective date of this Prospectus (the "Lock-Up Period"), subject to certain exceptions, not to offer to sell, contract to sell, or otherwise sell, dispose of, loan, pledge or grant any rights with respect to any shares of Common Stock, any options or warrants to purchase any shares of Common Stock, or any securities convertible into or exchangeable for shares of Common Stock owned as of the date of this Prospectus or thereafter acquired directly by such holders or with respect to which they have or hereafter acquire the power of disposition, without the prior written consent of Robertson, Stephens & Company. However, Robertson, Stephens & Company may, in its sole discretion and at any time without notice, release all or any portion of the securities subject to lock-up agreements. In addition, the Company has agreed that during the Lock-Up Period, the Company will not, without the prior written consent of Robertson, Stephens & Company, subject to certain exceptions, issue, sell, contract to sell, or otherwise dispose of, any shares of Common Stock, any options or warrants to purchase any shares of Common Stock or any securities convertible into, exercisable for or exchangeable for shares of Common Stock. In general, under Rule 144 as currently in effect, a person (or persons whose shares are aggregated), including an affiliate, who has beneficially owned shares for at least two years is entitled to sell, within any three-month period commencing 90 days after the Effective Date, a number of shares that does not exceed the greater of (i) 1% of the then outstanding shares of Common Stock (approximately 122,860 shares outstanding immediately after this offering) or (ii) the average weekly trading volume in the Common Stock during the four calendar weeks preceding such sale, subject to the filing of a Form 144 with respect to such sale and certain other limitations and restrictions. In addition, a person who is not deemed to have been an affiliate of the Company at any time during the three months preceding a sale, and who has beneficially owned the shares proposed to be sold for at least three years, would be entitled to sell such shares under Rule 144(k) without regard to the 66 requirements described above. To the extent that shares were acquired from an affiliate of the Company, such stockholder's holding period for the purpose of effecting a sale under Rule 144 commences on the date of transfer from the affiliate. Any employee, officer or director of or consultant to the Company who purchased shares or was granted options to purchase shares pursuant to a written compensatory plan or contract ("Rule 701 Shares") is entitled to rely on the resale provisions of Rule 701. Rule 701 permits non-affiliates to sell their Rule 701 Shares without having to comply with the public-information, holding-period, volume-limitation or notice provisions of Rule 144 and permits affiliates to sell their Rule 701 Shares without having to comply with the holding period restrictions of Rule 144, in each case commencing 90 days after the Effective Date. However, all officers and directors and certain other stockholders have agreed not to sell or otherwise dispose of Common Stock of the Company during the Lock-Up Period without the prior written consent of Robertson, Stephens & Company. See "Underwriting." The Company intends to file a registration statement under the Securities Act to register shares of Common Stock reserved for issuance under the Option Plan, thus permitting the resale of such shares by non-affiliates in the public market without restriction under the Securities Act. Such registration statement will become effective immediately upon filing. 67 UNDERWRITING The Underwriters named below, acting through their representatives Robertson, Stephens & Company LLC, Bear, Stearns & Co. Inc., and Hambrecht & Quist LLC (the "Representatives"), have severally agreed, subject to the terms and conditions of the Underwriting Agreement, to purchase from the Company the number of shares of Common Stock set forth opposite their names below. The Underwriters are committed to purchase and pay for all such shares, if any are purchased.
NUMBER OF UNDERWRITER SHARES - ----------------------------------------------------------------- ---------- Robertson, Stephens & Company LLC................................ Bear, Stearns & Co. Inc.......................................... Hambrecht & Quist LLC............................................ ---------- Total........................................................ 3,000,000 ---------- ----------
The Representatives have advised the Company that the Underwriters propose to offer the shares of Common Stock to the public at the initial public offering price set forth on the cover page of this Prospectus and to certain dealers at such price less a concession of not more than $ per share, of which $ may be reallowed to other dealers. After the initial public offering, the public offering price, concession and reallowance to dealers may be reduced by the Representatives. No such reduction shall change the amount of proceeds to be received by the Company as set forth on the cover page of this Prospectus. The Company has granted to the Underwriters an option, exercisable during the 30-day period after the date of this Prospectus, to purchase up to 450,000 additional shares of Common Stock at the same price per share as the Company will receive for the 3,000,000 shares that the Underwriters have agreed to purchase. To the extent that the Underwriters exercise such option, each of the Underwriters will have a firm commitment to purchase approximately the same percentage of such additional shares that the number of shares of Common Stock to be purchased by it shown in the above table represents as a percentage of the 3,000,000 shares offered hereby. If purchased, such additional shares will be sold by the Underwriters on the same terms as those on which the 3,000,000 shares are being sold. The Underwriting Agreement contains covenants of indemnity among the Underwriters and the Company against certain civil liabilities, including liabilities under the Securities Act and liabilities arising from breaches of representations and warranties contained in the Underwriting Agreement. Each executive officer and director and certain other shareholders of the Company have agreed with the Representatives for the Lock-Up Period not to offer to sell, contract to sell, or otherwise sell, dispose of, loan, pledge or grant any rights with respect to any shares of Common Stock, any options or warrants to purchase any shares of Common Stock, or any securities convertible into or exchangeable for shares of Common Stock owned as of the date of this Prospectus or thereafter acquired directly by such holders or with respect to which they have or hereinafter acquire the power of disposition, without the prior written consent of Robertson, Stephens & Company LLC. However, Robertson, Stephens & Company LLC may, in its sole discretion at any time or from time to time, without notice, release all or any portion of the securities subject to the lock-up agreements. Approximately 5,311,881 of such shares will be eligible for immediate public sale following expiration of the Lock-Up Period, subject to the provisions of Rule 144. In addition, the Company has agreed that during the Lock-Up Period, it will not, without the prior written consent of Robertson, Stephens & Company LLC, issue, sell, contract to sell or otherwise dispose of any shares of Common Stock, any options or warrants to purchase any shares of Common Stock or any securities convertible into, exercisable for or exchangeable for shares of Common Stock other than the issuance of Common Stock upon the exercise of outstanding options and under the existing employee stock purchase plan and the Company's issuance of options under existing employee stock option plans. See "Shares Eligible For Future Sale." 68 The Underwriters do not intend to confirm sales to any accounts over which they exercise discretionary authority in excess of 5% of the number of shares of Common Stock offered hereby. Prior to this offering, there has been no public market for the Common Stock of the Company. Consequently, the initial public offering price for the Common Stock offered hereby was determined through negotiations among the Company and the Representatives. Among the factors considered in such negotiations were prevailing market conditions, certain financial information of the Company, market valuations of other companies that the Company and the Representatives believe to be comparable to the Company, estimates of the business potential of the Company, the present state of the Company's development and other factors deemed relevant. In addition to the 3,000,000 shares of Common Stock to be sold by the Company in this offering, concurrent with this offering the Company intends to sell in a private placement a number of shares of Common Stock equal to 10% of the aggregate number of shares sold in this offering and in the private placement at the initial public offering price per share (333,333 shares assuming a purchase price of $12.00 per share); provided however, that the total number of shares to be purchased by Sang-A will not exceed $5,000,000 divided by the initial public offering price. Such sale will be effected pursuant to a separate agreement with Sang-A and not pursuant to the Underwriting Agreement. An individual associated with Bear, Stearns & Co. Inc. beneficially owns 10,000 shares of the Company's Common Stock. LEGAL MATTERS The validity of the shares of Common Stock offered hereby will be passed upon for the Company by Cooley Godward Castro Huddleson & Tatum, Palo Alto, California. GC&H Investments, an entity affiliated with Cooley Godward Castro Huddleson & Tatum, beneficially owns 22,000 shares of the Company's Common Stock. Certain legal matters will be passed upon for the Underwriters by Wilson Sonsini Goodrich & Rosati, Palo Alto, California. EXPERTS The financial statements of Aviron as of December 31, 1994 and 1995 and for each of the three years in the period ended December 31, 1995 appearing in this Prospectus and Registration Statement have been audited by Ernst & Young LLP, independent auditors, as set forth in their report theron appearing elsewhere herein and are included in reliance upon such report given on the authority of such firm as experts in accounting and auditing. ADDITIONAL INFORMATION A Registration Statement on Form S-1, including amendments thereto, relating to the Common Stock offered hereby has been filed by the Company with the Securities and Exchange Commission. This Prospectus does not contain all of the information set forth in the Registration Statement and the exhibits and schedules thereto. Statements contained in this Prospectus as to the contents of any contract or other document referred to are not necessarily complete and in each instance reference is made to the copy of such contract or other document filed as an exhibit to the Registration Statement, each such statement being qualified in all respects by such reference. For further information with respect to the Company and the Common Stock offered hereby, reference is made to such Registration Statement, exhibits and schedules. A copy of the Registration Statement may be inspected by anyone without charge at the Commission's principal office located at 450 Fifth Street, N.W., Washington, D.C. 20549, the New York Regional Office located at 7 World Trade Center, 13th Floor, New York, New York 10048, and the Chicago Regional Office located at Northwestern Atrium Center, 500 West Madison Street, Chicago, Illinois 60661-2511, and copies of all or any part thereof may be obtained from the Public Reference Branch of the Commission upon the payment of certain fees prescribed by the Commission. 69 AVIRON INDEX TO FINANCIAL STATEMENTS Report of Ernst & Young LLP, Independent Auditors......................... F-2 Audited Financial Statements Balance Sheets............................................................ F-3 Statements of Operations.................................................. F-4 Statement of Stockholders' Equity......................................... F-5 Statements of Cash Flows.................................................. F-7 Notes to Financial Statements............................................. F-7
F-1 REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS The Board of Directors Aviron We have audited the accompanying balance sheets of Aviron as of December 31, 1994 and 1995, and the related statements of operations, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Aviron at December 31, 1994 and 1995, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1995, in conformity with generally accepted accounting principles. ERNST & YOUNG LLP Palo Alto, California January 26, 1996, except as to the first paragraph of Note 1 and Note 10, for which the date is May 30, 1996 F-2 AVIRON BALANCE SHEETS (in thousands, except share data)
DECEMBER 31, -------------------- 1994 1995 --------- --------- MARCH 31, UNAUDITED 1996 PRO FORMA ----------- STOCKHOLDERS' EQUITY AT (UNAUDITED) MARCH 31, 1996 ----------- (NOTE 10) ASSETS Current assets: Cash and cash equivalents............................... $ 952 $ 11,532 $ 10,000 Short-term investments.................................. 5,497 6,287 4,494 Prepaid expenses and other current assets............... 105 679 873 --------- --------- ----------- Total current assets...................................... 6,554 18,498 15,367 Property and equipment, net............................... 1,216 1,275 1,816 Deposits and other assets................................. 19 105 92 --------- --------- ----------- Total assets............................................ $ 7,789 $ 19,878 $ 17,275 --------- --------- ----------- --------- --------- ----------- LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable........................................ $ 101 $ 312 $ 703 Accrued compensation.................................... 68 130 149 Accrued clinical trial costs............................ -- 545 470 Accrued expenses and other liabilities.................. 201 108 319 Deferred revenue........................................ -- 208 437 Current portion of capital lease obligations............ 307 420 485 --------- --------- ----------- Total current liabilities................................. 677 1,723 2,563 Capital lease obligations, noncurrent..................... 750 618 545 Commitments Stockholders' equity: Preferred Stock, no par value; 43,000,000 shares authorized, issuable in series; 21,666,667, 39,031,971 and 39,168,297, convertible preferred shares issued and outstanding at December 31, 1994 and 1995 and March 31, 1996 respectively, aggregate liquidation preference of $40,347,481 and $40,531,520 at December 31, 1995 and March 31, 1996, respectively (pro forma at March 31, 1996 -- $0.001 par value, 5,000,000 shares authorized, none issued and outstanding)........................... 17,406 39,844 40,028 $ -- Common Stock, no par value; 53,000,000 shares authorized; 695,414, 758,306 and 1,040,822 shares issued and outstanding at December 31, 1994 and 1995, and March 31, 1996 respectively (pro forma at March 31, 1996 -- $0.001 par value 30,000,000 shares authorized, 8,874,456 shares issued and outstanding)............... 16 317 1,579 9 Additional paid-in capital.............................. -- -- -- 41,598 Notes receivable from stockholders...................... -- -- (310) (310) Deferred compensation................................... -- (180) (938) (938) Accumulated deficit..................................... (11,060) (22,444) (26,192) (26,192) --------- --------- ----------- Total stockholders' equity................................ 6,362 17,537 14,167 14,167 --------- --------- ----------- ----------- Total liabilities and stockholders' equity.............. $ 7,789 $ 19,878 $ 17,275 $ 17,275 --------- --------- ----------- ----------- --------- --------- ----------- -----------
See accompanying notes. F-3 AVIRON STATEMENTS OF OPERATIONS (in thousands, except share and per share data)
THREE MONTHS ENDED YEAR ENDED DECEMBER 31, MARCH 31, ---------------------------------- ---------------------- 1993 1994 1995 1995 1996 ---------- ---------- ---------- ---------- ---------- (UNAUDITED) Revenues: License revenue..................................... $ -- $ -- $ 1,500 $ -- $ -- Contract revenue.................................... -- -- 207 -- 188 ---------- ---------- ---------- ---------- ---------- Total revenues........................................ -- -- 1,707 -- 188 Operating expenses: Research and development............................ 2,073 4,216 10,220 3,088 3,044 General and administrative.......................... 1,874 2,493 3,252 701 1,063 ---------- ---------- ---------- ---------- ---------- Total operating expenses.............................. 3,947 6,709 13,472 3,789 4,107 ---------- ---------- ---------- ---------- ---------- Loss from operations.................................. (3,947) (6,709) (11,765) (3,789) (3,919) Other income (expense): Interest income..................................... 175 306 520 71 220 Interest expense.................................... -- (99) (158) (39) (37) ---------- ---------- ---------- ---------- ---------- Total other income, net............................... 175 207 362 32 183 ---------- ---------- ---------- ---------- ---------- Net loss.............................................. $ (3,772) $ (6,502) $ (11,403) $ (3,757) $ (3,736) ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Pro forma net loss per share.......................... $ (0.56) $ (0.73) $ (1.24) $ (0.41) $ (0.41) ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Shares used in computing pro forma net loss per share................................................ 6,696,454 8,948,240 9,182,642 9,061,525 9,223,033
See accompanying notes. F-4 AVIRON STATEMENT OF STOCKHOLDERS' EQUITY (in thousands, except share data)
PREFERRED STOCK COMMON STOCK ---------------------- ---------------------- NOTES DEFERRED SHARES AMOUNT SHARES AMOUNT RECEIVABLE COMPENSATION --------- ----------- --------- ----------- ------------- --------------- Balances at December 31, 1992......... 5,000,000 $ 2,471 648,000 $ 3 -- $ -- Issuance of Series B Convertible Preferred Stock at $0.90 per share for cash and conversion of notes payable in September 1993, net of issuance costs of $65.............. 16,666,667 14,935 -- -- -- -- Issuance of Common Stock at $0.25 per share in April 1993 for certain technology and patent rights....... -- -- 35,000 9 -- -- Exercise of stock options at $0.25 per share for cash................. -- -- 2,550 1 -- -- Net loss............................ -- -- -- -- -- -- --------- ----------- --------- ----------- ----- ----- Balance at December 31, 1993.......... 21,666,667 17,406 685,550 13 -- -- Exercise of stock options at $0.25 to $0.50 per share for cash........ -- -- 9,864 3 -- -- Net unrealized loss on available- for-sale investments............... -- -- -- -- -- -- Net loss............................ -- -- -- -- -- -- --------- ----------- --------- ----------- ----- ----- Balance at December 31, 1994.......... 21,666,667 17,406 695,414 16 -- -- Issuance of Series B Convertible Preferred Stock at $1.20 per share in February 1995 for certain in-process technology.............. 1,323,734 1,588 -- -- -- -- Issuance of Series C Convertible Preferred Stock at $1.35 per share for cash in June through November 1995, net of issuance costs of $807............................... 16,041,570 20,850 -- -- -- -- Exercise of stock options at $0.25 to $0.50 per share for cash........ -- -- 62,892 31 -- -- Deferred compensation related to the grant of certain stock options..... -- -- -- 270 -- (270) Amortization of deferred compensation....................... -- -- -- -- -- 90 Change in net unrealized loss on available-for-sale investments..... -- -- -- -- -- -- Net loss............................ -- -- -- -- -- -- --------- ----------- --------- ----------- ----- ----- Balance at December 31, 1995.......... 39,031,971 $ 39,844 758,306 $ 317 -- $ (180) Issuance of Series C Convertible Preferred Stock at $1.35 per share for cash in March 1996 (unaudited)........................ 136,326 184 -- -- -- -- Exercise of stock options at $0.25 to $2.50 per share for cash (unaudited)........................ -- -- 114,516 168 -- -- Exercise of stock options at $0.50 to $2.50 per share for notes receivable (unaudited)............. -- -- 168,000 310 (310) -- Deferred compensation related to the grant of certain stock options (unaudited)........................ -- -- -- 784 -- (784) Amortization of deferred compensation (unaudited)........... -- -- -- -- -- 26 Change in net unrealized gain on available-for-sale Investments (unaudited)........................ -- -- -- -- -- -- Net loss (unaudited)................ -- -- -- -- -- -- --------- ----------- --------- ----------- ----- ----- Balance at March 31, 1996 (unaudited).......................... 39,168,297 $ 40,028 1,040,822 $ 1,579 $ (310) $ (938) --------- ----------- --------- ----------- ----- ----- --------- ----------- --------- ----------- ----- ----- TOTAL ACCUMULATED STOCKHOLDERS' DEFICIT EQUITY ------------- ------------- Balances at December 31, 1992......... $ (753) $ 1,721 Issuance of Series B Convertible Preferred Stock at $0.90 per share for cash and conversion of notes payable in September 1993, net of issuance costs of $65.............. -- 14,935 Issuance of Common Stock at $0.25 per share in April 1993 for certain technology and patent rights....... -- 9 Exercise of stock options at $0.25 per share for cash................. -- 1 Net loss............................ (3,772) (3,772) ------------- ------------- Balance at December 31, 1993.......... (4,525) 12,894 Exercise of stock options at $0.25 to $0.50 per share for cash........ -- 3 Net unrealized loss on available- for-sale investments............... (33) (33) Net loss............................ (6,502) (6,502) ------------- ------------- Balance at December 31, 1994.......... (11,060) 6,362 Issuance of Series B Convertible Preferred Stock at $1.20 per share in February 1995 for certain in-process technology.............. -- 1,588 Issuance of Series C Convertible Preferred Stock at $1.35 per share for cash in June through November 1995, net of issuance costs of $807............................... -- 20,850 Exercise of stock options at $0.25 to $0.50 per share for cash........ -- 31 Deferred compensation related to the grant of certain stock options..... -- -- Amortization of deferred compensation....................... -- 90 Change in net unrealized loss on available-for-sale investments..... 19 19 Net loss............................ (11,403) (11,403) ------------- ------------- Balance at December 31, 1995.......... $ (22,444) $ 17,537 Issuance of Series C Convertible Preferred Stock at $1.35 per share for cash in March 1996 (unaudited)........................ -- 184 Exercise of stock options at $0.25 to $2.50 per share for cash (unaudited)........................ -- 168 Exercise of stock options at $0.50 to $2.50 per share for notes receivable (unaudited)............. -- -- Deferred compensation related to the grant of certain stock options (unaudited)........................ -- -- Amortization of deferred compensation (unaudited)........... -- 26 Change in net unrealized gain on available-for-sale Investments (unaudited)........................ (12) (12) Net loss (unaudited)................ (3,736) (3,736) ------------- ------------- Balance at March 31, 1996 (unaudited).......................... $ (26,192) $ 14,167 ------------- ------------- ------------- -------------
See accompanying notes. F-5 AVIRON STATEMENTS OF CASH FLOWS (in thousands)
THREE MONTHS ENDED YEAR ENDED DECEMBER 31, MARCH 31, ------------------------------- -------------------- 1993 1994 1995 1995 1996 --------- --------- --------- --------- --------- (UNAUDITED) CASH FLOWS FROM OPERATING ACTIVITIES Net loss................................................... $ (3,772) $ (6,502) $ (11,403) $ (3,757) $ (3,736) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization............................ 223 416 544 127 110 Acquired technology and patent rights.................... 9 -- 1,588 1,588 -- Amortization of deferred compensation.................... -- -- 90 -- 26 Changes in assets and liabilities: Prepaid expenses and other current assets.............. (16) (46) (574) (66) (194) Deposits and other assets.............................. (1) (4) (86) -- 13 Accounts payable....................................... (34) (39) 211 61 391 Accrued expenses and other liabilities................. 168 96 514 (19) 155 Deferred revenue....................................... -- -- 208 -- 229 --------- --------- --------- --------- --------- Net cash used in operating activities...................... (3,423) (6,079) (8,908) (2,066) (3,006) --------- --------- --------- --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Purchases of short-term investments........................ (7,854) (9,755) (9,493) (441) (3,147) Maturities of short-term investments....................... 1,815 11,579 8,722 4,257 4,928 Expenditures for property and equipment.................... (593) (260) (238) (75) (545) --------- --------- --------- --------- --------- Net cash provided by (used in) investing activities........ (6,632) 1,564 (1,009) 3,741 1,236 --------- --------- --------- --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from capital lease line of credit................. -- 620 -- -- -- Principal payments on capital lease obligation............. -- (212) (384) (85) (114) Proceeds from notes payable................................ 1,500 -- -- -- -- Cash proceeds from issuance of: Series B Convertible Preferred Stock..................... 13,434 -- -- -- -- Series C Convertible Preferred Stock..................... -- -- 20,850 -- 184 Common Stock............................................. 1 3 31 1 168 --------- --------- --------- --------- --------- Cash flows provided by financing activities................ 14,935 411 20,497 (84) 238 --------- --------- --------- --------- --------- Net increase (decrease) in cash and cash equivalents....... 4,880 (4,104) 10,580 1,591 (1,532) Cash and cash equivalents at beginning of year............. 176 5,056 952 952 11,532 --------- --------- --------- --------- --------- Cash and cash equivalents at end of year................... $ 5,056 $ 952 $ 11,532 $ 2,543 $ 10,000 --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- SUPPLEMENTAL SCHEDULE OF NONCASH FINANCING ACTIVITIES Issuance of Common Stock and Preferred Stock for certain technology and patent rights.............................. $ 9 $ -- $ 1,588 $ 1,588 $ -- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- Conversion of notes payable to Series B Preferred Stock.... $ 1,500 $ -- $ -- $ -- $ -- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- Equipment acquired under line of credit.................... $ -- $ 648 $ 365 $ 114 $ 106 --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- Deferred compensation related to the grant of certain stock options................................................... $ -- $ -- $ 270 $ -- $ 784 --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
See accompanying notes. F-6 AVIRON NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1995 (INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996 IS UNAUDITED) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION AND BUSINESS Aviron (the "Company") was incorporated in the State of California on April 15, 1992 and will be reincorporated in the State of Delaware in June, 1996. The Company was organized to develop and commercialize cost-effective forms of disease prevention and treatment based on live virus vaccines. Prior to October 1995, the Company was considered to be in the development stage. The Company anticipates working on a number of long-term development projects which will involve experimental and unproven technology. The projects may require many years and substantial expenditures to complete, and which may ultimately be unsuccessful. Therefore, the Company will need to obtain additional funds from outside sources to continue its research and development activities, fund operating expenses, pursue regulatory approvals and build production, sales and marketing capabilities, as necessary. Management believes it has sufficient capital to achieve planned business objectives including supporting preclinical development and clinical testing, through at least 1996. INTERIM FINANCIAL INFORMATION The financial information at March 31, 1996, for the three months ended March 31, 1995 and 1996 is unaudited but includes all adjustments (consisting only of normal recurring adjustments) which the Company considers necessary for a fair presentation of the financial position at such date and of the operating results and cash flows for those periods. Results of the 1996 period are not necessarily indicative of results expected for the entire year. USE OF ESTIMATES The preparation of the financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. CASH AND CASH EQUIVALENTS The Company considers all highly liquid investments with an original maturity of 90 days or less to be cash equivalents. Cash equivalents include $11,831,000 and $9,667,000 in money market funds at December 31, 1995 and March 31, 1996, respectively. SHORT-TERM INVESTMENTS The Company adopted the provisions of Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities" ("SFAS No. 115") for investments held as of or acquired after January 1, 1994. The Company's entire short-term investment portfolio is currently classified as available-for-sale and is carried at fair value based on quoted market prices with the unrealized gains and losses included in stockholders' equity. The amortized cost of debt securities classified as available-for-sale is adjusted for amortization of premiums and accretion of discounts to maturity. Such amortization is included in interest income. Realized gains or losses and declines in value judged to be other-than-temporary are included in other income. The cost of securities sold is based on the specific identification method. The Company has not experienced any significant realized gains or losses on its investments. F-7 AVIRON NOTES TO FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1995 (INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996 IS UNAUDITED) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) PROPERTY AND EQUIPMENT Property and equipment is stated at cost. Depreciation is provided on a straight-line basis over the estimated useful lives of the respective assets which range from three to seven years. Leasehold improvements are amortized on a straight-line basis over the shorter of their useful lives or the term of the lease. REVENUE RECOGNITION Collaborative research revenue earned is based on research expenses incurred. Amounts received in advance of services to be performed are recorded as deferred revenue until the related expenses are incurred. Milestone payments are recognized as revenue in the period earned. STOCK COMPENSATION In October 1995, the Financial Accounting Standards Board issued Statement No. 123, "Accounting for Stock-Based Compensation" ("SFAS No. 123"). The Statement is effective for Aviron beginning in 1996. Under SFAS No. 123, stock-based compensation expense to employees is measured using either the intrinsic-value method as prescribed by Accounting Principle Board Opinion No. 25 or the fair-value method described in SFAS No. 123. Companies choosing the intrinsic-value method will be required to disclose but not actually record the pro forma impact of the fair-value method on net income and earnings per share. The Company plans to adopt the SFAS No. 123 in 1996 using the intrinsic-value method for stock awards to employees. There will be no effect of adopting the SFAS No. 123 on the Company's financial position or results of operations. RECENT PRONOUNCEMENTS During March 1995, the Financial Accounting Standards Board issued Statement No. 121 (SFAS 121), "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," which requires the Company to review for impairment of long-lived assets. SFAS 121 will become effective for the Company's year ending December 31, 1996. The Company has studied the implications of SFAS 121 and, based on its initial evaluation, does not expect it to have a material impact on the Company's financial condition or results of operations. NET LOSS PER SHARE Except as noted below, historical net loss per share is computed using the weighted average number of common shares outstanding. Common equivalent shares from stock options, convertible preferred stock and warrants are excluded from the computation as their effect is antidilutive, except that, pursuant to the Securities and Exchange Commission Staff Accounting Bulletins, common and common equivalent shares issued during the period beginning 12 months prior to the initial filing of the proposed public offering at prices substantially below the assumed public offering price have been included in the calculation as if they were outstanding for all periods presented (using the treasury stock method and the assumed public offering price for stock options and warrants and the if-converted method for convertible preferred stock). F-8 AVIRON NOTES TO FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1995 (INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996 IS UNAUDITED) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Historical net loss per share information is as follows:
THREE MONTHS ENDED YEAR ENDED DECEMBER 31, MARCH 31, ---------------------------------- ---------------------- 1993 1994 1995 1995 1996 ---------- ---------- ---------- ---------- ---------- Net loss per share...................... $ (0.82) $ (1.41) $ (2.47) $ (0.81) $ (0.81) ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Shares used in computing net loss per share.................................. 4,600,440 4,614,907 4,624,721 4,624,078 4,624,953 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Pro forma net loss per share has been computed as described above and also gives effect to the conversion of convertible preferred shares not included above that will automatically convert upon completion of the Company's initial public offering (using the if-converted method) from the original date of issuance. 2. LICENSE AGREEMENTS ARCH DEVELOPMENT CORPORATION On July 1, 1992, the Company entered into an exclusive license agreement with ARCH Development Corporation ("ARCH") to acquire the rights to use or sublicense certain technology and make, use or sell certain licensed products. The agreement calls for the Company to make certain payments to ARCH totaling as much as $2.6 million as certain milestones are met. No benchmark payments were made or were due through 1995. If commercialization is achieved, the Company will be required to pay ARCH royalties based on net sales of the licensed products. Further, if the Company were to sublicense the technology, it would be required to pay ARCH royalties on net sales of the sublicensee and, under certain circumstances, up to 50% of the license fee paid by the sublicensee. In conjunction with this license agreement, the Company sold 40,000 shares of Common Stock to ARCH at $0.005 per share in 1992. Subsequent to this agreement, affiliates of ARCH purchased 700,000, 300,000 and 113,999 shares of the Company's Series A, B and C Preferred Stock, respectively. THE MOUNT SINAI SCHOOL OF MEDICINE In 1993, the Company entered into a technology transfer agreement with The Mount Sinai School of Medicine of the City University of New York ("Mount Sinai") to acquire certain patent rights and technical information. Pursuant to the agreement, the Company issued to Mount Sinai 35,000 shares of Common Stock which resulted in a charge to research and development expense of $8,750, and warrants to purchase, in the aggregate, 225,000 shares of Series A Preferred Stock. The warrants become exercisable upon the occurrence of specific milestones and expire five years from such date or on the day preceding the sale of the Company. Upon the closing of an initial public offering by the Company, warrants covering 148,750 shares of Series A Preferred Stock will become exercisable at a price per share of Common Stock of 125% of the initial public offering price of the Common Stock. The remaining warrants will be cancelled. At December 31, 1995 and March 31, 1996, warrants covering 45,000 shares of Series A Preferred Stock are exercisable at $0.90 per share. The Company is also required to reimburse Mount Sinai for costs incurred in connection with the maintenance and protection of certain patents. UNIVERSITY OF MICHIGAN In February 1995, the Company signed a license agreement with the University of Michigan. The license agreement gives the Company a worldwide license to the University of Michigan's inventions and discoveries F-9 AVIRON NOTES TO FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1995 (INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996 IS UNAUDITED) 2. LICENSE AGREEMENTS (CONTINUED) related to a cold adapted influenza vaccine, including the ability to develop, use, sublicense, manufacture and sell products and processes claimed in the patent rights. Under the arrangement, the Company paid the University of Michigan and expensed a $100,000 fee and issued 1,323,734 shares of Series B Preferred Stock which resulted in a charge to research and development expense of $1,588,481. Upon commercialization of the vaccine product, the license agreement provides that the Company will pay royalties based on net revenues as well as issuing warrants to purchase 1.25% of the Company's then total outstanding Common Stock at an exercise price equal to 125% of the per share price of Common Stock in the Company's initial public offering of Common Stock. The warrant will be exercisable for five years after its issuance date. In conjunction with the license agreement, the Company signed a research agreement with the University of Michigan which obligates the Company to fund approximately $530,000 of specific research projects. As of December 31, 1996, the Company had funded $184,000 for research under this agreement. The Company had also paid the University of Michigan $67,000 for other research services. 3. DEVELOPMENT AGREEMENTS SMITHKLINE BEECHAM BIOLOGICALS S.A. In October 1995, the Company signed an agreement with SmithKline Beecham Biologicals S.A. ("SmithKline Beecham") which grants SmithKline Beecham exclusive worldwide (excluding Korea) rights to produce and market any prophylactic and therapeutic Epstein-Barr Virus ("EBV") vaccines under the Company's patents. Under the Agreement, SmithKline Beecham paid the Company a $1,500,000 nonrefundable licensing fee and is required to make additional benchmark payments as certain milestones are met. Upon commercialization, SmithKline Beecham will pay the Company a royalty based on net sales (by country). In conjunction with the licensing rights, SmithKline Beecham will fund the Company's development of the EBV vaccine for a minimum of two years based on approved budgeted amounts. For the year ended December 31, 1995, the Company recognized $1,500,000 of license revenue and $125,000 of development revenue pursuant to the agreement. As of December 31, 1995, the Company has recorded $208,000 in deferred revenue relating to development that will be recognized in 1996. SANG-A PHARM. CO., LTD. In May 1995, the Company signed a development and licensing agreement with Sang-A Pharm. Co., Ltd. ("Sang-A"), a Korean pharmaceutical company. The agreement covers a wide range of vaccine products and grants Sang-A the exclusive rights and licenses to such products in South and North Korea ("Korea"). Under the terms of the agreement, Sang-A will conduct all clinical development work necessary for approval in Korea at its expense, and is required to make payments based on certain milestones and, upon commercialization of each product, to pay royalties based on net revenues. The agreement also gives Sang-A the first right of refusal to supply a percentage of Aviron's products in selected countries. In connection with this agreement, Sang-A purchased 2,941,863 shares of Series C Preferred Stock for $3,971,515. Sang-A subsequently purchased 1,187,295 additional shares of Series C Preferred Stock for $1,602,848. In the future, Sang-A is required to purchase 10% of any offering of new securities (as defined) of the Company, if requested by the Company, until the earlier of 36 months following Sang-A's initial investment or an initial public offering. During the three months ended March 31, 1996, Sang-A purchased 136,326 shares of Series C Preferred Stock for $184,040. F-10 AVIRON NOTES TO FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1995 (INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996 IS UNAUDITED) 4. SHORT-TERM INVESTMENTS At December 31, 1994 and 1995, the Company's short-term investments consisted of the following debt securities, all of which had maturities of one year or less (in thousands):
AVAILABLE-FOR-SALE SECURITIES ------------------------------------------- GROSS GROSS ESTIMATED UNREALIZED UNREALIZED FAIR COST GAINS LOSSES VALUE ------ ---------- ---------- --------- As of December 31, 1994: U.S. Treasury securities and obligations of U.S. government agencies............................ $2,261 $ -- $(22) $2,239 U.S. corporate commercial paper...... 2,983 -- (1) 2,982 U.S. corporate obligations........... 514 -- (1) 513 Foreign government securities........ 520 -- (9) 511 ------ ---------- --- --------- $6,278 $ -- $(33) $6,245 ------ ---------- --- --------- ------ ---------- --- --------- As of December 31, 1995: U.S. Treasury securities and obligations of U.S. government agencies............................ $1,025 $ 2 $ (4) $1,023 U.S. corporate commercial paper...... 3,705 -- -- 3,705 U.S. corporate obligations........... 1,571 -- (12) 1,559 ------ ---------- --- --------- $6,301 $ 2 $(16) $6,287 ------ ---------- --- --------- ------ ---------- --- ---------
Included in the above table as of December 31, 1994 are corporate debt obligations with a fair value of $748 which are classified as cash equivalents in the accompanying balance sheet. 5. PROPERTY AND EQUIPMENT Property and equipment consisted of the following (in thousands):
DECEMBER 31, MARCH 31, 1994 1995 1996 --------- --------- ----------- Laboratory equipment................................... $ 1,220 $ 1,512 $ 1,601 Computer equipment..................................... 199 323 370 Office equipment....................................... 68 90 100 Leasehold improvements................................. 336 62 567 --------- --------- ----------- 1,823 1,987 2,638 Less accumulated depreciation and amortization......... (607) (712) (822) --------- --------- ----------- $ 1,216 $ 1,275 $ 1,816 --------- --------- ----------- --------- --------- -----------
6. LEASE ARRANGEMENTS In April 1994, the Company entered into a $2,500,000 equipment and leasehold improvement lease line of credit that bears interest based on an average of the three-year and five-year indices of U.S. Treasury bonds. Outstanding balances under the line are secured by the related equipment purchased. The lease line was extended and expires December 31, 1996. At March 31, 1996, $761,000 of the line was available. In connection with this financing arrangement, the Company issued warrants to purchase 116,667 shares of the Company's Series B Preferred Stock. These warrants are exercisable at an exercise price of $0.90 per share and will expire at the earlier of March 2000 or upon the initial public offering of the Company's Common Stock. As consideration for extending the expiration date of the lease line, the Company issued warrants in 1995 to purchase 77,778 F-11 AVIRON NOTES TO FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1995 (INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996 IS UNAUDITED) 6. LEASE ARRANGEMENTS (CONTINUED) shares of the Company's Series B Preferred Stock. These warrants are exercisable at an exercise price of $0.90 per share and will expire at the earlier of May 2001 or upon the initial public offering of the Company's Common Stock. As of March 31, 1996, none of the warrants had been exercised. Included in property and equipment at December 31, 1995 and March 31, 1996 are assets with a cost of $1,826,125 and $2,032,532, respectively, and accumulated amortization of $688,594 and $786,784, respectively, which have been financed pursuant to the lease line of credit. The Company has entered into an operating lease agreement for office and research facilities which expires in 2005 and includes an option allowing the Company to extend the lease for two additional five-year terms. The agreement requires the Company to pay operating costs, including property taxes, utilities, insurance and maintenance. Rent expense for the years ended December 31, 1993, 1994 and 1995 was $130,400, $167,568 and $412,869, respectively. At December 31, 1995, the Company's aggregate commitment under such arrangements are as follows (in thousands):
CAPITAL LEASE OPERATING OBLIGATIONS LEASE ------------- ----------- Years ending December 31, 1996................................................. $ 528 $ 747 1997................................................. 424 866 1998................................................. 226 919 1999................................................. 49 924 2000................................................. -- 950 Thereafter........................................... -- 4,910 ------ ----------- 1,227 $ 9,316 ----------- ----------- Less amounts representing interest..................... (189) ------ 1,038 Less current portion................................... (420) ------ $ 618 ------ ------
7. STOCKHOLDERS' EQUITY COMMON STOCK During June and July 1992, 648,000 shares of Common Stock were issued to the Company's founders, consultants and a licensor of technology at $0.005 per share. These shares are subject to certain transfer restrictions. Certain of these shares, until vested, are subject to repurchase at $0.005 per share (adjusted to reflect any stock splits or stock dividends) on termination of employment. In addition, certain shares of Common Stock issued to members of management in 1995 and 1996 through exercises of stock options are subject to repurchase by the Company at $0.50-$2.50 per share. The above shares vest over periods specified by the Board of Directors. At December 31, 1995 and March 31, 1996, 101,700 and 268,480 shares remain subject to the Company's right of repurchase, respectively. PREFERRED STOCK Preferred Stock is issuable in series. Series A, Series B and Series C Preferred Stock are convertible into 0.20 share of Common Stock of the Company at the option of the holder, and carry voting rights equivalent to F-12 AVIRON NOTES TO FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1995 (INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996 IS UNAUDITED) 7. STOCKHOLDERS' EQUITY (CONTINUED) Common Stock on a share-for-share basis. The conversion rate of the Preferred Stock is subject to adjustment in the event of, among other things, stock splits and stock dividends. Each share of Preferred Stock automatically converts into 0.20 shares of Common Stock in the event of an initial public offering of the Company's Common Stock in which the gross offering proceeds equal or exceed $10.0 million or upon approval of the conversion by a majority of the preferred stockholders voting together as a single class. The Series A, Series B and Series C preferred stockholders are entitled to noncumulative dividends at the rate of $0.05, $0.09 and $0.135 per share, respectively, when and if declared by the board of directors. None have been declared. The Series A, Series B and Series C Preferred Stock are subject to a liquidation preference of $0.50, $0.90 and $1.35 per share, respectively, plus all declared but unpaid dividends. The Preferred Stock authorized, issued and outstanding at December 31, 1995 is as follows:
SHARES SHARES ISSUED LIQUIDATION AUTHORIZED AND OUTSTANDING PREFERENCE ------------ --------------- ------------- Series A............................................... 5,225,000 5,000,000 $ 2,500,000 Series B............................................... 18,650,000 17,990,401 16,191,361 Series C............................................... 18,000,000 16,041,570 21,656,120 Undesignated........................................... 1,125,000 -- -- ------------ --------------- ------------- 43,000,000 39,031,971 $ 40,347,481 ------------ --------------- ------------- ------------ --------------- -------------
In November 1995, in conjunction with the private placement of Series C Preferred Stock, the Company issued to the placement agent warrants to purchase 352,536 shares of the Company's Series C Preferred Stock. These warrants have an exercise price of $1.62 per share and will expire in November 2000. As of March 31, 1996, none of the warrants had been exercised. A total of 771,981 shares of Preferred Stock have been reserved for issuance upon exercise of outstanding warrants as of December 31, 1995 and March 31, 1996. In addition, 8,600,000 shares of Common Stock have been reserved for issuance upon the conversion of convertible Preferred Stock. STOCK OPTIONS On September 15, 1992, the board of directors adopted the 1992 Stock Option Plan (the "1992 Plan"). The Company initially reserved 272,000 shares of Common Stock for issuance under the 1992 Plan which was increased by 200,000 shares in 1993 and 300,000 shares in 1994. The 1992 Plan provides for both incentive and nonqualified stock options to be granted to employees, directors and consultants. The 1992 Plan provides that incentive stock options will be granted at no less than the fair value of the Company's Common Stock (no less than 85% of the fair value for nonqualified stock options), as determined by the board of directors at the date of the grant. If, at the time the Company grants an option, the optionee owns more than 10% of the total combined voting power of all the classes of stock of the Company, the option price shall be at least 110% of the fair value and the option shall not be exercised more than five years after the date of grant. The options vest and become exercisable over periods determined by the board of directors. Except as noted above, options expire no more than 10 years after the date of grant, or earlier if employment terminates. F-13 AVIRON NOTES TO FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1995 (INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996 IS UNAUDITED) 7. STOCKHOLDERS' EQUITY (CONTINUED) Option activity under the Plan is as follows:
OPTIONS OUTSTANDING -------------------------- SHARES EXERCISE AVAILABLE NUMBER OF PRICE PER FOR GRANT SHARES SHARE --------- ----------- ------------- Balance at December 31, 1992..................................... 157,100 114,900 $ 0.25 Options authorized............................................. 200,000 -- -- Options granted................................................ (235,117) 235,117 $0.25-$0.50 Options exercised.............................................. -- (2,550) $ 0.25 Options canceled............................................... 9,550 (9,550) $ 0.25 --------- ----------- ------------- Balance at December 31, 1993..................................... 131,533 337,917 $0.25-$0.50 Options authorized............................................. 300,000 -- -- Options granted................................................ (71,230) 71,230 $ 0.50 Options exercised.............................................. -- (9,864) $0.25-$0.50 Options canceled............................................... 29,996 (29,996) $0.25-$0.50 --------- ----------- ------------- Balance at December 31, 1994..................................... 390,299 369,287 $0.25-$0.50 Options granted................................................ (269,000) 269,000 $0.50-$1.25 Options exercised.............................................. -- (62,892) $0.50-$1.25 Options canceled............................................... 2,357 (2,357) $0.25-$0.50 --------- ----------- ------------- Balance at December 31, 1995..................................... 123,656 573,038 $0.25-$1.25 Options granted (unaudited).................................... (96,625) 96,625 $ 2.50 Options exercised (unaudited).................................. -- (64,516) $0.25-$0.50 Options canceled (unaudited)................................... 735 (735) $0.25-$2.50 --------- ----------- ------------- Balance at March 31, 1996 (unaudited)............................ 27,766 604,412 $0.25-$2.50 --------- ----------- ------------- --------- ----------- -------------
In addition, during 1995 fully-vested non-qualified stock options covering 40,000 shares were issued outside of the 1992 Plan at exercise prices of $0.50-$1.25 per share. During January 1996, 208,000 non-qualified stock options were issued outside the 1992 Plan at exercise prices of $1.75-$2.50 per share. Of the stock options issued outside of the 1992 Plan, 218,000 options were exercised at exercise prices of $0.50-$2.50 per share during the quarter ending March 31, 1996. During the three months ended March 31, 1996, officers of the Company exercised options for 168,000 shares by signing promissory notes amounting to $310,000 which bear interest at 5.73%. As of December 31, 1995 and March 31, 1996, options to purchase 347,893 and 291,491 shares of Common Stock were exercisable. For certain options granted during 1995 and 1996, the Company recognized as deferred compensation the excess of the deemed value for financial reporting purposes of the Common Stock issuable upon the exercise of such options over the aggregate exercise price of such options. Total deferred compensation of $270,000 recorded through December 31, 1995 is being amortized over the vesting period of such options. A portion of these options vested immediately upon grant. In January 1996, the Company granted an additional 304,625 options with exercise prices of $1.75 to $2.50 and recorded related deferred compensation of approximately $784,000. In May 1996, the Company granted 102,950 options with an exercise price of $2.50 and recorded related deferred compensation of approximately $463,000. F-14 AVIRON NOTES TO FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1995 (INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996 IS UNAUDITED) 7. STOCKHOLDERS' EQUITY (CONTINUED) In March 1996, the Company amended and restated the 1992 Plan as the 1996 Equity Incentive Plan (the "1996 Plan"). Total shares of Common Stock reserved for future issuance under the 1996 Plan were increased to 1,750,000. The 1996 Plan provides for the grant of incentive and nonstatutory stock options to employees and consultants of the Company. In March 1996, the Company adopted the 1996 Non-Employee Directors' Stock Option Plan (the "Directors' Plan") under which 200,000 shares of Common Stock are reserved for issuance pursuant to nonstatutory stock options. In March 1996, the Company also adopted the Employee Stock Purchase Plan (the "Purchase Plan"). A total of 250,000 shares of Common Stock are reserved for issuance under the Purchase Plan. The Purchase Plan permits eligible employees to purchase Common Stock through payroll deductions at a price equal to the lower of 85% of the fair market value of the Company's Common Stock at the beginning or end of the applicable offering period. 8. INCOME TAXES As of December 31, 1995, the Company had a federal net operating loss carryforward of approximately $20,000,000. The net operating loss carryforward will expire at various dates beginning from 2007 through 2010, if not utilized. Utilization of the net operating losses and credits may be subject to a substantial annual limitation due to the "ownership change" provisions of the Internal Revenue Code of 1986. Significant components of the Company's deferred tax assets are as follows:
DECEMBER 31, ------------------------------- 1993 1994 1995 --------- --------- --------- (in thousands) Net operating loss carryforward.......................................... $ 1,500 $ 3,800 $ 7,100 Capitalized research expenses............................................ -- 200 1,060 Research tax credits (expires from 2007-2010)............................ 100 300 550 Other.................................................................... 200 100 140 --------- --------- --------- Net deferred tax assets.................................................. 1,800 4,400 8,850 Valuation allowance...................................................... (1,800) (4,400) (8,850) --------- --------- --------- $ -- $ -- $ -- --------- --------- --------- --------- --------- ---------
Because of the Company's lack of earnings history, the net deferred tax asset has been fully offset by a valuation allowance. The valuation allowance increased by approximately $1,500,000 in 1993. 9. RELATED PARTY TRANSACTIONS In 1995, the Company made unsecured loans to officers totalling $100,000 which bear interest at 7.75% and are due in April 2000. An officer of the Company is a shareholder in an investment advisory business which was paid a commission by the Company of approximately $334,000 during 1995 related to the Sang-A transaction (see Note 3). The officer received no direct compensation from the transaction. 10. SUBSEQUENT EVENT -- PROPOSED PUBLIC OFFERING AND RELATED MATTERS On May 30, 1996, the board of directors authorized management of the Company to file a Registration Statement with the Securities and Exchange Commission offering shares of its Common Stock to the public. If the offering is consummated under the terms presently anticipated, all of the Preferred Stock outstanding will F-15 AVIRON NOTES TO FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1995 (INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996 IS UNAUDITED) 10. SUBSEQUENT EVENT -- PROPOSED PUBLIC OFFERING AND RELATED MATTERS (CONTINUED) automatically convert into 7,833,634 shares of Common Stock upon the closing of the offering. Unaudited pro forma stockholders' equity as of December 31, 1995 as adjusted for the assumed conversion of the Preferred Stock is set forth on the accompanying balance sheet. In May 1996, the Company filed restated Articles of Incorporation in California to effect a one-for-five reverse stock split of all outstanding shares of Common Stock, Common Stock options and warrants. The conversion ratio of all outstanding shares of Convertible Preferred Stock were adjusted such that each preferred share converts into .20 shares of common stock. All common share and per share data in the accompanying financial statements has been adjusted retroactively to give effect to the reverse stock split. In conjunction with the registration, the board of directors also authorized the reincorporation of the Company in Delaware. F-16 [LOGO] PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION. The following table sets forth all expenses, other than the underwriting discounts and commissions, payable by the Registrant in connection with the sale of the Common Stock being registered. All the amounts are estimates except for the registration fee and the NASD filing fee. Registration fee.......................................... $ 15,466 NASD filing fee........................................... 4,985 Blue sky qualification fees and expenses.................. 5,000 Printing and engraving expenses........................... 125,000 Legal fees and expenses................................... 300,000 Accounting fees and expenses.............................. 130,000 Transfer agent and registrar fees......................... 10,000 Miscellaneous............................................. 9,549 --------- Total................................................. $ 600,000 --------- ---------
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS. Under Section 145 of the Delaware General Corporation Law, the Registrant has broad powers to indemnify its directors and officers against liabilities they may incur in such capacities, including liabilities under the Securities Act of 1933, as amended (the "Securities Act"). The Registrant's Bylaws also provide that the Registrant will indemnify its directors and executive officers and may indemnify its other officers, employees and agents to the fullest extent permitted by Delaware law. The Registrant's Certificate of Incorporation provides for the elimination of liability for monetary damages for breach of the directors' fiduciary duty of care to the Registrant and its stockholders. These provisions do not eliminate the directors' duty of care and, in appropriate circumstances, equitable remedies such an injunctive or other forms of non-monetary relief will remain available under Delaware law. In addition, each director will continue to be subject to liability for breach of the director's duty of loyalty to the Registrant, for acts or omissions not in good faith or involving intentional misconduct, for knowing violations of law, for any transaction from which the director derived an improper personal benefit, and for payment of dividends or approval of stock repurchases or redemptions that are unlawful under Delaware law. The provision does not affect a director's responsibilities under any other laws, such as the federal securities laws or state or federal environmental laws. The Underwriting Agreement filed as Exhibit 1.1 to this Registration Statement, will provide for indemnification by the Underwriters and their controlling persons, on the one hand, and of the Registrant and its controlling persons on the other hand, for certain liabilities arising under the Securities Act or otherwise. ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES. Since inception, the Registrant has sold and issued the following unregistered securities (adjusted to give effect to the one-for-five reverse stock split): (1) From April 1992 through June 1, 1996, the Registrant has granted stock options to purchase 889,822 shares of the Company's Common Stock at a weighted average exercise price of $1.02 per share to employees, consultants and directors pursuant to its 1996 Equity Incentive Plan, or predecessor plans (the "Plans"). Of these options, 58,318 have been canceled without being exercised, 218,024 have been exercised and 613,480 remain outstanding. In January 1996, 208,000 options were issued outside the Plan to certain senior executives and founders of the Company, at exercise prices ranging from $1.75 to $2.50 per share. II-1 (2) In June and July 1992, the Registrant issued 5,000,000 shares of Series A Preferred Stock to 14 purchasers at $0.50 per share, for an aggregate purchase price of $2,500,000. Shares of Series A Preferred Stock are convertible into shares of Common Stock at the rate of one share of Common Stock for each five shares of Series A Preferred Stock owned. (3) In February 1993, the Company issued warrants to purchase up to 225,000 shares of Series A Preferred Stock to The Mount Sinai School of Medicine of the City University of New York ("Mount Sinai") in connection with the transfer by Mount Sinai to the Company of certain technology rights. The shares of Series A Preferred Stock issuable upon exercise of the warrants are convertible into shares of Common Stock at the rate of one share of Common Stock for each five shares of Series A Preferred Stock owned. (4) In September 1993, the Registrant issued 16,666,667 shares of Series B Preferred Stock to 34 purchasers (including two purchasers who received 1,666,666 shares upon conversion of promissory notes aggregating $1,500,000) at $0.90 per share, for an aggregate purchase price of $15,000,000. Shares of Series B Preferred Stock are convertible into shares of Common Stock at the rate of one share of Common Stock for each five shares of Series B Preferred Stock owned. (5) In September 1993, the Registrant issued warrants to purchase 400,000 shares of its Series B Preferred Stock, at an exercise price of $1.25 per share, to entitles affiliated with IVP. These warrants expired unexercised in June 1995. (6) In February 1995, the Registrant entered into a license agreement with the University of Michigan under which, in return for certain rights to the University of Michigan's inventions and discoveries related to a cold adapted influenza vaccine, the Registrant issued 1,323,734 shares of the Registrant's Series B Preferred Shares, plus a warrant to purchase up to 1.25% of the Registrant's outstanding Common Stock under certain conditions. Shares of Series B Preferred Stock are convertible into shares of Common Stock at the rate of one share of Common Stock for each five shares of Series B Preferred Stock owned. (7) In April 1994 and May 1995, the Registrant issued warrants to purchase an aggregate of 194,445 shares of Series B Preferred Stock at an exercise price of $0.90 per share to Lease Management Services, Inc. (8) In May 1995, the Registrant entered into a license agreement with Sang-A Pharm Co., Ltd., ("Sang-A") under which, in return for certain rights to certain of the Registrant's products in Korea, Sang-A purchased 2,941,863 of the Registrant's Series C Preferred Stock for $3,971,575, or $1.35 per share. Shares of Series C Preferred Stock are convertible into shares of Common Stock at the rate of one share of Common Stock for each five shares of Series C Preferred Stock owned. (9) From July through November 1995, the Registrant issued 13,099,707 shares of Series C Preferred Stock to 66 purchasers at a purchase price of $1.35 per share (including 1,187,295 shares to Sang-A), for an aggregate purchase price of $17,684,604. Shares of Series C Preferred Stock are convertible into shares of Common Stock at the rate of one share of Common Stock for each five shares of Series C Preferred Stock owned. (10) In November 1995, the Registrant issued a warrant to purchase 352,536 shares of the Series C Preferred Stock of the Company to Raymond, James & Associates, Inc., for an exercise price of $1.62 per share (convertible into 70,507 shares of Common Stock) issuable upon exercise of the warrant. Shares of Series C Preferred Stock are convertible into shares of Common Stock at the rate of one share of Common Stock for each five shares of Series C Preferred Stock owned. (11) In March 1996, the Registrant issued 136,315 shares of Series C Preferred Stock to Sang-A Pharm Co., Ltd. at $1.35 per share, for an aggregate purchase price of $184,025. Shares of Series C Preferred Stock are convertible into shares of Common Stock at the rate of one share of Common Stock for each five shares of Series C Preferred Stock owned. The sales and issuances of securities described in paragraph (1) above were deemed to be exempt from registration under the Securities Act by virtue of Rule 701 of the Securities Act. The sales and issuances of securities described in paragraphs (2) through (9) above were deemed to be exempt from registration under the II-2 Securities Act by virtue of Rule 4(2) of the Securities Act. The sale and issuance of securities described in paragraph (10) above were deemed to be exempt from registration under the Securities Act by virtue of Rule 3(a)(9) of the Securities Act. Appropriate legends are affixed to the stock certificates issued in the aforementioned transactions. Similar legends were imposed in connection with any subsequent sales of any such securities. All recipients either received adequate information about the Registrant or had access, through employment or other relationships, to such information. ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. (a) The following is a list of exhibits filed as a part of this Registration Statement:
EXHIBIT NUMBER DESCRIPTION OF DOCUMENT - ------------- ------------------------------------------------------------ *1.1 Form of Underwriting Agreement. 3.1 Amended and Restated Articles of Incorporation of the Registrant, as amended. *3.2 Amendment to the Amended and Restated Articles of Incorporation of the Registrant. 3.3 Bylaws of the Registrant. *3.4 Form of Certificate of Incorporation of the Registrant to be filed upon reincorporation in Delaware. *3.5 Form of Bylaws of the Registrant to be effective upon reincorporation in Delaware. *3.6 Form of Restated Certificate of Incorporation of the Registrant, to be filed after completion of this offering. *3.7 Form of Restated Bylaws of the Registrant, to be effective upon the completion of this offering. 4.1 Reference is made to Exhibits 3.1, 3.2, 3.3, 3.4., 3.5 and 3.6. *4.2 Specimen Stock Certificate. 4.3 Warrant for Series A Preferred Stock, issued to The Mount Sinai School of Medicine of the City of New York. 4.4 Warrant for Series A Preferred Stock, issued to The Mount Sinai School of Medicine of the City of New York. *4.5 Warrant for Series A Preferred Stock, issued to The Mount Sinai School of Medicine of the City of New York. *4.6 Warrant for Series A Preferred Stock, issued to The Mount Sinai School of Medicine of the City of New York. *4.7 Warrant for Series C Preferred Stock, issued to Raymond, James & Associates. 4.8 Investors Rights Agreement, dated July 18, 1995, among the Registrant and the investors named therein. 5.1 Opinion of Cooley Godward Castro Huddleson & Tatum. +10.1 License Agreement between the Registrant and ARCH Development Corporation, dated July 1, 1992. +10.2 Technology Transfer Agreement between the Registrant and The Mount Sinai School of Medicine of the City University of New York, dated February 9, 1993. +10.3 Materials Transfer and Intellectual Property Agreement between the Registrant and the Regents of the University of Michigan, dated February 24, 1995. 10.4 Stock Transfer Agreement between the Registrant and the Regents of the University of Michigan, dated February 24, 1995.
II-3
EXHIBIT NUMBER DESCRIPTION OF DOCUMENT - ------------- ------------------------------------------------------------ +10.5 Development and License Agreement between the Registrant and Sang-A Pharm. Co., Ltd., dated May 3, 1995. +10.6 Cooperative Research and Development Agreement between the Registrant and the National Institutes of Health, dated May 30, 1995. *+10.7 Heads of Agreement between the Registrant and SmithKline Beecham Biologicals S.A., dated October 8, 1995. +10.8 Manufacturing and Development Agreement between the Registrant and Evans Medical Limited, dated November 7, 1995. 10.9 1996 Equity Incentive Plan. 10.10 1996 Non-Employee Directors' Stock Option Plan. 10.11 1996 Employee Stock Purchase Plan. 10.12 Industrial Lease between the Registrant and the Vanni Business Park General Partnership, dated August 29, 1995. 11.1 Statement regarding Computation of Pro Forma Net Loss Per Share. 23.1 Consent of Ernst & Young LLP. 24.2 Consent of Cooley Godward Castro Huddleson & Tatum. Reference is made to Exhibit 5.1. 25.1 Power of Attorney. Reference is made to page II-5. 27.1 Financial Data Schedules.
- ------------------- * To be filed by amendment. + Confidential treatment has been requested for portions of this exhibit. ITEM 17. UNDERTAKINGS. The Registrant hereby undertakes to provide the Underwriters at the closing specified in the Underwriting Agreement certificates in such denominations and registered in such names as required by the Underwriters to permit prompt delivery to each purchaser. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers, and controlling persons of the Registrant pursuant to the provisions described in Item 14 or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer, or controlling person of the Registrant in the successful defense of any action, suit, or proceeding) is asserted by such director, officer, or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will governed by the final adjudication of such issue. The undersigned Registrant undertakes that: (1) for purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of the registration statement in reliance upon Rule 430A and contained in the form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of the registration statement as of the time it was declared effective, and (2) for the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-4 SIGNATURES In accordance with the requirements of the Securities Act of 1933, the Registrant has duly caused this Registration Statement on Form S-1 to be signed on its behalf by the undersigned, in the City of Moutain View, County of Santa Clara, State of California, on the 4th day of June, 1996. AVIRON By: /s/ J. LEIGHTON READ ----------------------------------- J. Leighton Read, M.D. CHAIRMAN, CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER (PRINCIPAL EXECUTIVE OFFICER) POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints J. Leighton Read, M.D. as his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his name, place and stead, in any all capacities, to sign any and all amendments (including post-effective amendments and registration statements filed pursuant to Rule 462) to this Registration Statement, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent, or his substitutes, may lawfully do or cause to be done by virtue hereof. IN ACCORDANCE WITH THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS REGISTRATION STATEMENT WAS SIGNED BELOW BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE DATES STATED. SIGNATURE TITLE DATE - ------------------------------------------------ ------------------------------ -------------- Chairman, Chief Executive Officer and Chief Financial /s/ J. LEIGHTON READ Officer -------------------------------------- (PRINCIPAL EXECUTIVE OFFICER June 4, 1996 J. Leighton Read, M.D. AND PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER) /s/ REID W. DENNIS -------------------------------------- Director June 4, 1996 Reid W. Dennis /s/ PAUL H. KLINGENSTEIN -------------------------------------- Director June 4, 1996 Paul H. Klingenstein /s/ BERNARD ROIZMAN -------------------------------------- Director June 4, 1996 Bernard Roizman, Sc.D. /s/ L. JAMES STRAND -------------------------------------- Director June 4, 1996 L. James Strand, M.D. /s/ JANE E. SHAW -------------------------------------- Director June 4, 1996 Jane E. Shaw, Ph.D.
II-5 EXHIBIT 23.1 CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS We consent to the reference to our firm under the captions "Selected Financial Data" and "Experts" and to the use of our report dated January 26, 1996 (except as to the first paragraph of Note 1 and Note 10 as to which the date is June , 1996), in the Registration Statement (Form S-1) and related Prospectus of Aviron for the registration of 3,450,000 shares of its Common Stock. ERNST & YOUNG LLP Palo Alto, California - -------------------------------------------------------------------------------- The foregoing consent is in the form that will be signed upon the completion of the restatement of capital accounts described in Note 10 to the financial statements. Palo Alto, California June , 1996 II-6 EXHIBIT INDEX
SEQUENTIAL EXHIBIT PAGE NUMBER DESCRIPTION OF DOCUMENT NUMBER - --------- ------------------------------------------------------------------------------------------- ---------- *1.1 Form of Underwriting Agreement............................................................. 3.1 Amended and Restated Articles of Incorporation of the Registrant, as amended............... *3.2 Amendment to the Amended and Restated Articles of Incorporation of the Registrant.......... 3.3 Bylaws of the Registrant................................................................... *3.4 Form of Certificate of Incorporation of the Registrant to be filed upon reincorporation in Delaware.................................................................................. *3.5 Form of Bylaws of the Registrant to be effective upon reincorporation in Delaware.......... *3.6 Form of Restated Certificate of Incorporation of the Registrant, to be filed after completion of this offering............................................................... *3.7 Form of Restated Bylaws of the Registrant, to be effective upon the completion of this offering.................................................................................. 4.1 Reference is made to Exhibits 3.1, 3.2, 3.3, 3.4., 3.5 and 3.6............................. *4.2 Specimen Stock Certificate................................................................. 4.3 Warrant for Series A Preferred Stock, issued to The Mount Sinai School of Medicine of the City of New York.......................................................................... 4.4 Warrant for Series A Preferred Stock, issued to The Mount Sinai School of Medicine of the City of New York.......................................................................... 4.5 Warrant for Series A Preferred Stock, issued to The Mount Sinai School of Medicine of the City of New York.......................................................................... 4.6 Warrant for Series A Preferred Stock, issued to The Mount Sinai School of Medicine of the City of New York.......................................................................... 4.7 Warrant for Series C Preferred Stock, issued to Raymond, James & Associates................ 4.8 Amended and Restated Investors Rights Agreement, dated July 18, 1995, among the Registrant and the investors named therein........................................................... 5.1 Opinion of Cooley Godward Castro Huddleson & Tatum......................................... +10.1 License Agreement between the Registrant and ARCH Development Corporation, dated July 1, 1992...................................................................................... +10.2 Technology Transfer Agreement between the Registrant and The Mount Sinai School of Medicine of the City University of New York, dated February 9, 1993................................ +10.3 Materials Transfer and Intellectual Property Agreement between the Registrant and the Regents of the University of Michigan, dated February 24, 1995............................ 10.4 Stock Transfer Agreement between the Registrant and the Regents of the University of Michigan, dated February 24, 1995......................................................... +10.5 Development and License Agreement between the Registrant and Sang-A Pharm. Co., Ltd., dated May 3, 1995............................................................................... +10.6 Cooperative Research and Development Agreement between the Registrant and the National Institutes of Health, dated May 30, 1995.................................................. *+10.7 Heads of Agreement between the Registrant and SmithKline Beecham Biologicals S.A., dated October 8, 1995........................................................................... +10.8 Manufacturing and Development Agreement between the Registrant and Evans Medical Limited, dated November 7, 1995.................................................................... 10.9 1996 Equity Incentive Plan................................................................. 10.10 1996 Non-Employee Directors' Stock Option Plan............................................. 10.11 1996 Employee Stock Purchase Plan..........................................................
SEQUENTIAL EXHIBIT PAGE NUMBER DESCRIPTION OF DOCUMENT NUMBER - --------- ------------------------------------------------------------------------------------------- ---------- 10.12 Industrial Lease between the Registrant and the Vanni Business Park General Partnership, dated August 29, 1995..................................................................... *+10.13 First Amendment to License Agreement between the Registrant and ARCH Development Corporation, dated March 15, 1996......................................................... *+10.14 Biological Materials License Agreement between the Registrant and the National Institutes of Health, dated May 31, 1996............................................................. 11.1 Statement regarding Computation of Pro Forma Net Loss Per Share............................ 23.1 Consent of Ernst & Young LLP............................................................... 24.2 Consent of Cooley Godward Castro Huddleson & Tatum. Reference is made to Exhibit 5.1....... 25.1 Power of Attorney. Reference is made to page II-5.......................................... 27.1 Financial Data Schedules...................................................................
- ------------------- * To be filed by amendment. + Confidential treatment has been requested for portions of this exhibit. EX-3.1 2 AMENDED AND RESTATED ARTICLES OF INCORPORATION AMENDED AND RESTATED ARTICLES OF INCORPORATION OF AVIRON J. Leighton Read and Alan C. Mendelson certify that: 1. They are the Chief Executive Officer and Secretary, respectively, of Aviron, a California corporation (the "Corporation"). 2. The Articles of Incorporation of this Corporation are amended and restated as follows: "I. The name of this corporation is Aviron. II. The purpose of this corporation is to engage in any lawful act or activity for which a corporation may be organized under the General Corporation Law of California other than the banking business, the trust company business or the practice of a profession permitted to be incorporated by the California Corporations Code. III. A. This corporation is authorized to issue two classes of stock to be designated, respectively, "Common Stock" and "Preferred Stock." The total number of shares which the corporation is authorized to issue is Ninety-Six Million (96,000,000) shares. Fifty-Three Million (53,000,000) shares shall be Common Stock. Forty-Three Million (43,000,000) shares shall be Preferred Stock. The Preferred Stock may be issued from time to time in one or more series. Subject to the protective provisions set forth in Section 5 below, the Board of Directors is hereby authorized to fix or alter the dividend rights, dividend rate, conversion rights, voting rights, rights and terms of redemption (including sinking fund provisions), redemption price or prices, and the liquidation preferences of any wholly unissued series of Preferred Stock, and the number of shares 1 constituting any such series and the designation thereof, or any of them; and to increase or decrease the number of shares of any series subsequent to the issuance of shares of that series, but not below the number of shares of such series then outstanding. In case the number of shares of any series shall be so decreased, the shares constituting such decrease shall resume the status that they had prior to the adoption of the resolution originally fixing the number of shares of such series. B. Five million two hundred twenty-five thousand (5,225,000) of the authorized shares of Preferred Stock are hereby designated "Series A Preferred Stock." Eighteen million six hundred fifty thousand (18,650,000) of the authorized shares of Preferred Stock are hereby designated "Series B Preferred Stock," and eighteen million (18,000,000) of the authorized shares of Preferred Stock are hereby designated "Series C Preferred Stock." The Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock are collectively referred to as the "Preferred Stock." C. The respective rights, preferences, privileges, restrictions and other matters relating to the Preferred Stock are as follows: 1. DIVIDENDS. The holders of the Preferred Stock shall be entitled to receive, payable in preference and priority to the holders of Common Stock, when and as declared by the Board of Directors, out of any assets at the time legally available therefor, dividends at the rate of: (a) with respect to the Series A Preferred Stock, $.05 per share per annum (as appropriately adjusted for any combination, consolidation, stock distribution, stock dividend, stock split or similar event with respect to such shares (a "Recapitalization")); (b) with respect to the Series B Preferred Stock, $.09 per share per annum (as adjusted for any Recapitalization); and (c) with respect to the Series C Preferred Stock, $.135 per share per annum (as adjusted for any Recapitalization). Such dividends shall not be cumulative and no right to such dividends shall accrue to holders of Preferred Stock unless declared by the Board of Directors. No dividends shall be declared or paid with respect to the Common Stock (other than a dividend payable solely in Common Stock of the Corporation) unless a dividend of equal or greater amount per share (on an as-if-converted to Common Stock basis) is first declared and paid with respect to the Preferred Stock. Each share of Preferred Stock shall rank on parity with every other share of Preferred Stock, irrespective of series, with regard to dividends, and no dividends shall be paid, declared or set apart for payment 2 on the shares of any series of Preferred Stock unless at the same time a dividend for the same percentage of the respective dividend rates shall also be paid, declared or set apart for payment, as the case may be, on the shares of Preferred Stock or each other series then outstanding. So long as any shares of Preferred Stock shall be outstanding, no dividend, whether in cash or property, shall be paid or declared, nor shall any other distribution be made, on any Common Stock, nor shall any shares of the Common Stock of the Corporation be purchased, redeemed, or otherwise acquired for value by the Corporation (except for acquisitions of Common Stock by the Corporation from the founders, directors, employees or consultants of the Corporation pursuant to agreements which permit the Corporation to repurchase such shares upon termination of an employment or consulting relationship or in exercise of the Corporation's right of first refusal upon a proposed transfer) until all accrued but unpaid dividends on the Preferred Stock shall have been paid or declared and set apart. In the event dividends are paid on any share of Common Stock, an additional dividend shall be paid with respect to all outstanding shares of Preferred Stock in an amount for each such share of Preferred Stock equal to the aggregate amount of such dividends for all shares of Common Stock into which each such share of Preferred Stock could then be converted. The provisions of this Section 1(b) shall not, however, apply to (i) a dividend payable in Common Stock, (ii) the acquisition of shares of any Common Stock in exchange for shares of any other Common Stock, or (iii) any repurchase of any outstanding securities of the Corporation that is approved by the Corporation's Board of Directors. 2. LIQUIDATION PREFERENCE. (a) In the event of any liquidation, dissolution or winding up of the Corporation, either voluntary or involuntary, the holders of the Series A Preferred Stock, Series B Preferred Stock, and Series C Preferred Stock shall be entitled to receive, prior and in preference to any distribution of any of the assets or surplus funds of the Corporation to the holders of Common Stock by reason of their ownership thereof, the amount of $.50, $.90, and $1.35 per share, respectively (appropriately adjusted for any Recapitalization), plus all declared but unpaid dividends on such share for each share of Series A Preferred Stock, Series B Preferred Stock, or Series C Preferred Stock then held by them. If upon the occurrence of such event, the assets and funds thus distributed among the holders of the Preferred Stock shall be insufficient to permit the payment to such holders of the full aforesaid preferential amount, then the entire assets and funds of the Corporation legally available for distribution shall be distributed among the holders of the Preferred Stock in proportion to the full amounts to which they would otherwise be entitled and in proportion to the number of shares of Preferred Stock then held by them. (b) After payment to the holders of Preferred Stock of the amount set forth in subparagraph (a) above, the entire remaining assets and funds of the Corporation legally available for distribution, if any, shall be distributed among the holders of the Preferred Stock and 3 Common Stock pro rata based on the number of shares of Common Stock held by them (assuming conversion of all Preferred Stock). (c) A consolidation or merger of the Corporation with or into any other corporation or corporations, or a sale of all or substantially all of the assets of the Corporation, other transaction or series of related transactions resulting in a change of voting control shall be deemed a liquidation, dissolution or winding up within the meaning of this Section 2 if (a) more than 50% of the outstanding securities of each class of the surviving entity, or (b) an interest in equity securities representing at least 50% of the voting power or at least 50% of the equity interest in the surviving entity, is not owned by persons who were holders of capital stock or securities convertible into capital stock of the Corporation immediately prior to such merger, consolidation or sale; provided, however, that the sale of Preferred Stock to private investors pursuant to a Preferred Stock Purchase Agreement shall not constitute a liquidation, dissolution or winding up within the meaning of this section. 3. VOTING RIGHTS. Except as otherwise expressly provided herein or as required by law, the holder of each share of Preferred Stock shall be entitled to the number of votes equal to the number of shares of Common Stock into which such share of Preferred Stock could be converted on the record date for the vote or the date of the solicitation of any written consent of shareholders and shall have voting rights and powers equal to the voting rights and powers of the Common Stock (except as otherwise expressly provided herein or as required by law, voting together with the Common Stock as a single class) and shall be entitled to notice of any stockholders' meeting in accordance with the Bylaws of the Corporation. Fractional votes shall not, however, be permitted and any fractional voting rights resulting from the above formula (after aggregating all shares into which shares of Preferred Stock held by each holder could be converted) shall be rounded to the nearest whole number (with one-half being rounded upward). 4. CONVERSION. The holders of Preferred Stock shall have conversion rights as follows (the "Conversion Rights"): (a) RIGHT TO CONVERT. Each share of Preferred Stock shall be convertible, at the option of the holder thereof, at any time after the date of issuance of such share, at the office of the Corporation or any transfer agent for such stock. The number of fully paid and nonassessable shares of Common Stock to which a holder of Series A Preferred Stock shall be entitled upon conversion shall be the product obtained by multiplying the "Series A Conversion Rate" then in effect (determined as provided in Section 4(b)) by the number of shares of Series A Preferred Stock being converted. The number of fully paid and nonassessable shares of Common Stock to which a holder of Series B Preferred Stock shall be entitled upon conversion shall be the product obtained by multiplying the "Series B Conversion Rate" then in effect (determined as provided in Section 4(c)) by the number of shares of Series B Preferred being 4 converted. The number of fully paid and nonassessable shares of Common Stock to which a holder of Series C Preferred Stock shall be entitled upon conversion shall be the product obtained by multiplying the "Series C Conversion Rate" then in effect (determined as provided in Section 4(d)) by the number of shares of Series C Preferred being converted. (b) SERIES A CONVERSION RATE. The conversion rate in effect at any time for conversion of the Series A Preferred Stock (the "Series A Conversion Rate") shall be the quotient obtained by dividing $.50 by the "Series A Conversion Price," calculated as provided in Section 4(e). (c) SERIES B CONVERSION RATE. The conversion rate in effect at any time for conversion of the Series B Preferred Stock (the "Series B Conversion Rate") shall be the quotient obtained by dividing $.90 by the "Series B Conversion Price," calculated as provided in Section 4(e). (d) SERIES C CONVERSION RATE. The conversion rate in effect at any time for conversion of the Series C Preferred Stock (the "Series C Conversion Rate") shall be the quotient obtained by dividing $1.35 by the "Series C Conversion Price," calculated as provided in Section 4(e). (e) CONVERSION PRICE. The conversion price for the Series A Preferred Stock shall initially be $.50 (the "Series A Conversion Price"). The conversion price of the Series B Preferred Stock shall initially be $.90 (the "Series B Conversion Price"). The conversion price of the Series C Preferred Stock shall initially be $1.35 (the "Series C Conversion Price"). Such initial Series A Conversion Price, Series B Conversion Price and Series C Conversion Price (the "Conversion Prices") shall be adjusted from time to time in accordance with this Section 4. All references to the Conversion Prices herein shall mean the Conversion Prices as so adjusted. (f) AUTOMATIC CONVERSION. Each share of Preferred Stock shall automatically be converted into shares of Common Stock at the then effective Conversion Price immediately upon (i) the closing of the sale of the Corporation's Common Stock in a firm commitment, underwritten public offering registered under the Securities Act of 1933, as amended (other than a registration relating solely to a transaction under Rule 145 under such Act (or any successor thereto) or to an employee benefit plan of the Company), at a public offering price equal to or exceeding $2.50 per share of Common Stock (appropriately adjusted for any Recapitalization) and the aggregate net proceeds to the Corporation (before deduction for underwriter commissions and expenses relating to the issuance, including without limitation fees of the Corporation's counsel) of which equal or exceed $10,000,000 or (ii) upon receipt by the 5 Corporation of the affirmative vote at a duly noticed shareholders meeting or pursuant to a duly solicited written consent of approval of the holders of at least a majority of the then outstanding shares of the Series A Preferred Stock, the Series B Preferred Stock, and the Series C Preferred Stock, voting together as a single class in favor of the conversion of all of the shares of Preferred Stock into Common Stock. (g) MECHANICS OF CONVERSION. Before any holder of Preferred Stock shall be entitled to convert the same into shares of Common Stock, the holder shall surrender the certificate or certificates thereof, duly endorsed, at the office of the Corporation or of any transfer agent for such stock, and shall give written notice to the Corporation at such office that he elects to convert the same and shall state therein the name or names in which he wishes the certificate or certificates for shares of Common Stock to be issued. The Corporation shall, as soon as practicable thereafter, issue and deliver at such office to such holder of Preferred Stock, a certificate or certificates for the number of shares of Common Stock to which he shall be entitled as aforesaid. Such conversion shall be deemed to have been made immediately prior to the close of business on the date of surrender of the shares of Preferred Stock to be converted, except that in the case of an automatic conversion pursuant to Section 4(f) hereof, such conversion shall be deemed to have been made (i) immediately prior to the closing of the offering referred to in Section 4(f)(i) or (ii) immediately upon the approval by vote or written consent referred to in Section 4(f)(ii) above, and the person or persons entitled to receive the shares of Common Stock issuable upon such conversion shall be treated for all purposes as the record holder or holders of such shares of Common Stock on such date. (h) ADJUSTMENTS TO CONVERSION PRICE. (i) SPECIAL DEFINITIONS. For purposes of this Section 4(h) `ORIGINAL ISSUE DATE' shall mean the date on which a share of Preferred Stock was first issued. (ii) ADJUSTMENTS FOR COMBINATIONS OR SUBDIVISIONS OF COMMON STOCK. In the event the Corporation at any time or from time to time after the Original Issue Date shall declare or pay any dividend on the Common Stock payable in Common Stock or in any right to acquire Common Stock, or shall effect a subdivision of the outstanding shares of Common Stock into a greater number of shares of Common Stock (by stock split, reclassification or otherwise), or in the event the outstanding shares of Common Stock shall be combined or consolidated, by reclassification or otherwise, into a lesser number of shares of Common Stock, then the respective Conversion Prices of the Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock in effect immediately prior to such event shall, concurrently with the effectiveness of such event, be proportionately decreased or increased, as appropriate. 6 (i) OTHER DISTRIBUTIONS. In the event the Corporation shall at any time or from time to time make or issue, or fix a record date for the determination of holders of Common Stock entitled to receive, a dividend or other distribution payable in securities of the Corporation or any of its subsidiaries, then in each such event provision shall be made so that the holders of Preferred Stock shall receive, upon the conversion thereof, the securities of the Corporation or any of its subsidiaries which they would have received had their stock been converted into Common Stock on the date of such event. (j) NO IMPAIRMENT. The Corporation will not, by amendment of its Articles of Incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Corporation, but will at all times in good faith assist in the carrying out of all the provisions of this Section 4 and in the taking of all such action as may be necessary or appropriate in order to protect the Conversion Rights of the holders of the Preferred Stock against impairment. (k) CERTIFICATES AS TO ADJUSTMENTS. Upon the occurrence of each adjustment or readjustment of the Conversion Price pursuant to this Section 4, the Corporation at its expense shall promptly compute such adjustment or readjustment in accordance with the terms hereof and cause independent public accountants selected by the Corporation to verify such computation and prepare and furnish to each holder of Preferred Stock a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. The Corporation shall, upon the written request at any time of any holder of Preferred Stock, furnish or cause to be furnished to such holder a like certificate setting forth (i) such adjustments and readjustments, (ii) the Conversion Price at the time in effect, and (iii) the number of shares of Common Stock and the amount, if any, of other property which at the time would be received upon the conversion of Preferred Stock. (l) NOTICES OF RECORD DATE. In the event of any taking by the Corporation of a record of the holders of any class of securities for the purpose of determining the holders thereof who are entitled to receive any dividend (other than a cash dividend) or other distribution, any security or right convertible into or entitling the holder thereof to receive shares of Common Stock, or any right to subscribe for, purchase or otherwise acquire any shares of stock of any class or any other securities or property, or to receive any other right, the Corporation shall mail to each holder of Preferred Stock at least 20 days prior to the date specified therein, a notice specifying the date on which any such record is to be taken for the purpose of such dividend, distribution, security or right, and the amount and character of such dividend, distribution, security or right. 7 (m) ISSUE TAXES. The Corporation shall pay any and all issue and other taxes, excluding federal, state or local income taxes, that may be payable in respect of any issue or delivery of shares of Common Stock on conversion of shares of Preferred Stock pursuant hereto; provided, however, that the Corporation shall not be obligated to pay any transfer taxes resulting from any transfer requested by any holder in connection with any such conversion. (n) RESERVATION OF STOCK ISSUABLE UPON CONVERSION. The Corporation shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock, solely for the purpose of effecting the conversion of the shares of the Preferred Stock, such number of its shares of Common Stock as shall from time to time be sufficient to effect the conversion of all outstanding shares of the Preferred Stock; and if at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the conversion of all then outstanding shares of the Preferred Stock, the Corporation will take such corporate action as may, in the opinion of its counsel, be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purpose, including, without limitation, engaging in best efforts to obtain the requisite shareholder approval of any necessary amendment to this Articles of Incorporation. (o) CONSENT TO CERTAIN DISTRIBUTIONS. Each holder of Preferred Stock shall be deemed to have consented for purposes of Sections 502, 503 and 506 of the General Corporation Law to distributions and payments made by the Corporation and approved by the Board of Directors of the Corporation in connection with the repurchases of shares of Common Stock issued or to held by directors, board advisors and employees of, or consultants to, the Corporation upon termination of their employment or services. (p) FRACTIONAL SHARES. No fractional share shall be issued upon the conversion of any share or shares of Preferred Stock. All shares of Common Stock (including fractions thereof) issuable upon conversion of more than one share of Preferred Stock by a holder thereof shall be aggregated for purposes of determining whether the conversion would result in the issuance of any fractional share. If, after the aforementioned aggregation, the conversion would result in the issuance of a fraction of a share of Common Stock, the Corporation shall, in lieu of issuing any fractional share, pay the holder otherwise entitled to such fraction a sum in cash equal to the fair market value of such fraction on the date of conversion (as determined in good faith by the Board of Directors of the Corporation). (q) NOTICES. Any notice required by the provisions of this Section 4 to be given to the holders of shares of Preferred Stock shall be deemed given if deposited in the United States mail, postage prepaid, and addressed to each holder of record at its address appearing on the books of the Corporation. Notwithstanding the above, any notice or communication to an 8 address outside the United States shall be sent by telecopy and confirmed in writing sent by courier guaranteeing delivery in no more than two (2) business days. (r) ADJUSTMENTS. In case of any reorganization or any reclassification of the capital stock of the Corporation, any consolidation or merger of the Corporation with or into another corporation or corporations, or the conveyance of all or substantially all of the assets of the Corporation to another corporation, each share of Preferred Stock shall thereafter be convertible into the number of shares of stock or other securities or property (including cash) to which a holder of the number of shares of Common Stock deliverable upon conversion of such share of Preferred Stock would have been entitled upon the record date of (or date of, if no record date is fixed) such reorganization, reclassification, consolidation, merger or conveyance; and, in any case, appropriate adjustment (as determined by the Board of Directors) shall be made in the application of the provisions herein set forth with respect to the rights and interests thereafter of the holders of such Preferred Stock, to the end that the provisions set forth herein shall thereafter be applicable, as nearly as equivalent as is practicable, in relation to any shares of stock or the securities or property (including cash) thereafter deliverable upon the conversion of the shares of such Preferred Stock. 5. RESTRICTIONS AND LIMITATIONS. So long as at least 5,000,000 of the authorized shares of Preferred Stock remain outstanding, the Corporation shall not, without the vote or written consent by the holders of majority of the then outstanding shares of Series A Preferred Stock, Series B Preferred Stock, and Series C Preferred Stock, voting together as a single class on an as- converted basis: (a) Amend, repeal or waive any provision of, or add any provision to, the Corporation's Articles of Incorporation if such action would alter or change in an adverse manner the preferences, rights, privileges or powers of, or the restrictions provided for the benefit of, the Preferred Stock; (b) Increase the total number of authorized shares of Common Stock or Preferred Stock of the Corporation or the number of shares designated as any series of Preferred Stock; (c) Authorize or issue, or obligate itself to issue, any other equity security senior to the Series A Preferred Stock Series B Preferred Stock or Series C Preferred Stock as to dividend or redemption rights, liquidation preferences, conversion rights, voting rights or otherwise, or create any obligation or security convertible into or exchangeable for, or having any option rights to purchase, any such equity security which is senior to the Series A Preferred Stock, Series B Preferred Stock or Series C Preferred Stock; provided, however, that an equity security issued subsequent to the issuance of the Series A Preferred Stock, Series B Preferred Stock or 9 Series C Preferred Stock for a share price and corresponding liquidation price higher than that of the Series A Preferred Stock, Series B Preferred Stock, or Series C Preferred Stock shall not be deemed senior to the Series A Preferred Stock, Series B Preferred Stock or Series C Preferred Stock solely by reason of such share price and liquidation price; (d) Do any act or thing which would result in taxation of the holders of shares of the Preferred Stock under Section 305 of the Internal Revenue Code of 1968, as amended (the "Code") (or any comparable provision of the Code as hereafter from time to time amended); (e) Effect any sale or other conveyance of all or substantially all of the assets of the Corporation or any of its subsidiaries, or any consolidation or merger involving the Corporation or any of its subsidiaries with or into any other corporation, if more than 50% of the surviving entity is not owned by persons who were holders of capital stock or securities convertible into capital stock of the Corporation immediately prior to such merger, consolidation or sale; or (f) Set aside any amounts for or purchase, or declare or pay any dividend or make any other distribution on, any shares of capital stock other than the Series A Preferred Stock, Series B Preferred Stock or Series C Preferred Stock, except for repurchases required by current agreements with directors, consultants or employees. 6. NO REISSUANCE OF PREFERRED STOCK. No share or shares of Preferred Stock acquired by the Corporation by reason of redemption, purchase, conversion or otherwise shall be reissued, and all such shares shall be returned to the status of undesignated shares of Preferred Stock. IV. A. The liability of the directors of this corporation for monetary damages shall be eliminated to the fullest extent permissible under California law. B. This corporation is authorized to provide indemnification of agents (as defined in Section 317 of the California Corporations Code) for breach of duty to the corporation and its shareholders through bylaw provisions or through agreements with the agents, or through shareholder resolutions, or otherwise, to the fullest extent permitted by California law. C. Any repeal or modification of this Article shall only be prospective and shall not affect the rights under this Article in effect at the time of the alleged occurrence of any act or omission to act giving rise to liability or indemnification." 10 3. The foregoing Amended and Restated Articles of Incorporation has been duly approved by the board of directors. 4. The foregoing Amended and Restated Articles of Incorporation has been duly approved by the required vote of shareholders in accordance with Sections 902 and 903 of the Corporations Code. The total number of outstanding shares of the corporation is 3,486,370 shares of Common Stock, 5,000,000 shares of Series A Preferred Stock and 17,990,401 shares of Series B Preferred Stock. The number of shares voting in favor of the amendment equaled or exceeded the vote required. The percentage vote required was more than 50% of the Common Stock, more than 50% of the Series A Preferred Stock and Series B Preferred Stock voting together as a separate class and more than 50% of the Common Stock and Preferred Stock voting together on an as-converted basis. We further declare under penalty of perjury under the laws of the State of California that the matters set forth in this certificate are true and correct of our own knowledge. DATE: , 1995 -------------------- ----------------------------------------- J. Leighton Read, Chief Executive Officer ----------------------------------------- Alan C. Mendelson, Secretary 11 EX-3.3 3 BYLAWS OF REGISTRANT BYLAWS OF AVIRON, A CALIFORNIA CORPORATION As amended as of September 2, 1993 TABLE OF CONTENTS PAGE ---- ARTICLE I - Offices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Section 1. Principal Office. . . . . . . . . . . . . . . . . . . . . . . 1 Section 2. Other Offices . . . . . . . . . . . . . . . . . . . . . . . . 1 ARTICLE II - Corporate Seal. . . . . . . . . . . . . . . . . . . . . . . . . . 1 Section 3. Corporate Seal. . . . . . . . . . . . . . . . . . . . . . . . 1 ARTICLE III - Shareholders' Meetings and Voting Rights . . . . . . . . . . . . 1 Section 4. Place of Meetings. . . . . . . . . . . . . . . . . . . . . . 1 Section 5. Annual Meeting . . . . . . . . . . . . . . . . . . . . . . . 2 Section 6. Postponement of Annual Meeting . . . . . . . . . . . . . . . 2 Section 7. Special Meetings . . . . . . . . . . . . . . . . . . . . . . 2 Section 8. Notice of Meetings . . . . . . . . . . . . . . . . . . . . . 2 Section 9. Manner of Giving Notice. . . . . . . . . . . . . . . . . . . 3 Section 10. Quorum and Transaction of Business . . . . . . . . . . . . . 4 Section 11. Adjournment and Notice of Adjourned Meetings . . . . . . . . 4 Section 12. Waiver of Notice, Consent to Meeting or Approval of Minutes . . . . . . . . . . . . . . . . . . . . . . . . 5 Section 13. Action by Written Consent Without a Meeting. . . . . . . . . 5 Section 14. Voting . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Section 15. Persons Entitled to Vote or Consent. . . . . . . . . . . . . 6 Section 16. Proxies. . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Section 17. Inspectors of Election . . . . . . . . . . . . . . . . . . . 7 ARTICLE IV - Board of Directors. . . . . . . . . . . . . . . . . . . . . . . . 8 Section 18. Powers . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Section 19. Number of Directors. . . . . . . . . . . . . . . . . . . . . 8 Section 20. Election Of Directors, Term, Qualifications. . . . . . . . . 9 Section 21. Resignations . . . . . . . . . . . . . . . . . . . . . . . . 9 Section 22. Removal. . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Section 23. Vacancies. . . . . . . . . . . . . . . . . . . . . . . . . . 9 Section 24. Regular Meetings . . . . . . . . . . . . . . . . . . . . . .10 Section 25. Participation by Telephone . . . . . . . . . . . . . . . . .10 Section 26. Special Meetings . . . . . . . . . . . . . . . . . . . . . .10 i. Section 27. Notice of Meetings . . . . . . . . . . . . . . . . . . . . .10 Section 28. Place of Meetings. . . . . . . . . . . . . . . . . . . . . .11 Section 29. Action by Written Consent Without a Meeting. . . . . . . . .11 Section 30. Quorum and Transaction of Business . . . . . . . . . . . . .11 Section 31. Adjournment. . . . . . . . . . . . . . . . . . . . . . . . .11 Section 32. Organization . . . . . . . . . . . . . . . . . . . . . . . .11 Section 33. Compensation . . . . . . . . . . . . . . . . . . . . . . . .11 Section 34. Committees . . . . . . . . . . . . . . . . . . . . . . . . .11 ARTICLE V - Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12 Section 35. Officers . . . . . . . . . . . . . . . . . . . . . . . . . .12 Section 36. Appointment. . . . . . . . . . . . . . . . . . . . . . . . .13 Section 37. Inability to Act . . . . . . . . . . . . . . . . . . . . . .13 Section 38. Resignations . . . . . . . . . . . . . . . . . . . . . . . .13 Section 39. Removal. . . . . . . . . . . . . . . . . . . . . . . . . . .13 Section 40. Vacancies. . . . . . . . . . . . . . . . . . . . . . . . . .13 Section 41. Chairman of the Board. . . . . . . . . . . . . . . . . . . .13 Section 42. President. . . . . . . . . . . . . . . . . . . . . . . . . .13 Section 43. Vice Presidents. . . . . . . . . . . . . . . . . . . . . . .14 Section 44. Secretary. . . . . . . . . . . . . . . . . . . . . . . . . .14 Section 45. Chief Financial Officer. . . . . . . . . . . . . . . . . . .15 Section 46. Compensation . . . . . . . . . . . . . . . . . . . . . . . .15 ARTICLE VI - Contracts, Loans, Bank Accounts, Checks and Drafts. . . . . . . .16 Section 47. Execution of Contracts and Other Instruments . . . . . . . .16 Section 48. Loans. . . . . . . . . . . . . . . . . . . . . . . . . . . .16 Section 49. Bank Accounts. . . . . . . . . . . . . . . . . . . . . . . .16 Section 50. Checks, Drafts, Etc. . . . . . . . . . . . . . . . . . . . .16 ARTICLE VII - Certificates for Shares and Their Transfer . . . . . . . . . . .17 Section 51. Certificate for Shares . . . . . . . . . . . . . . . . . . .17 Section 52. Transfer on the Books. . . . . . . . . . . . . . . . . . . .17 Section 53. Lost, Destroyed and Stolen Certificates. . . . . . . . . . .17 Section 54. Issuance, Transfer and Registration of Shares. . . . . . . .18 ARTICLE VIII - Inspection of Corporate Records . . . . . . . . . . . . . . . .18 Section 55. Inspection by Directors. . . . . . . . . . . . . . . . . . .18 Section 56. Inspection by Shareholders . . . . . . . . . . . . . . . . .18 Section 57. Written Form . . . . . . . . . . . . . . . . . . . . . . . .19 ii. ARTICLE IX - Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . .19 Section 58. Fiscal Year. . . . . . . . . . . . . . . . . . . . . . . . .19 Section 59. Annual Report. . . . . . . . . . . . . . . . . . . . . . . .19 Section 60. Record Date. . . . . . . . . . . . . . . . . . . . . . . . .20 Section 61. Bylaw Amendments . . . . . . . . . . . . . . . . . . . . . .20 Section 62. Construction and Definition. . . . . . . . . . . . . . . . .20 ARTICLE X - Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . .21 Section 63. Indemnification of Directors, Officers, Employees And Other Agents. . . . . . . . . . . . . . . . . . . . . .21 ARTICLE XI - Right of First Refusal. . . . . . . . . . . . . . . . . . . . . .25 Section 64. Right of First Refusal . . . . . . . . . . . . . . . . . . .25 ARTICLE XII - Loans of Officers and Others . . . . . . . . . . . . . . . . . .27 Section 65. Certain Corporate Loans and Guaranties. . . . . . . . . . .27 iii. BYLAWS OF AVIRON, A CALIFORNIA CORPORATION As Amended as of September 2, 1993 ARTICLE I OFFICES Section 1. PRINCIPAL OFFICE. The principal executive office of the corporation shall be located at such place as the Board of Directors may from time to time authorize. If the principal executive office is located outside this state, and the corporation has one or more business offices in this state, the board of directors shall fix and designate a principal business office in the State of California. Section 2. OTHER OFFICES. Additional offices of the corporation shall be located at such place or places, within or outside the State of California, as the Board of Directors may from time to time authorize. ARTICLE II CORPORATE SEAL Section 3. CORPORATE SEAL. If the Board of Directors adopts a corporate seal such seal shall have inscribed thereon the name of the corporation and the state and date of its incorporation. If and when a seal is adopted by the Board of Directors, such seal may be engraved, lithographed, printed, stamped, impressed upon, or affixed to any contract, conveyance, certificate for shares, or other instrument executed by the corporation. ARTICLE III SHAREHOLDERS' MEETINGS AND VOTING RIGHTS Section 4. PLACE OF MEETINGS. Meetings of shareholders shall be held at the principal executive office of the corporation, or at any other place, within or outside the State of California, 1. which may be fixed either by the Board of Directors or by the written consent of all persons entitled to vote at such meeting, given either before or after the meeting and filed with the Secretary of the Corporation. Section 5. ANNUAL MEETING. The annual meeting of the shareholders of the corporation shall be held on any date and time which may from time to time be designated by the Board of Directors. At such annual meeting, directors shall be elected and any other business may be transacted which may properly come before the meeting. Section 6. POSTPONEMENT OF ANNUAL MEETING. The Board of Directors and the President shall each have authority to hold at an earlier date and/or time, or to postpone to a later date and/or time, the annual meeting of shareholders. Section 7. SPECIAL MEETINGS. (a) Special meetings of the shareholders, for any purpose or purposes, may be called by the Board of Directors, the Chairman of the Board of Directors, the President, or the holders of shares entitled to cast not less than ten percent (10%) of the votes at the meeting. (b) Upon written request to the Chairman of the Board of Directors, the President, any vice president or the Secretary of the corporation by any person or persons (other than the Board of Directors) entitled to call a special meeting of the shareholders, such officer forthwith shall cause notice to be given to the shareholders entitled to vote, that a meeting will be held at a time requested by the person or persons calling the meeting, such time to be not less than thirty-five (35) nor more than sixty (60) days after receipt of such request. If such notice is not given within twenty (20) days after receipt of such request, the person or persons calling the meeting may give notice thereof in the manner provided by law or in these bylaws. Nothing contained in this Section 7 shall be construed as limiting, fixing or affecting the time or date when a meeting of shareholders called by action of the Board of Directors may be held. Section 8. NOTICE OF MEETINGS. Except as otherwise may be required by law and subject to subsection 7(b) above, written notice of each meeting of shareholders shall be given to each shareholder entitled to vote at that meeting (see Section 15 below), by the Secretary, assistant secretary or other person charged with that duty, not less than ten (10) (or, if sent by third class mail, thirty (30)) nor more than sixty (60) days before such meeting. Notice of any meeting of shareholders shall state the date, place and hour of the meeting and, (a) in the case of a special meeting, the general nature of the business to be transacted, and no other business may be transacted at such meeting; 2. (b) in the case of an annual meeting, the general nature of matters which the Board of Directors, at the time the notice is given, intends to present for action by the shareholders; (c) in the case of any meeting at which directors are to be elected, the names of the nominees intended at the time of the notice to be presented by management for election; and (d) in the case of any meeting, if action is to be taken on any of the following proposals, the general nature of such proposal: (1) a proposal to approve a transaction within the provisions of California Corporations Code, Section 310 (relating to certain transactions in which a director has an interest); (2) a proposal to approve a transaction within the provisions of California Corporations Code, Section 902 (relating to amending the Articles of Incorporation of the corporation); (3) a proposal to approve a transaction within the provisions of California Corporations Code, Sections 181 and 1201 (relating to reorganization); (4) a proposal to approve a transaction within the provisions of California Corporations Code, Section 1900 (winding up and dissolution); (5) a proposal to approve a plan of distribution within the provisions of California Corporations Code, Section 2007 (relating to certain plans providing for distribution not in accordance with the liquidation rights of preferred shares, if any). At a special meeting, notice of which has been given in accordance with this Section, action may not be taken with respect to business, the general nature of which has not been stated in such notice. At an annual meeting, action may be taken with respect to business stated in the notice of such meeting, given in accordance with this Section, and, subject to subsection 8(d) above, with respect to any other business as may properly come before the meeting. Section 9. MANNER OF GIVING NOTICE. Notice of any meeting of shareholders shall be given either personally or by first-class mail, or, if the corporation has outstanding shares held of record by 500 or more persons (determined as provided in California Corporations Code Section 605) on the record date for such meeting, third-class mail, or telegraphic or other written communication, addressed to the shareholder at the address of that shareholder appearing on the books of the corporation or given by the shareholder to the corporation for the purpose of notice. If no such address appears on the corporation's books or is given, notice shall be deemed to have been given if sent to that shareholder by first-class mail or telegraphic or other written communication to the corporation's principal executive office, or if published at least once in a 3. newspaper of general circulation in the county where that office is located. Notice shall be deemed to have been given at the time when delivered personally or deposited in the mail or sent by telegram or other means of written communication. If any notice addressed to a shareholder at the address of that shareholder appearing on the books of the corporation is returned to the corporation by the United States Postal Service marked to indicate that the United States Postal Service is unable to deliver the notice to the shareholder at that address, all future notices shall be deemed to have been duly given without further mailing if these shall be available to the shareholder on written demand by the shareholder at the principal executive office of the corporation for a period of one year from the date of the giving of the notice. Section 10. QUORUM AND TRANSACTION OF BUSINESS. (a) At any meeting of the shareholders, a majority of the shares entitled to vote, represented in person or by proxy, shall constitute a quorum. If a quorum is present, the affirmative vote of the majority of shares represented at the meeting and entitled to vote on any matter shall be the act of the shareholders, unless the vote of a greater number or voting by classes is required by law or by the Articles of Incorporation, and except as provided in subsection (b) below. (b) The shareholders present at a duly called or held meeting of the shareholders at which a quorum is present may continue to do business until adjournment, notwithstanding the withdrawal of enough shareholders to leave less than a quorum, provided that any action taken (other than adjournment) is approved by at least a majority of the shares required to constitute a quorum. (c) In the absence of a quorum, no business other than adjournment may be transacted, except as described in subsection (b) above. Section 11. ADJOURNMENT AND NOTICE OF ADJOURNED MEETINGS. Any meeting of shareholders may be adjourned from time to time, whether or not a quorum is present, by the affirmative vote of a majority of shares represented at such meeting either in person or by proxy and entitled to vote at such meeting. In the event any meeting is adjourned, it shall not be necessary to give notice of the time and place of such adjourned meeting pursuant to Sections 8 and 9 of these bylaws; provided that if any of the following three events occur, such notice must be given: (1) announcement of the adjourned meeting's time and place is not made at the original meeting which it continues or 4. (2) such meeting is adjourned for more than forty-five (45) days from the date set for the original meeting or (3) a new record date is fixed for the adjourned meeting. At the adjourned meeting, the corporation may transact any business which might have been transacted at the original meeting. Section 12. WAIVER OF NOTICE, CONSENT TO MEETING OR APPROVAL OF MINUTES. (a) Subject to subsection (b) of this Section, the transactions of any meeting of shareholders, however called and noticed, and wherever held, shall be as valid as though made at a meeting duly held after regular call and notice, if a quorum is present either in person or by proxy, and if, either before or after the meeting, each of the persons entitled to vote but not present in person or by proxy signs a written waiver of notice or a consent to holding of the meeting or an approval of the minutes thereof. (b) A waiver of notice, consent to the holding of a meeting or approval of the minutes thereof need not specify the business to be transacted or transacted at nor the purpose of the meeting; provided that in the case of proposals described in subsection (d) of Section 8 of these bylaws, the general nature of such proposals must be described in any such waiver of notice and such proposals can only be approved by waiver of notice, not by consent to holding of the meeting or approval of the minutes. (c) All waivers, consents and approvals shall be filed with the corporate records or made a part of the minutes of the meeting. (d) A person's attendance at a meeting shall constitute waiver of notice of and presence at such meeting, except when such person objects at the beginning of the meeting to transaction of any business because the meeting is not lawfully called or convened and except that attendance at a meeting is not a waiver of any right to object to the consideration of matters which are required by law or these bylaws to be in such notice (including those matters described in subsection (d) of Section 8 of these bylaws), but are not so included if such person expressly objects to consideration of such matter or matters at any time during the meeting. Section 13. ACTION BY WRITTEN CONSENT WITHOUT A MEETING. Any action which may be taken at any meeting of shareholders may be taken without a meeting and without prior notice if written consents setting forth the action so taken are signed by the holders of the outstanding shares having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. 5. Directors may not be elected by written consent except by unanimous written consent of all shares entitled to vote for the election of directors; provided that any vacancy on the Board of Directors (other than a vacancy created by removal) which has not been filled by the Board of Directors may be filled by the written consent of a majority of outstanding shares entitled to vote for the election of directors. Any written consent may be revoked pursuant to California Corporations Code Section 603(c) prior to the time that written consents of the number of shares required to authorize the proposed action have been filed with the Secretary. Such revocation must be in writing and will be effective upon its receipt by the Secretary. If the consents of all shareholders entitled to vote have not been solicited in writing, and if the unanimous written consent of all such shareholders shall not have been received, the Secretary shall give prompt notice of any corporate action approved by the shareholders without a meeting to those shareholders entitled to vote on such matters who have not consented thereto in writing. This notice shall be given in the manner specified in Section 8 of these bylaws. In the case of approval of (i) a transaction within the provisions of California Corporations Code, Section 310 (relating to certain transactions in which a director has an interest), (ii) a transaction within the provisions of California Corporations Code, Section 317 (relating to indemnification of agents of the corporation), (iii) a transaction within the provisions of California Corporations Code, Sections 181 and 1201 (relating to reorganization), and (iv) a plan of distribution within the provisions of California Corporations Code, Section 2007 (relating to certain plans providing for distribution not in accordance with the liquidation rights of preferred shares, if any), the notice shall be given at least ten (10) days before the consummation of any action authorized by that approval. Section 14. VOTING. Voting at any meeting of shareholders need not be by ballot; provided, however, that elections for directors must be by ballot if balloting is demanded by a shareholder at the meeting and before the voting begins. Every person entitled to vote at an election for directors may cumulate the votes to which such person is entitled, i.e., such person may cast a total number of votes equal to the number of directors to be elected multiplied by the number of votes to which such person's shares are entitled, and may cast said total number of votes for one or more candidates in such proportions as such person thinks fit; provided, however, no shareholder shall be entitled to so cumulate such shareholder's votes unless the candidates for which such shareholder is voting have been placed in nomination prior to the voting and a shareholder has given notice at the meeting, prior to the vote, of an intention to cumulate votes. In any election of directors, the candidates receiving the highest number of votes, up to the number of directors to be elected, are elected. Except as may be otherwise provided in the Articles of Incorporation or by law, and subject to the foregoing provisions regarding the cumulation of votes, each shareholder shall be entitled to one vote for each share held. 6. Any shareholder may vote part of such shareholder's shares in favor of a proposal and refrain from voting the remaining shares or vote them against the proposal, other than elections to office, but, if the shareholder fails to specify the number of shares such shareholder is voting affirmatively, it will be conclusively presumed that the shareholder's approving vote is with respect to all shares such shareholder is entitled to vote. No shareholder approval, other than unanimous approval of those entitled to vote, will be valid as to proposals described in subsection 8(d) of these bylaws unless the general nature of such business was stated in the notice of meeting or in any written waiver of notice. Section 15. PERSONS ENTITLED TO VOTE OR CONSENT. The Board of Directors may fix a record date pursuant to Section 60 of these bylaws to determine which shareholders are entitled to notice of and to vote at a meeting or consent to corporate actions, as provided in Sections 13 and 14 of these bylaws. Only persons in whose name shares otherwise entitled to vote stand on the stock records of the corporation on such date shall be entitled to vote or consent. If no record date is fixed: (1) The record date for determining shareholders entitled to notice of or to vote at a meeting of shareholders shall be at the close of business on the business day next preceding the day notice is given or, if notice is waived, at the close of business on the business day next preceding the day on which the meeting is held; (2) The record date for determining shareholders entitled to give consent to corporate action in writing without a meeting, when no prior action by the Board of Directors has been taken, shall be the day on which the first written consent is given; (3) The record date for determining shareholders for any other purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto, or the sixtieth (60th) day prior to the date of such other action, whichever is later. A determination of shareholders of record entitled to notice of or to vote at a meeting of shareholders shall apply to any adjournment of the meeting unless the Board of Directors fixes a new record date for the adjourned meeting; provided, however, that the Board of Directors shall fix a new record date if the meeting is adjourned for more than forty-five (45) days from the date set for the original meeting. Shares of the corporation held by its subsidiary or subsidiaries (as defined in California Corporations Code, Section 189(b)) are not entitled to vote in any matter. Section 16. PROXIES. Every person entitled to vote or execute consents may do so either in person or by one or more agents authorized to act by a written proxy executed by the person or such person's duly authorized agent and filed with the Secretary of the corporation; provided 7. that no such proxy shall be valid after the expiration of eleven (11) months from the date of its execution unless otherwise provided in the proxy. The manner of execution, suspension, revocation, exercise and effect of proxies is governed by law. Section 17. INSPECTORS OF ELECTION. Before any meeting of shareholders, the Board of Directors may appoint any persons, other than nominees for office, to act as inspectors of election at the meeting or its adjournment. If no inspectors of election are so appointed, the chairman of the meeting may, and on the request of any shareholder or a shareholder's proxy shall, appoint inspectors of election at the meeting. The number of inspectors shall be either one (1) or three (3). If inspectors are appointed at a meeting on the request of one or more shareholders or proxies, the majority of shares represented in person or proxy shall determine whether one (1) or three (3) inspectors are to be appointed. If any person appointed as inspector fails to appear or fails or refuses to act, the chairman of the meeting may, and upon the request of any shareholder or a shareholder's proxy shall, appoint a person to fill that vacancy. These inspectors shall: (a) Determine the number of shares outstanding and the voting power of each, the shares represented at the meeting, the existence of a quorum, and the authenticity, validity, and effect of proxies; (b) Receive votes, ballots, or consents; (c) Hear and determine all challenges and questions in any way arising in connection with the right to vote; (d) Count and tabulate all votes or consents; (e) Determine when the polls shall close; (f) Determine the result; and (g) Do any other acts that may be proper to conduct the election or vote with fairness to all shareholders. ARTICLE IV BOARD OF DIRECTORS Section 18. POWERS. Subject to the provisions of law or any limitations in the Articles of Incorporation or these bylaws, as to action required to be approved by the shareholders or by the outstanding shares, the business and affairs of the corporation shall be managed and all corporate 8. powers shall be exercised, by or under the direction of the Board of Directors. The Board of Directors may delegate the management of the day-to-day operation of the business of the corporation to a management company or other person, provided that the business and affairs of the corporation shall be managed and all corporate powers shall be exercised under the ultimate direction of the Board of Directors. Section 19. NUMBER OF DIRECTORS. The authorized number of directors of the corporation shall be not less than a minimum of four (4) nor more than a maximum of seven (7) (which maximum number in no case shall be greater than two times said minimum, minus one) and the number of directors presently authorized is six (6). The exact number of directors shall be set within these limits from time to time (a) by approval of the Board of Directors, or (b) by the affirmative vote of a majority of the shares represented and voting at a duly held meeting at which a quorum is present (which shares voting affirmatively also constitute at least a majority of the required quorum) or by the written consent of shareholders pursuant to Section 13 hereinabove. Any amendment of these bylaws changing the maximum or minimum number of directors may be adopted only by the affirmative vote of a majority of the outstanding shares entitled to vote; provided, an amendment reducing the minimum number of directors to less than five (5), cannot be adopted if votes cast against its adoption at a meeting or the shares not consenting to it in the case of action by written consent are equal to more than 16-2/3 percent of the outstanding shares entitled to vote. No reduction of the authorized number of directors shall remove any director prior to the expiration of such director's term of office. Section 20. ELECTION OF DIRECTORS, TERM, QUALIFICATIONS. The directors shall be elected at each annual meeting of shareholders to hold office until the next annual meeting. Each director, including a director elected or appointed to fill a vacancy, shall hold office either until the expiration of the term for which elected or appointed and until a successor has been elected and qualified, or until his death, resignation or removal. Directors need not be shareholders of the corporation. Section 21. RESIGNATIONS. Any director of the corporation may resign effective upon giving written notice to the Chairman of the Board, the President, the Secretary or the Board of Directors of the corporation, unless the notice specifies a later time for the effectiveness of such resignation. If the resignation specifies effectiveness at a future time, a successor may be elected pursuant to Section 23 of these bylaws to take office on the date that the resignation becomes effective. Section 22. REMOVAL. The Board of Directors may declare vacant the office of a director who has been declared of unsound mind by an order of court or who has been convicted of a felony. 9. The entire Board of Directors or any individual director may be removed from office without cause by the affirmative vote of a majority of the outstanding shares entitled to vote on such removal; provided, however, that unless the entire Board is removed, no individual director may be removed when the votes cast against such director's removal, or not consenting in writing to such removal, would be sufficient to elect that director if voted cumulatively at an election at which the same total number of votes cast were cast (or, if such action is taken by written consent, all shares entitled to vote were voted) and the entire number of directors authorized at the time of such director's most recent election were then being elected. Section 23. VACANCIES. A vacancy or vacancies on the Board of Directors shall be deemed to exist in case of the death, resignation or removal of any director, or upon increase in the authorized number of directors or if shareholders fail to elect the full authorized number of directors at an annual meeting of shareholders or if, for whatever reason, there are fewer directors on the Board of Directors, than the full number authorized. Such vacancy or vacancies, other than a vacancy created by the removal of a director, may be filled by a majority of the remaining directors, though less than a quorum, or by a sole remaining director. A vacancy created by the removal of a director may be filled only by the affirmative vote of a majority of the shares represented and voting at a duly held meeting at which a quorum is present (which shares voting affirmatively also constitute at least a majority of the required quorum) or by the written consent of shareholders pursuant to Section 13 hereinabove. The shareholders may elect a director at any time to fill any vacancy not filled by the directors. Any such election by written consent, other than to fill a vacancy created by removal, requires the consent of a majority of the outstanding shares entitled to vote. Any such election by written consent to fill a vacancy created by removal requires the consent of all of the outstanding shares entitled to vote. If, after the filling of any vacancy by the directors, the directors then in office who have been elected by the shareholders constitute less than a majority of the directors then in office, any holder or holders of an aggregate of five percent (5%) or more of the shares outstanding at that time and having the right to vote for such directors may call a special meeting of shareholders to be held to elect the entire Board of Directors. The term of office of any director shall terminate upon such election of a successor. Section 24. REGULAR MEETINGS. Regular meetings of the Board of Directors shall be held at such times, places and dates as fixed in these bylaws or by the Board of Directors; provided, however, that if the date for such a meeting falls on a legal holiday, then the meeting shall be held at the same time on the next succeeding full business day. Regular meetings of the Board of Directors held pursuant to this Section 24 may be held without notice. Section 25. PARTICIPATION BY TELEPHONE. Members of the Board of Directors may participate in a meeting through use of conference telephone or similar communications equipment, so long as all members participating in such meeting can hear one another. Such participation constitutes presence in person at such meeting. 10. Section 26. SPECIAL MEETINGS. Special meetings of the Board of Directors for any purpose may be called by the Chairman of the Board or the President or any vice president or the Secretary of the corporation or any two (2) directors. Section 27. NOTICE OF MEETINGS. Notice of the date, time and place of all meetings of the Board of Directors, other than regular meetings held pursuant to Section 24 above shall be delivered personally, orally or in writing, or by telephone or telegraph to each director, at least forty-eight (48) hours before the meeting, or sent in writing to each director by first-class mail, charges prepaid, at least four (4) days before the meeting. Such notice may be given by the Secretary of the corporation or by the person or persons who called a meeting. Such notice need not specify the purpose of the meeting. Notice of any meeting of the Board of Directors need not be given to any director who signs a waiver of notice of such meeting, or a consent to holding the meeting or an approval of the minutes thereof, either before or after the meeting, or who attends the meeting without protesting prior thereto or at its commencement such director's lack of notice. All such waivers, consents and approvals shall be filed with the corporate records or made a part of the minutes of the meeting. Section 28. PLACE OF MEETINGS. Meetings of the Board of Directors may be held at any place within or without the state which has been designated in the notice of the meeting or, if not stated in the notice or there is no notice, designated in the bylaws or by resolution of the Board of Directors. Section 29. ACTION BY WRITTEN CONSENT WITHOUT A MEETING. Any action required or permitted to be taken by the Board of Directors may be taken without a meeting, if all members of the Board of Directors individually or collectively consent in writing to such action. Such written consent or consents shall be filed with the minutes of the proceedings of the Board of Directors. Such action by written consent shall have the same force and effect as a unanimous vote of such directors. Section 30. QUORUM AND TRANSACTION OF BUSINESS. A majority of the authorized number of directors shall constitute a quorum for the transaction of business. Every act or decision done or made by a majority of the authorized number of directors present at a meeting duly held at which a quorum is present shall be the act of the Board of Directors, unless the law, the Articles of Incorporation or these bylaws specifically require a greater number. A meeting at which a quorum is initially present may continue to transact business, notwithstanding withdrawal of directors, if any action taken is approved by at least a majority of the number of directors constituting a quorum for such meeting. In the absence of a quorum at any meeting of the Board of Directors, a majority of the directors present may adjourn the meeting, as provided in Section 31 of these bylaws. Section 31. ADJOURNMENT. Any meeting of the Board of Directors, whether or not a quorum is present, may be adjourned to another time and place by the affirmative vote of a majority of the directors present. If the meeting is adjourned for more than twenty-four (24) 11. hours, notice of such adjournment to another time or place shall be given prior to the time of the adjourned meeting to the directors who were not present at the time of the adjournment. Section 32. ORGANIZATION. The Chairman of the Board shall preside at every meeting of the Board of Directors, if present. If there is no Chairman of the Board or if the Chairman is not present, a Chairman chosen by a majority of the directors present shall act as chairman. The Secretary of the corporation or, in the absence of the Secretary, any person appointed by the Chairman shall act as secretary of the meeting. Section 33. COMPENSATION. Directors and members of committees may receive such compensation, if any, for their services, and such reimbursement for expenses, as may be fixed or determined by the Board of Directors. Section 34. COMMITTEES. The Board of Directors may, by resolution adopted by a majority of the authorized number of directors, designate one or more committees, each consisting of two (2) or more directors, to serve at the pleasure of the Board of Directors. The Board of Directors, by a vote of the majority of authorized directors, may designate one or more directors as alternate members of any committee, to replace any absent member at any meeting of such committee. Any such committee shall have authority to act in the manner and to the extent provided in the resolution of the Board of Directors, and may have all the authority of the Board of Directors in the management of the business and affairs of the corporation, except with respect to: (a) the approval of any action for which shareholders' approval or approval of the outstanding shares also is required by the California Corporations Code; (b) the filling of vacancies on the Board of Directors or any of its committees; (c) the fixing of compensation of directors for serving on the Board of Directors or any of its committees; (d) the adoption, amendment or repeal of these bylaws; (e) the amendment or repeal of any resolution of the Board of Directors which by its express terms is not so amendable or repealable; (f) a distribution to shareholders, except at a rate or in a periodic amount or within a price range determined by the Board of Directors; or (g) the appointment of other committees of the Board of Directors or the members thereof. 12. Any committee may from time to time provide by resolution for regular meetings at specified times and places. If the date of such a meeting falls on a legal holiday, then the meeting shall be held at the same time on the next succeeding full business day. No notice of such a meeting need be given. Such regular meetings need not be held if the committee shall so determine at any time before or after the time when such meeting would otherwise have taken place. Special meetings may be called at any time in the same manner and by the same persons as stated in Sections 25 and 26 of these bylaws for meetings of the Board of Directors. The provisions of Sections 24, 27, 28, 29, 30 and 31 of these bylaws shall apply to committees, committee members and committee meetings as if the words "committee" and "committee member" were substituted for the word "Board of Directors", and "director", respectively, throughout such sections. ARTICLE V OFFICERS Section 35. OFFICERS. The corporation shall have a Chairman of the Board or a President or both, a Secretary, a Chief Financial Officer and such other officers with such titles and duties as the Board of Directors may determine. Any two or more offices may be held by the same person. Section 36. APPOINTMENT. All officers shall be chosen and appointed by the Board of Directors; provided, however, the Board of Directors may empower the chief executive officer of the corporation to appoint such officers, other than Chairman of the Board, President, Secretary or Chief Financial Officer, as the business of the corporation may require. All officers shall serve at the pleasure of the Board of Directors, subject to the rights, if any, of an officer under a contract of employment. Section 37. INABILITY TO ACT. In the case of absence or inability to act of any officer of the corporation or of any person authorized by these bylaws to act in such officer's place, the Board of Directors may from time to time delegate the powers or duties of such officer to any other officer, or any director or other person whom it may select, for such period of time as the Board of Directors deems necessary. Section 38. RESIGNATIONS. Any officer may resign at any time upon written notice to the corporation, without prejudice to the rights, if any, of the corporation under any contract to which such officer is a party. Such resignation shall be effective upon its receipt by the Chairman of the Board, the President, the Secretary or the Board of Directors, unless a different time is specified in the notice for effectiveness of such resignation. The acceptance of any such resignation shall not be necessary to make it effective unless otherwise specified in such notice. 13. Section 39. REMOVAL. Any officer may be removed from office at any time, with or without cause, but subject to the rights, if any, of such officer under any contract of employment, by the Board of Directors or by any committee to whom such power of removal has been duly delegated, or, with regard to any officer who has been appointed by the chief executive officer pursuant to Section 36 above, by the chief executive officer or any other officer upon whom such power of removal may be conferred by the Board of Directors. Section 40. VACANCIES. A vacancy occurring in any office for any cause may be filled by the Board of Directors, in the manner prescribed by this Article of the bylaws for initial appointment to such office. Section 41. CHAIRMAN OF THE BOARD. The Chairman of the Board, if there be such an officer, shall, if present, preside at all meetings of the Board of Directors and shall exercise and perform such other powers and duties as may be assigned from time to time by the Board of Directors or prescribed by these bylaws. If no President is appointed, the Chairman of the Board is the general manager and chief executive officer of the corporation, and shall exercise all powers of the President described in Section 42 below. Section 42. PRESIDENT. Subject to such powers, if any, as may be given by the Board of Directors to the Chairman of the Board, if there be such an officer, the President shall be the general manager and chief executive officer of the corporation and shall have general supervision and control over the business and affairs of the corporation, subject to the control of the Board of Directors. The President may sign and execute, in the name of the corporation, any instrument authorized by the Board of Directors, except when the signing and execution thereof shall have been expressly delegated by the Board of Directors or by these bylaws to some other officer or agent of the corporation. The President shall have all the general powers and duties of management usually vested in the president of a corporation, and shall have such other powers and duties as may be prescribed from time to time by the Board of Directors or these bylaws. The President shall have discretion to prescribe the duties of other officers and employees of the corporation in a manner not inconsistent with the provisions of these bylaws and the directions of the Board of Directors. Section 43. VICE PRESIDENTS. In the absence or disability of the President, in the event of a vacancy in the office of President, or in the event such officer refuses to act, the Vice President shall perform all the duties of the President and, when so acting, shall have all the powers of, and be subject to all the restrictions on, the President. If at any such time the corporation has more than one vice president, the duties and powers of the President shall pass to each vice president in order of such vice president's rank as fixed by the Board of Directors or, if the vice presidents are not so ranked, to the vice president designated by the Board of Directors. The vice presidents shall have such other powers and perform such other duties as may be prescribed for them from time to time by the Board of Directors or pursuant to Sections 35 and 36 of these bylaws or otherwise pursuant to these bylaws. 14. Section 44. SECRETARY. The Secretary shall: (a) Keep, or cause to be kept, minutes of all meetings of the corporation's shareholders, Board of Directors, and committees of the Board of Directors, if any. Such minutes shall be kept in written form. (b) Keep, or cause to be kept, at the principal executive office of the corporation, or at the office of its transfer agent or registrar, if any, a record of the corporation's shareholders, showing the names and addresses of all shareholders, and the number and classes of shares held by each. Such records shall be kept in written form or any other form capable of being converted into written form. (c) Keep, or cause to be kept, at the principal executive office of the corporation, or if the principal executive office is not in California, at its principal business office in California, an original or copy of these bylaws, as amended. (d) Give, or cause to be given, notice of all meetings of shareholders, directors and committees of the Board of Directors, as required by law or by these bylaws. (e) Keep the seal of the corporation, if any, in safe custody. (f) Exercise such powers and perform such duties as are usually vested in the office of secretary of a corporation, and exercise such other powers and perform such other duties as may be prescribed from time to time by the Board of Directors or these bylaws. If any assistant secretaries are appointed, the assistant secretary, or one of the assistant secretaries in the order of their rank as fixed by the Board of Directors or, if they are not so ranked, the assistant secretary designated by the Board of Directors, in the absence or disability of the Secretary or in the event of such officer's refusal to act or if a vacancy exists in the office of Secretary, shall perform the duties and exercise the powers of the Secretary and discharge such duties as may be assigned from time to time pursuant to these bylaws or by the Board of Directors. Section 45. CHIEF FINANCIAL OFFICER. The Chief Financial Officer shall: (a) Be responsible for all functions and duties of the treasurer of the corporation. (b) Keep and maintain, or cause to be kept and maintained, adequate and correct books and records of account for the corporation. (c) Receive or be responsible for receipt of all monies due and payable to the corporation from any source whatsoever; have charge and custody of, and be responsible for, all monies and other valuables of the corporation and be responsible for deposit of all such monies 15. in the name and to the credit of the corporation with such depositaries as may be designated by the Board of Directors or a duly appointed and authorized committee of the Board of Directors. (d) Disburse or be responsible for the disbursement of the funds of the corporation as may be ordered by the Board of Directors or a duly appointed and authorized committee of the Board of Directors. (e) Render to the chief executive officer and the Board of Directors a statement of the financial condition of the corporation if called upon to do so. (f) Exercise such powers and perform such duties as are usually vested in the office of chief financial officer of a corporation, and exercise such other powers and perform such other duties as may be prescribed by the Board of Directors or these bylaws. If any assistant financial officer is appointed, the assistant financial officer, or one of the assistant financial officers, if there are more than one, in the order of their rank as fixed by the Board of Directors or, if they are not so ranked, the assistant financial officer designated by the Board of Directors, shall, in the absence or disability of the Chief Financial Officer or in the event of such officer's refusal to act, perform the duties and exercise the powers of the Chief Financial Officer, and shall have such powers and discharge such duties as may be assigned from time to time pursuant to these bylaws or by the Board of Directors. Section 46. COMPENSATION. The compensation of the officers shall be fixed from time to time by the Board of Directors, and no officer shall be prevented from receiving such compensation by reason of the fact that such officer is also a director of the corporation. ARTICLE VI CONTRACTS, LOANS, BANK ACCOUNTS, CHECKS AND DRAFTS Section 47. EXECUTION OF CONTRACTS AND OTHER INSTRUMENTS. Except as these bylaws may otherwise provide, the Board of Directors or its duly appointed and authorized committee may authorize any officer or officers, agent or agents, to enter into any contract or execute and deliver any instrument in the name of and on behalf of the corporation, and such authorization may be general or confined to specific instances. Except as so authorized or otherwise expressly provided in these bylaws, no officer, agent, or employee shall have any power or authority to bind the corporation by any contract or engagement or to pledge its credit or to render it liable for any purpose or in any amount. Section 48. LOANS. No loans shall be contracted on behalf of the corporation and no negotiable paper shall be issued in its name, unless and except as authorized by the Board of Directors or its duly appointed and authorized committee. When so authorized by the Board of 16. Directors or such committee, any officer or agent of the corporation may effect loans and advances at any time for the corporation from any bank, trust company, or other institution, or from any firm, corporation or individual, and for such loans and advances may make, execute and deliver promissory notes, bonds or other evidences of indebtedness of the corporation and, when authorized as aforesaid, may mortgage, pledge, hypothecate or transfer any and all stocks, securities and other property, real or personal, at any time held by the corporation, and to that end endorse, assign and deliver the same as security for the payment of any and all loans, advances, indebtedness, and liabilities of the corporation. Such authorization may be general or confined to specific instances. Section 49. BANK ACCOUNTS. The Board of Directors or its duly appointed and authorized committee from time to time may authorize the opening and keeping of general and/or special bank accounts with such banks, trust companies, or other depositaries as may be selected by the Board of Directors, its duly appointed and authorized committee or by any officer or officers, agent or agents, of the corporation to whom such power may be delegated from time to time by the Board of Directors. The Board of Directors or its duly appointed and authorized committee may make such rules and regulations with respect to said bank accounts, not inconsistent with the provisions of these bylaws, as are deemed advisable. Section 50. CHECKS, DRAFTS, ETC. All checks, drafts or other orders for the payment of money, notes, acceptances or other evidences of indebtedness issued in the name of the corporation shall be signed by such officer or officers, agent or agents, of the corporation, and in such manner, as shall be determined from time to time by resolution of the Board of Directors or its duly appointed and authorized committee. Endorsements for deposit to the credit of the corporation in any of its duly authorized depositaries may be made, without counter-signature, by the President or any vice president or the Chief Financial Officer or any assistant financial officer or by any other officer or agent of the corporation to whom the Board of Directors or its duly appointed and authorized committee, by resolution, shall have delegated such power or by hand-stamped impression in the name of the corporation. ARTICLE VII CERTIFICATES FOR SHARES AND THEIR TRANSFER Section 51. CERTIFICATE FOR SHARES. Every holder of shares in the corporation shall be entitled to have a certificate signed in the name of the corporation by the Chairman or Vice Chairman of the Board or the President or a Vice President and by the Chief Financial Officer or an assistant financial officer or by the Secretary or an assistant secretary, certifying the number of shares and the class or series of shares owned by the shareholder. Any or all of the signatures on the certificate may be facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the 17. corporation with the same effect as if such person were an officer, transfer agent or registrar at the date of issue. In the event that the corporation shall issue any shares as only partly paid, the certificate issued to represent such partly paid shares shall have stated thereon the total consideration to be paid for such shares and the amount paid thereon. Section 52. TRANSFER ON THE BOOKS. Upon surrender to the Secretary or transfer agent (if any) of the corporation of a certificate for shares of the corporation duly endorsed, with reasonable assurance that the endorsement is genuine and effective, or accompanied by proper evidence of succession, assignment or authority to transfer and upon compliance with applicable federal and state securities laws and if the corporation has no statutory duty to inquire into adverse claims or has discharged any such duty and if any applicable law relating to the collection of taxes has been complied with, it shall be the duty of the corporation, by its Secretary or transfer agent, to cancel the old certificate, to issue a new certificate to the person entitled thereto and to record the transaction on the books of the corporation. Section 53. LOST, DESTROYED AND STOLEN CERTIFICATES. The holder of any certificate for shares of the corporation alleged to have been lost, destroyed or stolen shall notify the corporation by making a written affidavit or affirmation of such fact. Upon receipt of said affidavit or affirmation the Board of Directors, or its duly appointed and authorized committee or any officer or officers authorized by the board so to do, may order the issuance of a new certificate for shares in the place of any certificate previously issued by the corporation and which is alleged to have been lost, destroyed or stolen. However, the Board of Directors or such authorized committee, officer or officers may require the owner of the allegedly lost, destroyed or stolen certificate, or such owner's legal representative, to give the corporation a bond or other adequate security sufficient to indemnify the corporation and its transfer agent and/or registrar, if any, against any claim that may be made against it or them on account of such allegedly lost, destroyed or stolen certificate or the replacement thereof. Said bond or other security shall be in such amount, on such terms and conditions and, in the case of a bond, with such surety or sureties as may be acceptable to the Board of Directors or to its duly appointed and authorized committee or any officer or officers authorized by the Board of Directors to determine the sufficiency thereof. The requirement of a bond or other security may be waived in particular cases at the discretion of the Board of Directors or its duly appointed and authorized committee or any officer or officers authorized by the Board of Directors so to do. Section 54. ISSUANCE, TRANSFER AND REGISTRATION OF SHARES. The Board of Directors may make such rules and regulations, not inconsistent with law or with these bylaws, as it may deem advisable concerning the issuance, transfer and registration of certificates for shares of the capital stock of the corporation. The Board of Directors may appoint a transfer agent or registrar of transfers, or both, and may require all certificates for shares of the corporation to bear the signature of either or both. 18. ARTICLE VIII INSPECTION OF CORPORATE RECORDS Section 55. INSPECTION BY DIRECTORS. Every director shall have the absolute right at any reasonable time to inspect and copy all books, records, and documents of every kind of the corporation and any of its subsidiaries and to inspect the physical properties of the corporation and any of its subsidiaries. Such inspection may be made by the director in person or by agent or attorney, and the right of inspection includes the right to copy and make extracts. Section 56. INSPECTION BY SHAREHOLDERS. (a) INSPECTION OF CORPORATE RECORDS. (i) A shareholder or shareholders holding at least five percent in the aggregate of the outstanding voting shares of the corporation or who hold at least one percent of such voting shares and have filed a Schedule 14B with the United States Securities and Exchange Commission relating to the election of directors of the corporation shall have an absolute right to do either or both of the following: (A) Inspect and copy the record of shareholders' names and addresses and shareholdings during usual business hours upon five business days' prior written demand upon the corporation; or (B) Obtain from the transfer agent, if any, for the corporation, upon five business days' prior written demand and upon the tender of its usual charges for such a list (the amount of which charges shall be stated to the shareholder by the transfer agent upon request), a list of the shareholders' names and addresses who are entitled to vote for the election of directors and their shareholdings, as of the most recent record date for which it has been compiled or as of a date specified by the shareholder subsequent to the date of demand. (ii) The record of shareholders shall also be open to inspection and copying by any shareholder or holder of a voting trust certificate at any time during usual business hours upon written demand on the corporation, for a purpose reasonably related to such holder's interest as a shareholder or holder of a voting trust certificate. (iii) The accounting books and records and minutes of proceedings of the shareholders and the Board of Directors and of any committees of the Board of Directors of the corporation and of each of its subsidiaries shall be open to inspection, copying and making extracts upon written demand on the corporation of any shareholder or holder of a voting trust certificate at any reasonable time during usual business hours, for a purpose reasonably related to such holder's interests as a shareholder or as a holder of such voting trust certificate. 19. (iv) Any inspection, copying, and making of extracts under this subsection (a) may be done in person or by agent or attorney. (b) INSPECTION OF BYLAWS. The original or a copy of these bylaws shall be kept as provided in Section 44 of these bylaws and shall be open to inspection by the shareholders at all reasonable times during office hours. If the principal executive office of the corporation is not in California, and the corporation has no principal business office in the state of California, a current copy of these bylaws shall be furnished to any shareholder upon written request. Section 57. WRITTEN FORM. If any record subject to inspection pursuant to Section 56 above is not maintained in written form, a request for inspection is not complied with unless and until the corporation at its expense makes such record available in written form. ARTICLE IX MISCELLANEOUS Section 58. FISCAL YEAR. Unless otherwise fixed by resolution of the Board of Directors, the fiscal year of the corporation shall end on the 31st day of December in each calendar year. Section 59. ANNUAL REPORT. (a) Subject to the provisions of Section 59(b) below, the Board of Directors shall cause an annual report to be sent to each shareholder of the corporation in the manner provided in Section 9 of these bylaws not later than one hundred twenty (120) days after the close of the corporation's fiscal year. Such report shall include a balance sheet as of the end of such fiscal year and an income statement and statement of changes in financial position for such fiscal year, accompanied by any report thereon of independent accountants or, if there is no such report, the certificate of an authorized officer of the corporation that such statements were prepared without audit from the books and records of the corporation. When there are more than 100 shareholders of record of the corporation's shares, as determined by Section 605 of the California Corporations Code, additional information as required by Section 1501(b) of the California Corporations Code shall also be contained in such report, provided that if the corporation has a class of securities registered under Section 12 of the United States Securities Exchange Act of 1934, that Act shall take precedence. Such report shall be sent to shareholders at least fifteen (15) days prior to the next annual meeting of shareholders after the end of the fiscal year to which it relates. (b) If and so long as there are fewer than 100 holders of record of the corporation's shares, the requirement of sending of an annual report to the shareholders of the corporation is hereby expressly waived. 20. Section 60. RECORD DATE. The Board of Directors may fix a time in the future as a record date for the determination of the shareholders entitled to notice of or to vote at any meeting or entitled to receive payment of any dividend or other distribution or allotment of any rights or entitled to exercise any rights in respect of any change, conversion or exchange of shares or entitled to exercise any rights in respect of any other lawful action. The record date so fixed shall not be more than sixty (60) days nor less than ten (10) days prior to the date of the meeting nor more than sixty (60) days prior to any other action or event for the purpose of which it is fixed. If no record date is fixed, the provisions of Section 15 of these bylaws shall apply with respect to notice of meetings, votes, and consents and the record date for determining shareholders for any other purpose shall be at the close of business on the day on which the Board of Directors adopts the resolutions relating thereto, or the sixtieth (60th) day prior to the date of such other action or event, whichever is later. Only shareholders of record at the close of business on the record date shall be entitled to notice and to vote or to receive the dividend, distribution or allotment of rights or to exercise the rights, as the case may be, notwithstanding any transfer of any shares on the books of the corporation after the record date, except as otherwise provided in the Articles of Incorporation, by agreement or by law. Section 61. BYLAW AMENDMENTS. Except as otherwise provided by law or Section 19 of these bylaws, these bylaws may be amended or repealed by the Board of Directors or by the affirmative vote of a majority of the outstanding shares entitled to vote, including, if applicable, the affirmative vote of a majority of the outstanding shares of each class or series entitled by law or the Articles of Incorporation to vote as a class or series on the amendment or repeal or adoption of any bylaw or bylaws; provided, however, after issuance of shares, a bylaw specifying or changing a fixed number of directors or the maximum or minimum number or changing from a fixed to a variable board or vice versa may only be adopted by approval of the outstanding shares as provided herein. Section 62. CONSTRUCTION AND DEFINITION. Unless the context requires otherwise, the general provisions, rules of construction, and definitions contained in the California Corporations Code shall govern the construction of these bylaws. Without limiting the foregoing, "shall" is mandatory and "may" is permissive. ARTICLE X INDEMNIFICATION Section 63. INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND OTHER AGENTS. 21. (a) DIRECTORS AND EXECUTIVE OFFICERS. The corporation shall indemnify its directors and executive officers to the fullest extent not prohibited by the California General Corporation Law; PROVIDED, HOWEVER, that the corporation may limit the extent of such indemnification by individual contracts with its directors and executive officers; and, PROVIDED, FURTHER, that the corporation shall not be required to indemnify any director or executive officer in connection with any proceeding (or part thereof) initiated by such person or any proceeding by such person against the corporation or its directors, officers, employees or other agents unless (i) such indemnification is expressly required to be made by law, (ii) the proceeding was authorized by the board of directors of the corporation or (iii) such indemnification is provided by the corporation, in its sole discretion, pursuant to the powers vested in the corporation under the California General Corporation Law. (b) OTHER OFFICERS, EMPLOYEES AND OTHER AGENTS. The corporation shall have the power to indemnify its other officers, employees and other agents as set forth in the California General Corporation Law. (c) DETERMINATION BY THE CORPORATION. Promptly after receipt of a request for indemnification hereunder (and in any event within ninety (90) days thereof) a reasonable, good faith determination as to whether indemnification of the director or executive officer is proper under the circumstances because such director or executive officer has met the applicable standard of care shall be made by: (1) a majority vote of a quorum consisting of directors who are not parties to such proceeding; (2) if such quorum is not obtainable, by independent legal counsel in a written opinion; or (3) approval or ratification by the affirmative vote of a majority of the shares of this corporation represented and voting at a duly held meeting at which a quorum is present (which shares voting affirmatively also constitute at least a majority of the required quorum) or by written consent of a majority of the outstanding shares entitled to vote; where in each case the shares owned by the person to be indemnified shall not be considered entitled to vote thereon. (d) GOOD FAITH. (1) For purposes of any determination under this bylaw, a director or executive officer shall be deemed to have acted in good faith and in a manner he reasonably believed to be in the best interests of the corporation and its shareholders, and, with respect to any criminal action or proceeding, to have had no reasonable cause to believe that his conduct was unlawful, if his action is based on information, opinions, reports and statements, including financial statements and other financial data, in each case prepared or presented by: 22. (i) one or more officers or employees of the corporation whom the director or executive officer believed to be reliable and competent in the matters presented; (ii) counsel, independent accountants or other persons as to matters which the director or executive officer believed to be within such person's professional competence; and (iii) with respect to a director, a committee of the Board upon which such director does not serve, as to matters within such committee's designated authority, which committee the director believes to merit confidence; so long as, in each case, the director or executive officer acts without knowledge that would cause such reliance to be unwarranted. (2) The termination of any proceeding by judgment, order, settlement, conviction or upon a plea of nolo contendere or its equivalent shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in the best interests of the corporation and its shareholders or that he had reasonable cause to believe that his conduct was unlawful. (3) The provisions of this paragraph (d) shall not be deemed to be exclusive or to limit in any way the circumstances in which a person may be deemed to have met the applicable standard of conduct set forth by the California General Corporation Law. (e) EXPENSES. The corporation shall advance, prior to the final disposition of any proceeding, promptly following request therefor, all expenses incurred by any director or executive officer in connection with such proceeding upon receipt of an undertaking by or on behalf of such person to repay said amounts if it shall be determined ultimately that such person is not entitled to be indemnified under this bylaw or otherwise. Notwithstanding the foregoing, unless otherwise determined pursuant to paragraph (f) of this bylaw, no advance shall be made by the corporation if a determination is reasonably and promptly made by the board of directors by a majority vote of a quorum consisting of directors who were not parties to the proceeding (or, if no such quorum exists, by independent legal counsel in a written opinion) that the facts known to the decision making party at the time such determination is made demonstrate clearly and convincingly that such person acted in bad faith or in a manner that such person did not believe to be in the best interests of the corporation and its shareholders. (f) ENFORCEMENT. Without the necessity of entering into an express contract, all rights to indemnification and advances to directors and executive officers under this bylaw shall be deemed to be contractual rights and be effective to the same extent and as if provided for in a contract between the corporation and the director or executive officer. Any right to indemnification or advances granted by this bylaw to a director or executive officer shall be enforceable by or on behalf of the person holding such right in the forum in which the proceeding 23. is or was pending or, if such forum is not available or a determination is made that such forum is not convenient, in any court of competent jurisdiction if (i) the claim for indemnification or advances is denied, in whole or in part, or (ii) no disposition of such claim is made within ninety (90) days of request therefor. The claimant in such enforcement action, if successful in whole or in part, shall be entitled to be paid also the expense of prosecuting his claim. The corporation shall be entitled to raise as a defense to any such action that the claimant has not met the standards of conduct that make it permissible under the California General Corporation Law for the corporation to indemnify the claimant for the amount claimed. Neither the failure of the corporation (including its board of directors, independent legal counsel or its shareholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is proper in the circumstances because he has met the applicable standard of conduct set forth in the California General Corporation Law, nor an actual determination by the corporation (including its board of directors, independent legal counsel or its shareholders) that the claimant has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that claimant has not met the applicable standard of conduct. (g) NON-EXCLUSIVITY OF RIGHTS. To the fullest extent permitted by the corporation's Articles of Incorporation and the California General Corporation Law, the rights conferred on any person by this bylaw shall not be exclusive of any other right which such person may have or hereafter acquire under any statute, provision of the Articles of Incorporation, bylaws, agreement, vote of shareholders or disinterested directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding office. The corporation is specifically authorized to enter into individual contracts with any or all of its directors, officers, employees or agents respecting indemnification and advances, to the fullest extent permitted by the California General Corporation Law and the corporation's Articles of Incorporation. (h) SURVIVAL OF RIGHTS. The rights conferred on any person by this bylaw shall continue as to a person who has ceased to be a director or executive officer and shall inure to the benefit of the heirs, executors and administrators of such a person. (i) INSURANCE. The corporation, upon approval by the board of directors, may purchase insurance on behalf of any person required or permitted to be indemnified pursuant to this bylaw. (j) AMENDMENTS. Any repeal or modification of this bylaw shall only be prospective and shall not affect the rights under this bylaw in effect at the time of the alleged occurrence of any action or omission to act that is the cause of any proceeding against any agent of the corporation. (k) EMPLOYEE BENEFIT PLANS. The corporation shall indemnify the directors and officers of the corporation who serve at the request of the corporation as trustees, investment managers or other fiduciaries of employee benefit plans to the fullest extent permitted by the California General Corporation Law. 24. (l) SAVING CLAUSE. If this bylaw or any portion hereof shall be invalidated on any ground by any court of competent jurisdiction, then the corporation shall nevertheless indemnify each director and executive officer to the fullest extent permitted by any applicable portion of this bylaw that shall not have been invalidated, or by any other applicable law. (m) CERTAIN DEFINITIONS. For the purposes of this bylaw, the following definitions shall apply: (1) The term "proceeding" shall be broadly construed and shall include, without limitation, the investigation, preparation, prosecution, defense, settlement and appeal of any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative, arbitrative or investigative. (2) The term "expenses" shall be broadly construed and shall include, without limitation, court costs, attorneys' fees, witness fees, fines, amounts paid in settlement or judgment and any other costs and expenses of any nature or kind incurred in connection with any proceeding, including expenses of establishing a right to indemnification under this bylaw or any applicable law. (3) The term the "corporation" shall include, in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, and employees or agents, so that any person who is or was a director, officer, employee or agent of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, shall stand in the same position under the provisions of this bylaw with respect to the resulting or surviving corporation as he would have with respect to such constituent corporation if its separate existence had continued. (4) References to a "director," "officer," "employee," or "agent" of the corporation shall include, without limitation, situations where such person is serving at the request of the corporation as a director, officer, employee, trustee or agent of another corporation, partnership, joint venture, trust or other enterprise. ARTICLE XI RIGHT OF FIRST REFUSAL Section 64. RIGHT OF FIRST REFUSAL. No shareholder shall sell, assign, pledge, or in any manner transfer any of the shares of stock of the corporation or any right or interest therein, 25. whether voluntarily or by operation of law, or by gift or otherwise, except by a transfer which meets the requirements hereinafter set forth in this bylaw: (a) If the shareholder desires to sell or otherwise transfer any of his shares of stock, then the shareholder shall first give written notice thereof to the corporation. The notice shall name the proposed transferee and state the number of shares to be transferred, the proposed consideration, and all other terms and conditions of the proposed transfer. (b) For thirty (30) days following receipt of such notice, the corporation shall have the option to purchase all (but not less than all) of the shares specified in the notice at the price and upon the terms set forth in such notice; provided, however, that, with the consent of the shareholder, the corporation shall have the option to purchase a lesser portion of the shares specified in said notice at the price and upon the terms set forth therein. In the event of a gift, property settlement or other transfer in which the proposed transferee is not paying the full price for the shares, and that is not otherwise exempted from the provisions of this Section 64, the price shall be deemed to be the fair market value of the stock at such time as determined in good faith by the Board of Directors. In the event the corporation elects to purchase all of the shares or, with consent of the shareholder, a lesser portion of the shares, it shall give written notice to the transferring shareholder of its election and settlement for said shares shall be made as provided below in paragraph (d). (c) The corporation may assign its rights hereunder. (d) In the event the corporation and/or its assignee(s) elect to acquire any of the shares of the transferring shareholder as specified in said transferring shareholder's notice, the Secretary of the corporation shall so notify the transferring shareholder and settlement thereof shall be made in cash within thirty (30) days after the Secretary of the corporation receives said transferring shareholder's notice; provided that if the terms of payment set forth in said transferring shareholder's notice were other than cash against delivery, the corporation and/or its assignee(s) shall pay for said shares on the same terms and conditions set forth in said transferring shareholder's notice. (e) In the event the corporation and/or its assignees(s) do not elect to acquire all of the shares specified in the transferring shareholder's notice, said transferring shareholder may, within the sixty-day (60-day) period following the expiration of the option rights granted to the corporation and/or its assignees(s) herein, transfer the shares specified in said transferring shareholder's notice which were not acquired by the corporation and/or its assignees(s) as specified in said transferring shareholder's notice. All shares so sold by said transferring shareholder shall continue to be subject to the provisions of this bylaw in the same manner as before said transfer. (f) Anything to the contrary contained herein notwithstanding, the following transactions shall be exempt from the provisions of this bylaw: 26. (1) A shareholder's transfer of any or all shares held either during such shareholder's lifetime or on death by will or intestacy to such shareholder's immediate family or to any custodian or trustee for the account of such shareholder or such shareholder's immediate family. "Immediate family" as used herein shall mean spouse, lineal descendant, father, mother, brother, sister, brother-in-law or sister-in-law of the shareholder making such transfer. (2) A shareholder's bona fide pledge or mortgage of any shares with a commercial lending institution, provided that any subsequent transfer of said shares by said institution shall be conducted in the manner set forth in this bylaw. (3) A shareholder's transfer of any or all of such shareholder's shares to the corporation or to any other shareholder of the corporation. (4) A shareholder's transfer of any or all of such shareholder's shares to a person who, at the time of such transfer, is an officer or director of the corporation. (5) A corporate shareholder's transfer of any or all of its shares pursuant to and in accordance with the terms of any merger, consolidation, reclassification of shares or capital reorganization of the corporate shareholder, or pursuant to a sale of all or substantially all of the stock or assets of a corporate shareholder. (6) A corporate shareholder's transfer of any or all of its shares to any or all of its shareholders. (7) A transfer by a shareholder which is a limited or general partnership (i) to any or all of its partners or former partners or (ii) to any or all of its affiliated limited or general partnerships, which partnerships are in a substantially similar line of business. In any such case, the transferee, assignee, or other recipient shall receive and hold such stock subject to the provisions of this bylaw, and there shall be no further transfer of such stock except in accord with this bylaw. (g) The provisions of this bylaw may be waived with respect to any transfer either by the corporation, upon duly authorized action of its Board of Directors, or by the shareholders, upon the express written consent of the owners of a majority of the voting power of the corporation (excluding the votes represented by those shares to be transferred by the transferring shareholder). This bylaw may be amended or repealed either by a duly authorized action of the Board of Directors or by the shareholders, upon the express written consent of the owners of a majority of the voting power of the corporation. (h) Any sale or transfer, or purported sale or transfer, of securities of the corporation shall be null and void unless the terms, conditions, and provisions of this bylaw are strictly observed and followed. 27. (i) The foregoing right of first refusal shall terminate on either of the following dates, whichever shall first occur: (1) On April 15, 2002; or (2) Upon the date securities of the corporation are first offered to the public pursuant to a registration statement filed with, and declared effective by, the United States Securities and Exchange Commission under the Securities Act of 1933, as amended. (j) The certificates representing shares of stock of the corporation shall bear on their face the following legend so long as the foregoing right of first refusal remains in effect: "The shares represented by this certificate are subject to a right of first refusal option in favor of the corporation and/or its assignee(s), as provided in the bylaws of the corporation." ARTICLE XII LOANS OF OFFICERS AND OTHERS Section 65. CERTAIN CORPORATE LOANS AND GUARANTIES. If the corporation has outstanding shares held of record by 100 or more persons on the date of approval by the Board of Directors, the corporation may make loans of money or property to, or guarantee the obligations of, any officer of the corporation or its parent or any subsidiary, whether or not a director of the corporation or its parent or any subsidiary, or adopt an employee benefit plan or plans authorizing such loans or guaranties, upon the approval of the Board of Directors alone, by a vote sufficient without counting the vote of any interested director or directors, if the Board of Directors determines that such a loan or guaranty or plan may reasonably be expected to benefit the corporation. 28. EX-4.3 4 WARRANT FOR SERIES A PREFERRED STOCK Warrant No. PW-1 THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE SECURITIES LAWS. SUCH SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES LAWS. AVIRON WARRANT TO PURCHASE SHARES OF SERIES A PREFERRED STOCK This certifies that MOUNT SINAI SCHOOL OF MEDICINE, ("MOUNT SINAI") for value received, is entitled to purchase from AVIRON, a California corporation (the "COMPANY"), having a principal place of business at 1815 Old County Road, Belmont, California 94002, at any time after the Eligibility Date (as defined below) and prior to the Termination Date (as defined below), twenty-five thousand (25,000) fully paid and nonassessable shares of Series A Preferred Stock (the "Series A Stock") of the Company at the Purchase Price (as defined below), subject to the provisions and upon the terms and conditions hereinafter set forth. 1. EXERCISABILITY. Until terminated pursuant to Section 2 below, and except as otherwise provided in Section 11(c) and Section 12, the purchase rights represented by this Warrant are exercisable at the option of the holder of record hereof, at any time or from time to time after the date of initiation by the Company, its affiliate, licensee or other transferee of the first animal study of a Product (as defined in that certain Technology Transfer Agreement between the Company and Mount Sinai of even date herewith) (the "ELIGIBILITY DATE"), for all or any part of the Series A Stock (but not for a fraction of a share) which may be purchased hereunder. The Company shall deliver to the holder of this Warrant notice of the occurrence of any Eligibility Date within ten (10) days of such occurrence. 2. TERMINATION. Where the Eligibility Date has occurred, this Warrant, and all rights to exercise this Warrant in whole or in part, shall immediately terminate at the earlier of (a) 5:00 p.m. (Pacific Time), on the fifth (5th) anniversary of the Eligibility Date, or (b) 5:00 p.m. (Pacific Time), on the day preceding the closing of the Company's sale of all or substantially all of its assets or the acquisition of the Company by another entity by means of a merger or consolidation or sale of stock resulting in the exchange of more than fifty percent (50%) of the outstanding shares of the Company for securities or consideration issued, or caused to be issued, 1. by the acquiring entity (a "SALE OF THE COMPANY") (such earlier date herein referred to as the "TERMINATION DATE"). Where the Eligibility Date has not yet occurred and the events described in (b) above transpire, this Warrant shall terminate as provided above, except that the Eligibility Date shall be accelerated as provided in Section 11(c). 3. PURCHASE PRICE. Except as otherwise provided in Section 11(c) and Section 12, this Warrant shall be exercisable, on or after the Eligibility Date, at a price per share (the "PURCHASE PRICE") equal to (a) the price per share (the "PREFERRED SHARE PRICE") at which the most recent series of preferred stock of the Company (the "PREFERRED STOCK") was sold in the most recent offering of such Preferred Stock to investors of the Company prior to the Eligibility Date (it being understood that the sale or issuance of Preferred Stock pursuant to a transaction with a corporate partner at a price above or below that most recently paid for such Preferred Stock by the Company's investors shall not constitute such an "offering"), and, if such Preferred Stock was not Series A Stock, adjusted as provided below to reflect any difference in the terms of the dividends payable and paid on or the conversion rights of such Preferred Stock from the corresponding terms of the Series A Stock, or (b) if the common stock of the Company (the "COMMON STOCK") is traded on the public market on the date immediately prior to the Eligibility Date, the average of the closing prices of the Common Stock reported in the consolidated reporting system for the sixty (60) trading-day period ending on the trading day immediately prior to the Eligibility Date or such other shorter period in the event the Eligibility Date transpires prior to the Common Stock having been traded for such sixty (60) trading-day period. If, as of the Eligibility Date, each share of Preferred Stock is convertible into more or less than one share of Common Stock, or if any dividends have been paid on the Preferred Stock in additional shares of Preferred Stock or shares of Common Stock, then the Preferred Share Price shall be adjusted by dividing the Preferred Share Price by the number of shares of Common Stock into which each original share of Preferred Stock converts (after giving effect to any stock dividends). If, as of the Eligibility Date, the dividend terms of the Preferred Stock differ from those of the Series A Stock, the Preferred Share Price shall be adjusted as agreed upon by the Company and the holder of this Warrant, or if they fail to agree, by an investment banker mutually acceptable to the Company and the holder (the fees of the investment banker to be shared by the Company and Mount Sinai; provided, however, that Mount Sinai shall not be required to remit its portion of such fees to the Company until the exercise of this Warrant). 4. RESERVATION OF PREFERRED STOCK. The Company shall at all times reserve and keep available out of its authorized but unissued shares of Preferred Stock and Common Stock, solely for the purpose of effecting the exercise of this Warrant, such number of its shares of Series A Stock (and Common Stock upon conversion of the Series A Stock) as shall from time to time be sufficient to effect the exercise of the Warrants and the conversion of the Series A Stock to Common Stock. 5. NO SHAREHOLDER RIGHTS. Except as expressly provided herein, nothing contained in this Warrant shall be construed as conferring upon the holder hereof or any other person the right to vote or to consent or to receive notice as a stockholder in respect of meetings of 2. stockholders for the election of directors of the Company or any other matter or any rights whatsoever as a stockholder of the Company; and no dividends or interest shall be payable or accrued in respect of this Warrant or the interest represented hereby or the shares purchasable hereunder until, and only to the extent that, this Warrant shall have been exercised. 6. METHOD OF EXERCISE; PAYMENT; ISSUANCE OF NEW WARRANT. Subject to Section 2 hereof, the purchase right represented by this Warrant may be exercised by the holder hereof, in whole or in part, by the surrender of this Warrant (with a duly executed notice of exercise in the form attached hereto as Exhibit A) at the principal office of the Company and by the payment to the Company, by check or wire transfer, of an amount equal to the then applicable Purchase Price per share multiplied by the number of shares then being purchased. In the event of any exercise of the rights represented by this Warrant, certificates for the shares of stock so purchased shall be in the name of, and delivered to, the holder hereof, or as such holder may direct (subject to the restrictions upon transfer contained herein and upon payment by such holder hereof of any applicable transfer taxes). Such delivery shall be made within ten (10) business days after exercise of the Warrant and at the Company's expense and, unless this Warrant has been fully exercised or has expired, a new Warrant representing the number of shares of Series A Stock, if any, with respect to which this Warrant shall not then have been exercised shall also be issued to the holder hereof within ten (10) business days after exercise of the Warrant. 7. EXCHANGE OF WARRANT FOR OTHER WARRANTS. This Warrant, with or without similar Warrants, when surrendered properly endorsed at the principal offices of the Company may be exchanged for another Warrant or Warrants of different denominations, of like tenor and representing in the aggregate the right to purchase a like number of shares of Series A Stock of the Company; provided, however, that the Company's obligations under this Section 7 shall be subject to and conditioned upon the compliance of any such subdivision with applicable state securities laws and with the Securities Act of 1933, as amended (the "ACT"). 8. CERTAIN RESTRICTIONS. a. RESTRICTIONS ON TRANSFERABILITY. The Warrant and the Series A Stock (or such other securities at the time receivable upon exercise of this Warrant) shall not be transferable except upon the conditions specified in this Section 8, which conditions are intended to insure compliance with the provisions of the Act and to assist in an orderly distribution. Each holder of this Warrant or the Series A Stock issuable hereunder will cause any proposed transferee of the Warrant or Series A Stock to agree to take and hold such securities subject to the provisions and upon the conditions specified in this Section 8. b. RESTRICTIVE LEGENDS. Each certificate representing (a) this Warrant, (b) the Series A Stock and (c) any other securities issued in respect of the Series A Stock upon any stock split, stock dividend, recapitalization, merger, consolidation or similar event, shall (unless otherwise permitted by the provisions of Section 8.c or Section 9 below or unless such securities have been registered under the Act or sold under Rule 144) be stamped or otherwise imprinted 3. with legends substantially in the following form (in addition to any legend required under applicable state securities laws): THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE SECURITIES LAWS. SUCH SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES LAWS. COPIES OF THE WARRANT DATED APRIL 23, 1993, WHICH CONTAINS RESTRICTIONS APPLICABLE TO THESE SECURITIES, MAY BE OBTAINED AT NO COST BY WRITTEN REQUEST MADE BY THE HOLDER OF RECORD OF THE CERTIFICATE TO THE SECRETARY OF THE CORPORATION. THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A RIGHT OF FIRST REFUSAL OPTION IN FAVOR OF THE CORPORATION AND/OR ITS ASSIGNEE(S), AS PROVIDED IN THE BYLAWS OF THE CORPORATION. In addition, the certificates shall bear all legends required pursuant to state securities and blue sky laws. c. RESTRICTIONS ON TRANSFER. The holder of this Warrant and each person to whom this Warrant is subsequently transferred represents and warrants to the Company (by acceptance of such transfer) that it will not transfer the Warrant (or securities issuable upon exercise hereof unless a registration statement under the Act was in effect with respect to such securities at the time of issuance thereof) except pursuant to (a) an effective registration statement under the Act, (b) Rule 144 under the Act (or any other rule under the Act relating to the disposition of securities), or (c) an opinion of counsel, reasonably satisfactory to counsel for the Company, that an exemption from such registration is available. 9. WARRANTS TRANSFERABLE. Subject to the provisions of Section 8, this Warrant and all rights hereunder are transferable, in whole or in part, without charge to the holder hereof (except for transfer taxes), upon surrender of this Warrant properly endorsed; PROVIDED, HOWEVER, that the Company's Bylaws provide for a right of first refusal in favor of the Company with respect to all sales, assignments, pledges or transfers of shares of stock of the Company or any interest therein. The Company agrees, however, that transfers of this Warrant to any person or entity listed on Schedule 1 (the "Permitted Transferees") hereto shall not be subject to such right of first refusal and hereby waives any such rights with respect thereto, provided that any subsequent transfer by any of the Permitted Transferees shall nonetheless be subject to such right of first refusal. Each permitted taker and holder of this Warrant, by taking or holding the same, consents and agrees that this Warrant, when endorsed in blank, shall be deemed negotiable, and that the holder hereof, when this Warrant shall have been so endorsed, may be treated by the Company and all other persons dealing with this Warrant as the absolute owner hereof for any purpose and as the person entitled to exercise the rights represented by this Warrant, or to the transfer hereof on the books of the Company any notice to the contrary notwithstanding; but until 4. such transfer on such books, the Company may treat the registered owner hereof as the owner for all purposes. 10. RIGHTS AND OBLIGATIONS SURVIVE EXERCISE OF WARRANT. The rights and obligations of the Company, of the holder of this Warrant and of the holder of shares of Common Stock issued upon exercise of this Warrant, contained in Sections 8 and 9 shall survive the exercise of this Warrant. 11. ADJUSTMENT FOR CHANGES IN SERIES A STOCK. The Purchase Price and the number of shares purchasable upon the exercise of this Warrant, as well as the date of exercisability of this Warrant, shall be subject to adjustment from time to time upon the occurrence of certain events described in this Section 11. Upon each adjustment of the Purchase Price, the holder of this Warrant shall thereafter be entitled to purchase, at the Purchase Price resulting from such adjustment, the number of shares obtained by multiplying the Purchase Price in effect immediately prior to such adjustment by the number of shares purchasable pursuant hereto immediately prior to such adjustment, and dividing the product thereof by the Purchase Price resulting from such adjustment. a. SUBDIVISION OR COMBINATION OF STOCK. Should the Company at any time subdivide its outstanding shares of Series A Stock into a greater number of shares, the Purchase Price then in effect immediately prior to such subdivision shall be proportionately reduced, and conversely, in case the outstanding shares of Series A Stock shall be combined into a smaller number of shares, the Purchase Price then in effect immediately prior to such combination shall be proportionately increased. b. DIVIDENDS IN SERIES A STOCK, OTHER STOCK, PROPERTY, RECLASSIFICATION. If at any time or from time to time the holders of Series A Stock (or any shares of stock or other securities at the time receivable upon the exercise of this Warrant) shall have received or become entitled to receive, without payment therefor, i. Series A Stock or any shares of stock or other securities which are at any time directly or indirectly convertible into or exchangeable for Series A Stock, or any rights or options to subscribe for, purchase or otherwise acquire any of the foregoing by way of dividend or other distribution, ii. Series A Stock or additional stock or other securities or property (including cash) by way of spinoff, split-up, reclassification, combination of shares or similar corporate rearrangement, (other than shares of Series A Stock issued as a stock split, adjustments in respect of which shall be covered by the terms of Section 11(a) above), then and in each such case, the holder hereof shall, upon the exercise of this Warrant, be entitled to receive, in addition to the number of shares of Series A Stock receivable thereupon, and without payment of any additional consideration therefor, the amount of stock and other securities and property (including cash in the cases referred to in clauses (i) and (ii) above) which such 5. holder would hold on the date of such exercise had he been the holder of record of such Series A Stock as of the date on which holders of Series A Stock received or became entitled to receive such shares or all other additional stock and other securities and property. c. ACCELERATION OF EXERCISABILITY UPON SALE OF THE COMPANY. If, prior to the Eligibility Date, any Sale of the Company shall be effected, then notwithstanding Section 1, the exercisability of this Warrant shall be accelerated to a date ten (10) days prior to the closing of such Sale of the Company (the "MERGER ELIGIBILITY DATE"), and thereupon shall become exercisable with respect to the total number of shares purchasable hereunder, at a price equal to the lesser of (i) the Purchase Price, or (ii) One and One-half Dollars ($1.50) per share. The Company shall provide notice of the occurrence of such Merger Eligibility Date pursuant to Section 14. 12. EVENTS UPON AN IPO. a. If prior to the Eligibility Date the Company shall effect its first public offering of any equity securities of the Company (an "IPO") pursuant to a registration statement filed with, and declared effective by, the Securities and Exchange Commission pursuant to the Act, then notwithstanding Section 1, the exercisability of this Warrant shall be accelerated to the date of the closing of such IPO (the "IPO ELIGIBILITY DATE"), and this Warrant shall be exercisable with respect to the same amount of shares, and in the same manner, as is set forth in subsection 11(c) above with respect to a Sale of the Company, EXCEPT that the Warrant shall be exercisable at a purchase price equal to one hundred twenty-five percent (125%) of the price at which the Common Stock of the Company is to be sold in such IPO. The Company shall provide notice of the occurrence of such IPO Eligibility Date pursuant to Section 14. Such accelerated Warrant, and all rights to exercise such Warrant in whole or in part, shall immediately terminate at 5:00 p.m. (Pacific Time), on the fifth (5th) anniversary of the IPO Eligibility Date. Any occurrence of the product milestone event (i.e., the Eligibility Date) set forth in Section 1 following such IPO shall have no effect upon such an accelerated Warrant. b. If subsequent to the Eligibility Date the Company shall effect an IPO, then this Warrant shall continue in full force and effect, and the holder hereof shall have the right to purchase and receive upon the exercise of this Warrant such shares of Series A Stock or Common Stock (assuming conversion of the Series A Stock prior to such IPO) as is set forth in Section 1, at the Purchase Price set forth in Section 3. 13. FRACTIONAL SHARES. No fractional share shall be issued upon exercise of this Warrant. The Company shall, in lieu of issuing any fractional share, pay the holder entitled to such fraction a sum in cash equal to the fair market value of such fraction on the date of exercise (as determined in good faith by the Board of Directors of the Company). 14. NOTICE OF CERTAIN ACTIONS. In the event of any reclassification or recapitalization of the capital stock of the Company, any Sale of the Company, any IPO, or any voluntary or involuntary dissolution, liquidation, or winding up of the Company, the Company shall mail to 6. the holder of this Warrant at least fifteen (15) days prior to the record date specified therein, a notice specifying (a) the date on which any such record is to be taken for the purpose of such dividend or distribution and a description of such dividend or distribution, (b) the date on which any such reclassification, recapitalization, Sale of the Company, IPO, dissolution, liquidation, or winding up is expected to become effective, and (c) the time, if any, that is to be fixed, as to when the holders of record of Common Stock (or other securities) shall be entitled to exchange their shares of Common Stock (or other securities) for securities or other property deliverable upon such reclassification, recapitalization, Sale of the Company, IPO, dissolution, liquidation, or winding up; provided, however, that the Company shall not be required to provide any notice under this Section 14 unless and until the occurrence of the Eligibility Date, except where required pursuant to Section 11(c) and Section 12. 15. MISCELLANEOUS. This Warrant shall be governed by the laws of the State of California, as applied to contracts entered into between California residents and to be performed entirely within the State of California. The headings in this Warrant are for purposes of convenience and reference only, and shall not be deemed to constitute a part hereof. Neither this Warrant nor any term hereof may be changed, waived, discharged or terminated orally but only by an instrument in writing signed by the Company and the registered holder hereof. All notices and other communications from the Company to the holder of this Warrant shall be made by personal delivery (including confirmed telex or telecopy) or shall be mailed by first-class registered or certified mail, postage prepaid, to the address furnished to the Company in writing by the last holder of this Warrant who shall have furnished an address to the Company in writing. IN WITNESS WHEREOF the Company has caused this Warrant to be duly executed by its officers thereunto duly authorized this 23rd day of April, 1993. AVIRON By ----------------------------- J. Leighton Read, M.D. Chief Executive Officer 7. EXHIBIT A FORM OF SUBSCRIPTION (To be signed only upon exercise of Warrant) To AVIRON: The undersigned, the holder of the within Warrant, hereby irrevocably elects to exercise the purchase right represented by such Warrant for, and to purchase thereunder, __________________ _____________________ (___________) shares of Series A Preferred Stock of AVIRON and herewith makes payment of ___ _______ _______________ DOLLARS ($__________) therefor, and requests the certificates for such shares be issued in the name of, and delivered _________ to, whose address is__________________________________________________________. The undersigned represents that it is acquiring such Series A Preferred Stock for its own account for investment and not with a view to or for sale in connection with any distribution thereof. DATED: __________________ By: ----------------------------------------- Title: -------------------------------------- Address: ------------------------------------ --------------------------------------------- 1. SCHEDULE 1 PERMITTED TRANSFEREES Masayoshi Enami, Ph.D. Reinhard Vlasak, Ph.D. Thomas Muster, Ph.D. Jeffrey Parvin, Ph.D. Mark Krystal, Ph.D. Michael Bergmann, M.D. 2. EX-4.4 5 WARRANT FOR SERIES A PREFERRED STOCK Warrant No. PW-3 THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE SECURITIES LAWS. SUCH SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES LAWS. AVIRON WARRANT TO PURCHASE SHARES OF SERIES A PREFERRED STOCK This certifies that MOUNT SINAI SCHOOL OF MEDICINE, ("MOUNT SINAI") for value received, is entitled to purchase from AVIRON, a California corporation (the "COMPANY"), having a principal place of business at 1815 Old County Road, Belmont, California 94002, at any time after the Eligibility Date (as defined below) and prior to the Termination Date (as defined below), one hundred twenty- five thousand (125,000) fully paid and nonassessable shares of Series A Preferred Stock (the "SERIES A STOCK") of the Company at the Purchase Price (as defined below), subject to the provisions and upon the terms and conditions hereinafter set forth. 1. EXERCISABILITY. Until terminated pursuant to Section 2 below, and except as otherwise provided in Section 11(c) and Section 12, the purchase rights represented by this Warrant are exercisable at the option of the holder of record hereof, at any time or from time to time after the date of receipt by the Company of written approval by the United States Food and Drug Adminstration with respect to the Company's, its affiliate's, licensee's or other transferee's first New Drug Application with respect to a Product (as defined in that certain Technology Transfer Agreement between the Company and Mount Sinai of even date herewith) (the "ELIGIBILITY DATE"), for all or any part of the Series A Stock (but not for a fraction of a share) which may be purchased hereunder. The Company shall deliver to the holder of this Warrant notice of the occurrence of any Eligibility Date within ten (10) days of such occurrence. 2. TERMINATION. Where the Eligibility Date has occurred, this Warrant, and all rights to exercise this Warrant in whole or in part, shall immediately terminate at the earlier of (a) 5:00 p.m. (Pacific Time), on the fifth (5th) anniversary of the Eligibility Date, or (b) 5:00 p.m. (Pacific Time), on the day preceding the closing of the Company's sale of all or substantially all of its assets or the acquisition of the Company by another entity by means of a merger or 1. consolidation or sale of stock resulting in the exchange of more than fifty percent (50%) of the outstanding shares of the Company for securities or consideration issued, or caused to be issued, by the acquiring entity (a "SALE OF THE COMPANY") (such earlier date herein referred to as the "TERMINATION DATE"). Where the Eligibility Date has not yet occurred and the events described in (b) above transpire, this Warrant shall terminate as provided above, except that the Eligibility Date shall be accelerated as provided in Section 11(c). 3. PURCHASE PRICE. Except as otherwise provided in Section 11(c) and Section 12, this Warrant shall be exercisable, on or after the Eligibility Date, at a price per share (the "PURCHASE PRICE") equal to (a) the price per share (the "PREFERRED SHARE PRICE") at which the most recent series of preferred stock of the Company (the "PREFERRED STOCK") was sold in the most recent offering of such Preferred Stock to investors of the Company prior to the Eligibility Date (it being understood that the sale or issuance of Preferred Stock pursuant to a transaction with a corporate partner at a price above or below that most recently paid for such Preferred Stock by the Company's investors shall not constitute such an "offering"), and, if such Preferred Stock was not Series A Stock, adjusted as provided below to reflect any difference in the terms of the dividends payable and paid on or the conversion rights of such Preferred Stock from the corresponding terms of the Series A Stock, or (b) if the common stock of the Company (the "COMMON STOCK") is traded on the public market on the date immediately prior to the Eligibility Date, the average of the closing prices of the Common Stock reported in the consolidated reporting system for the sixty (60) trading-day period ending on the trading day immediately prior to the Eligibility Date or such other shorter period in the event the Eligibility Date transpires prior to the Common Stock having been traded for such sixty (60) trading-day period. If, as of the Eligibility Date, each share of Preferred Stock is convertible into more or less than one share of Common Stock, or if any dividends have been paid on the Preferred Stock in additional shares of Preferred Stock or shares of Common Stock, then the Preferred Share Price shall be adjusted by dividing the Preferred Share Price by the number of shares of Common Stock into which each original share of Preferred Stock converts (after giving effect to any stock dividends). If, as of the Eligibility Date, the dividend terms of the Preferred Stock differ from those of the Series A Stock, the Preferred Share Price shall be adjusted as agreed upon by the Company and the holder of this Warrant, or if they fail to agree, by an investment banker mutually acceptable to the Company and the holder (the fees of the investment banker to be shared by the Company and Mount Sinai; provided, however, that Mount Sinai shall not be required to remit its portion of such fees to the Company until the exercise of this Warrant). 4. RESERVATION OF PREFERRED STOCK. The Company shall at all times reserve and keep available out of its authorized but unissued shares of Preferred Stock and Common Stock, solely for the purpose of effecting the exercise of this Warrant, such number of its shares of Series A Stock (and Common Stock upon conversion of the Series A Stock) as shall from time to time be sufficient to effect the exercise of the Warrants and the conversion of the Series A Stock to Common Stock. 2. 5. NO SHAREHOLDER RIGHTS. Except as expressly provided herein, nothing contained in this Warrant shall be construed as conferring upon the holder hereof or any other person the right to vote or to consent or to receive notice as a stockholder in respect of meetings of stockholders for the election of directors of the Company or any other matter or any rights whatsoever as a stockholder of the Company; and no dividends or interest shall be payable or accrued in respect of this Warrant or the interest represented hereby or the shares purchasable hereunder until, and only to the extent that, this Warrant shall have been exercised. 6. METHOD OF EXERCISE; PAYMENT; ISSUANCE OF NEW WARRANT. Subject to Section 2 hereof, the purchase right represented by this Warrant may be exercised by the holder hereof, in whole or in part, by the surrender of this Warrant (with a duly executed notice of exercise in the form attached hereto as Exhibit A) at the principal office of the Company and by the payment to the Company, by check or wire transfer, of an amount equal to the then applicable Purchase Price per share multiplied by the number of shares then being purchased. In the event of any exercise of the rights represented by this Warrant, certificates for the shares of stock so purchased shall be in the name of, and delivered to, the holder hereof, or as such holder may direct (subject to the restrictions upon transfer contained herein and upon payment by such holder hereof of any applicable transfer taxes). Such delivery shall be made within ten (10) business days after exercise of the Warrant and at the Company's expense and, unless this Warrant has been fully exercised or has expired, a new Warrant representing the number of shares of Series A Stock, if any, with respect to which this Warrant shall not then have been exercised shall also be issued to the holder hereof within ten (10) business days after exercise of the Warrant. 7. EXCHANGE OF WARRANT FOR OTHER WARRANTS. This Warrant, with or without similar Warrants, when surrendered properly endorsed at the principal offices of the Company may be exchanged for another Warrant or Warrants of different denominations, of like tenor and representing in the aggregate the right to purchase a like number of shares of Series A Stock of the Company; provided, however, that the Company's obligations under this Section 7 shall be subject to and conditioned upon the compliance of any such subdivision with applicable state securities laws and with the Securities Act of 1933, as amended (the "ACT"). 8. CERTAIN RESTRICTIONS. a. RESTRICTIONS ON TRANSFERABILITY. The Warrant and the Series A Stock (or such other securities at the time receivable upon exercise of this Warrant) shall not be transferable except upon the conditions specified in this Section 8, which conditions are intended to insure compliance with the provisions of the Act and to assist in an orderly distribution. Each holder of this Warrant or the Series A Stock issuable hereunder will cause any proposed transferee of the Warrant or Series A Stock to agree to take and hold such securities subject to the provisions and upon the conditions specified in this Section 8. b. RESTRICTIVE LEGENDS. Each certificate representing (a) this Warrant, (b) the Series A Stock and (c) any other securities issued in respect of the Series A Stock upon any stock 3. split, stock dividend, recapitalization, merger, consolidation or similar event, shall (unless otherwise permitted by the provisions of Section 8.c or Section 9 below or unless such securities have been registered under the Act or sold under Rule 144) be stamped or otherwise imprinted with legends substantially in the following form (in addition to any legend required under applicable state securities laws): THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE SECURITIES LAWS. SUCH SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES LAWS. COPIES OF THE WARRANT DATED APRIL 23, 1993 WHICH CONTAINS RESTRICTIONS APPLICABLE TO THESE SECURITIES, MAY BE OBTAINED AT NO COST BY WRITTEN REQUEST MADE BY THE HOLDER OF RECORD OF THE CERTIFICATE TO THE SECRETARY OF THE CORPORATION. THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A RIGHT OF FIRST REFUSAL OPTION IN FAVOR OF THE CORPORATION AND/OR ITS ASSIGNEE(S), AS PROVIDED IN THE BYLAWS OF THE CORPORATION. In addition, the certificates shall bear all legends required pursuant to state securities and blue sky laws. c. RESTRICTIONS ON TRANSFER. The holder of this Warrant and each person to whom this Warrant is subsequently transferred represents and warrants to the Company (by acceptance of such transfer) that it will not transfer the Warrant (or securities issuable upon exercise hereof unless a registration statement under the Act was in effect with respect to such securities at the time of issuance thereof) except pursuant to (a) an effective registration statement under the Act, (b) Rule 144 under the Act (or any other rule under the Act relating to the disposition of securities), or (c) an opinion of counsel, reasonably satisfactory to counsel for the Company, that an exemption from such registration is available. 9. WARRANTS TRANSFERABLE. Subject to the provisions of Section 8, this Warrant and all rights hereunder are transferable, in whole or in part, without charge to the holder hereof (except for transfer taxes), upon surrender of this Warrant properly endorsed; PROVIDED, HOWEVER, that the Company's Bylaws provide for a right of first refusal in favor of the Company with respect to all sales, assignments, pledges or transfers of shares of stock of the Company or any interest therein. The Company agrees, however, that transfers of this Warrant to any person or entity listed on Schedule 1 (the "Permitted Transferees") hereto shall not be subject to such right of first refusal and hereby waives any such rights with respect thereto, provided that any subsequent transfer by any of the Permitted Transferees shall nonetheless be subject to such right of first refusal. Each permitted taker and holder of this Warrant, by taking or holding the same, consents and agrees that this Warrant, when endorsed in blank, shall be deemed negotiable, and 4. that the holder hereof, when this Warrant shall have been so endorsed, may be treated by the Company and all other persons dealing with this Warrant as the absolute owner hereof for any purpose and as the person entitled to exercise the rights represented by this Warrant, or to the transfer hereof on the books of the Company any notice to the contrary notwithstanding; but until such transfer on such books, the Company may treat the registered owner hereof as the owner for all purposes. 10. RIGHTS AND OBLIGATIONS SURVIVE EXERCISE OF WARRANT. The rights and obligations of the Company, of the holder of this Warrant and of the holder of shares of Common Stock issued upon exercise of this Warrant, contained in Sections 8 and 9 shall survive the exercise of this Warrant. 11. ADJUSTMENT FOR CHANGES IN SERIES A STOCK. The Purchase Price and the number of shares purchasable upon the exercise of this Warrant, as well as the date of exercisability of this Warrant, shall be subject to adjustment from time to time upon the occurrence of certain events described in this Section 11. Upon each adjustment of the Purchase Price, the holder of this Warrant shall thereafter be entitled to purchase, at the Purchase Price resulting from such adjustment, the number of shares obtained by multiplying the Purchase Price in effect immediately prior to such adjustment by the number of shares purchasable pursuant hereto immediately prior to such adjustment, and dividing the product thereof by the Purchase Price resulting from such adjustment. a. SUBDIVISION OR COMBINATION OF STOCK. Should the Company at any time subdivide its outstanding shares of Series A Stock into a greater number of shares, the Purchase Price then in effect immediately prior to such subdivision shall be proportionately reduced, and conversely, in case the outstanding shares of Series A Stock shall be combined into a smaller number of shares, the Purchase Price then in effect immediately prior to such combination shall be proportionately increased. b. DIVIDENDS IN SERIES A STOCK, OTHER STOCK, PROPERTY, RECLASSIFICATION. If at any time or from time to time the holders of Series A Stock (or any shares of stock or other securities at the time receivable upon the exercise of this Warrant) shall have received or become entitled to receive, without payment therefor, i. Series A Stock or any shares of stock or other securities which are at any time directly or indirectly convertible into or exchangeable for Series A Stock, or any rights or options to subscribe for, purchase or otherwise acquire any of the foregoing by way of dividend or other distribution, ii. Series A Stock or additional stock or other securities or property (including cash) by way of spinoff, split-up, reclassification, combination of shares or similar corporate rearrangement, (other than shares of Series A Stock issued as a stock split, adjustments in respect of which shall be covered by the terms of Section 11(a) above), 5. then and in each such case, the holder hereof shall, upon the exercise of this Warrant, be entitled to receive, in addition to the number of shares of Series A Stock receivable thereupon, and without payment of any additional consideration therefor, the amount of stock and other securities and property (including cash in the cases referred to in clauses (i) and (ii) above) which such holder would hold on the date of such exercise had he been the holder of record of such Series A Stock as of the date on which holders of Series A Stock received or became entitled to receive such shares or all other additional stock and other securities and property. c. ACCELERATION OF EXERCISABILITY UPON SALE OF THE COMPANY. If, prior to the Eligibility Date, any Sale of the Company shall be effected, then notwithstanding Section 1, the exercisability of this Warrant shall be accelerated to a date ten (10) days prior to the closing of such Sale of the Company (the "MERGER ELIGIBILITY DATE"), and thereupon shall become exercisable with respect to (i) fifty percent percent (50%) of the shares purchasable hereunder where the Company, its affiliate, licensee or other transferee has not yet initiated the first animal study of a Product prior to the date of such accelerated exercise, or (ii) seventy-five percent (75%) where the Company, its affiliate, licensee or other transferee has initiated the first animal study of a Product prior to the date of such accelerated exercise, or (iii) eighty percent (80%) where the Company, its affiliate, licensee or other transferee has received written acceptance by the United States Food and Drug Administration of the Company's, its affiliate's, licensee's or other transferee's first Investigational New Drug application with respect to a Product prior to the date of such accelerated exercise. In each such case the Warrant shall be exercisable at a price equal to the lesser of (iv) the Purchase Price, or (v) Four and One-half Dollars ($4.50) per share. The Company shall provide notice of such Merger Eligibility Date pursuant to Section 14. This Warrant shall be cancelled with respect to that percentage of shares as to which exercisability is not accelerated under this Section 11(c). 12. EVENTS UPON AN IPO. a. If prior to the Eligibility Date the Company shall effect its first public offering of any equity securities of the Company (an "IPO") pursuant to a registration statement filed with, and declared effective by, the Securities and Exchange Commission pursuant to the Act, then notwithstanding Section 1, the exercisability of this Warrant shall be accelerated to the date of the closing of such IPO (the "IPO ELIGIBILITY DATE"), and this Warrant shall be exercisable with respect to the same amount of shares, and in the same manner, as is set forth in subsection 11(c) above with respect to a Sale of the Company, EXCEPT that the Warrant shall be exercisable at a purchase price equal to one hundred twenty-five percent (125%) of the price at which the Common Stock of the Company is to be sold in such IPO. The Company shall provide notice of the occurrence of such IPO Eligibility Date pursuant to Section 14. Such accelerated Warrant, and all rights to exercise such Warrant in whole or in part, shall immediately terminate at 5:00 p.m. (Pacific Time), on the fifth (5th) anniversary of the IPO Eligibility Date. Any occurrence of the product milestone event (i.e., the Eligibility Date) set forth in Section 1 following such IPO shall have no effect upon such an accelerated Warrant. 6. b. If subsequent to the Eligibility Date the Company shall effect an IPO, then this Warrant shall continue in full force and effect, and the holder hereof shall have the right to purchase and receive upon the exercise of this Warrant such shares of Series A Stock or Common Stock (assuming conversion of the Series A Stock prior to such IPO) as is set forth in Section 1, at the Purchase Price set forth in Section 3. 13. FRACTIONAL SHARES. No fractional share shall be issued upon exercise of this Warrant. The Company shall, in lieu of issuing any fractional share, pay the holder entitled to such fraction a sum in cash equal to the fair market value of such fraction on the date of exercise (as determined in good faith by the Board of Directors of the Company). 14. NOTICE OF CERTAIN ACTIONS. In the event of any reclassification or recapitalization of the capital stock of the Company, any Sale of the Company, any IPO, or any voluntary or involuntary dissolution, liquidation, or winding up of the Company, the Company shall mail to the holder of this Warrant at least fifteen (15) days prior to the record date specified therein, a notice specifying (a) the date on which any such record is to be taken for the purpose of such dividend or distribution and a description of such dividend or distribution, (b) the date on which any such reclassification, recapitalization, Sale of the Company, IPO, dissolution, liquidation, or winding up is expected to become effective, and (c) the time, if any, that is to be fixed, as to when the holders of record of Common Stock (or other securities) shall be entitled to exchange their shares of Common Stock (or other securities) for securities or other property deliverable upon such reclassification, recapitalization, Sale of the Company, IPO, dissolution, liquidation, or winding up; provided, however, that the Company shall not be required to provide any notice under this Section 14 unless and until the occurrence of the Eligibility Date, except where required pursuant to Section 11(c) and Section 12. 15. MISCELLANEOUS. This Warrant shall be governed by the laws of the State of California, as applied to contracts entered into between California residents and to be performed entirely within the State of California. The headings in this Warrant are for purposes of convenience and reference only, and shall not be deemed to constitute a part hereof. Neither this Warrant nor any term hereof may be changed, waived, discharged or terminated orally but only by an instrument in writing signed by the Company and the registered holder hereof. All notices and other communications from the Company to the holder of this Warrant shall be made by personal delivery (including confirmed telex or telecopy) or shall be mailed by first-class registered or certified mail, postage prepaid, to the address furnished to the Company in writing by the last holder of this Warrant who shall have furnished an address to the Company in writing. IN WITNESS WHEREOF the Company has caused this Warrant to be duly executed by its officers thereunto duly authorized this 23rd day of April, 1993. AVIRON 7. By ----------------------------- J. Leighton Read, M.D. Chief Executive Officer 8. EXHIBIT A FORM OF SUBSCRIPTION (To be signed only upon exercise of Warrant) To AVIRON: The undersigned, the holder of the within Warrant, hereby irrevocably elects to exercise the purchase right represented by such Warrant for, and to purchase thereunder, __________________ _____________________ (___________) shares of Series A Preferred Stock of AVIRON and herewith makes payment of ____ _______ _______________ DOLLARS ($__________) therefor, and requests the certificates for such shares be issued in the name of, and delivered __________ to, whose address is _________________________________________________________. The undersigned represents that it is acquiring such Series A Preferred Stock for its own account for investment and not with a view to or for sale in connection with any distribution thereof. DATED: ------------------ By: ----------------------------------------- Title: ------------------------------------- Address: ------------------------------------- --------------------------------------------- 1. SCHEDULE 1 PERMITTED TRANSFEREES Masayoshi Enami, Ph.D. Reinhard Vlasak, Ph.D. Thomas Muster, Ph.D. Jeffrey Parvin, Ph.D. Mark Krystal, Ph.D. Michael Bergmann, M.D. 2. 1. EX-4.5 6 WARRANT FOR SERIES A PREFERRED STOCK Warrant No. PW-2B THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE SECURITIES LAWS. SUCH SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES LAWS. AVIRON WARRANT TO PURCHASE SHARES OF SERIES A PREFERRED STOCK This certifies that MOUNT SINAI SCHOOL OF MEDICINE, ("MOUNT SINAI") for value received, is entitled to purchase from AVIRON, a California corporation (the "COMPANY"), having a principal place of business at 297 North Bernardo Avenue, Mountain View, California 94043, at any time after the Eligibility Date (as defined below) and prior to the Termination Date (as defined below), fifty- five thousand 55,000 shares fully paid and nonassessable shares of Series A Preferred Stock (the "SERIES A STOCK") of the Company at the Purchase Price (as defined below), subject to the provisions and upon the terms and conditions hereinafter set forth. 1. EXERCISABILITY. Until terminated pursuant to Section 2 below, and except as otherwise provided in Section 11(c) and Section 12, the purchase rights represented by this Warrant are exercisable at the option of the holder of record hereof, at any time or from time to time after the date of receipt by the Company of written acceptance by the United States Food and Drug Administration of the Company's, its affiliate's, licensee's or other transferee's first Investigational New Drug application with respect to a Product (as defined in that certain Technology Transfer Agreement between the Company and Mount Sinai dated February 9, 1993) (the "ELIGIBILITY DATE"), for all or any part of the Series A Stock (but not for a fraction of a share) which may be purchased hereunder. The Company shall deliver to the holder of this Warrant notice of the occurrence of any Eligibility Date within ten (10) days of such occurrence. 2. TERMINATION. Where the Eligibility Date has occurred, this Warrant, and all rights to exercise this Warrant in whole or in part, shall immediately terminate at the earlier of (a) 5:00 p.m. (Pacific Time), on the fifth (5th) anniversary of the Eligibility Date, or (b) 5:00 p.m. (Pacific Time), on the day preceding the closing of the Company's sale of all or substantially all of its assets or the acquisition of the Company by another entity by means of a merger or consolidation or sale of stock resulting in the exchange of more than fifty percent (50%) of the 1. outstanding shares of the Company for securities or consideration issued, or caused to be issued, by the acquiring entity (a "SALE OF THE COMPANY") (such earlier date herein referred to as the "TERMINATION DATE"). Where the Eligibility Date has not yet occurred and the events described in (b) above transpire, this Warrant shall terminate as provided above, except that the Eligibility Date shall be accelerated as provided in Section 11(c). 3. PURCHASE PRICE. Except as otherwise provided in Section 11(c) and Section 12, this Warrant shall be exercisable, on or after the Eligibility Date, at a price per share (the "PURCHASE PRICE") equal to (a) the price per share (the "PREFERRED SHARE PRICE") at which the most recent series of preferred stock of the Company (the "PREFERRED STOCK") was sold in the most recent offering of such Preferred Stock to investors of the Company prior to the Eligibility Date (it being understood that the sale or issuance of Preferred Stock pursuant to a transaction with a corporate partner at a price above or below that most recently paid for such Preferred Stock by the Company's investors shall not constitute such an "offering"), and, if such Preferred Stock was not Series A Stock, adjusted as provided below to reflect any difference in the terms of the dividends payable and paid on or the conversion rights of such Preferred Stock from the corresponding terms of the Series A Stock, or (b) if the common stock of the Company (the "COMMON STOCK") is traded on the public market on the date immediately prior to the Eligibility Date, the average of the closing prices of the Common Stock reported in the consolidated reporting system for the sixty (60) trading-day period ending on the trading day immediately prior to the Eligibility Date or such other shorter period in the event the Eligibility Date transpires prior to the Common Stock having been traded for such sixty (60) trading-day period. If, as of the Eligibility Date, each share of Preferred Stock is convertible into more or less than one share of Common Stock, or if any dividends have been paid on the Preferred Stock in additional shares of Preferred Stock or shares of Common Stock, then the Preferred Share Price shall be adjusted by dividing the Preferred Share Price by the number of shares of Common Stock into which each original share of Preferred Stock converts (after giving effect to any stock dividends). If, as of the Eligibility Date, the dividend terms of the Preferred Stock differ from those of the Series A Stock, the Preferred Share Price shall be adjusted as agreed upon by the Company and the holder of this Warrant, or if they fail to agree, by an investment banker mutually acceptable to the Company and the holder (the fees of the investment banker to be shared by the Company and Mount Sinai; provided, however, that Mount Sinai shall not be required to remit its portion of such fees to the Company until the exercise of this Warrant). 4. RESERVATION OF PREFERRED STOCK. The Company shall at all times reserve and keep available out of its authorized but unissued shares of Preferred Stock and Common Stock, solely for the purpose of effecting the exercise of this Warrant, such number of its shares of Series A Stock (and Common Stock upon conversion of the Series A Stock) as shall from time to time be sufficient to effect the exercise of the Warrants and the conversion of the Series A Stock to Common Stock. 5. NO SHAREHOLDER RIGHTS. Except as expressly provided herein, nothing contained in this Warrant shall be construed as conferring upon the holder hereof or any other 2. person the right to vote or to consent or to receive notice as a stockholder in respect of meetings of stockholders for the election of directors of the Company or any other matter or any rights whatsoever as a stockholder of the Company; and no dividends or interest shall be payable or accrued in respect of this Warrant or the interest represented hereby or the shares purchasable hereunder until, and only to the extent that, this Warrant shall have been exercised. 6. METHOD OF EXERCISE; PAYMENT; ISSUANCE OF NEW WARRANT. Subject to Section 2 hereof, the purchase right represented by this Warrant may be exercised by the holder hereof, in whole or in part, by the surrender of this Warrant (with a duly executed notice of exercise in the form attached hereto as Exhibit A) at the principal office of the Company and by the payment to the Company, by check or wire transfer, of an amount equal to the then applicable Purchase Price per share multiplied by the number of shares then being purchased. In the event of any exercise of the rights represented by this Warrant, certificates for the shares of stock so purchased shall be in the name of, and delivered to, the holder hereof, or as such holder may direct (subject to the restrictions upon transfer contained herein and upon payment by such holder hereof of any applicable transfer taxes). Such delivery shall be made within ten (10) business days after exercise of the Warrant and at the Company's expense and, unless this Warrant has been fully exercised or has expired, a new Warrant representing the number of shares of Series A Stock, if any, with respect to which this Warrant shall not then have been exercised shall also be issued to the holder hereof within ten (10) business days after exercise of the Warrant. 7. EXCHANGE OF WARRANT FOR OTHER WARRANTS. This Warrant, with or without similar Warrants, when surrendered properly endorsed at the principal offices of the Company may be exchanged for another Warrant or Warrants of different denominations, of like tenor and representing in the aggregate the right to purchase a like number of shares of Series A Stock of the Company; provided, however, that the Company's obligations under this Section 7 shall be subject to and conditioned upon the compliance of any such subdivision with applicable state securities laws and with the Securities Act of 1933, as amended (the "ACT"). 8. CERTAIN RESTRICTIONS. a. RESTRICTIONS ON TRANSFERABILITY. The Warrant and the Series A Stock (or such other securities at the time receivable upon exercise of this Warrant) shall not be transferable except upon the conditions specified in this Section 8, which conditions are intended to insure compliance with the provisions of the Act and to assist in an orderly distribution. Each holder of this Warrant or the Series A Stock issuable hereunder will cause any proposed transferee of the Warrant or Series A Stock to agree to take and hold such securities subject to the provisions and upon the conditions specified in this Section 8. b. RESTRICTIVE LEGENDS. Each certificate representing (a) this Warrant, (b) the Series A Stock and (c) any other securities issued in respect of the Series A Stock upon any stock split, stock dividend, recapitalization, merger, consolidation or similar event, shall (unless otherwise permitted by the provisions of Section 8.c or Section 9 below or unless such securities have been registered under the Act or sold under Rule 144) be stamped or otherwise imprinted 3. with legends substantially in the following form (in addition to any legend required under applicable state securities laws): THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE SECURITIES LAWS. SUCH SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES LAWS. COPIES OF THE WARRANT DATED DECEMBER 1, 1994, _____ WHICH CONTAINS RESTRICTIONS APPLICABLE TO THESE SECURITIES, MAY BE OBTAINED AT NO COST BY WRITTEN REQUEST MADE BY THE HOLDER OF RECORD OF THE CERTIFICATE TO THE SECRETARY OF THE CORPORATION. THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A RIGHT OF FIRST REFUSAL OPTION IN FAVOR OF THE CORPORATION AND/OR ITS ASSIGNEE(S), AS PROVIDED IN THE BYLAWS OF THE CORPORATION. In addition, the certificates shall bear all legends required pursuant to state securities and blue sky laws. c. RESTRICTIONS ON TRANSFER. The holder of this Warrant and each person to whom this Warrant is subsequently transferred represents and warrants to the Company (by acceptance of such transfer) that it will not transfer the Warrant (or securities issuable upon exercise hereof unless a registration statement under the Act was in effect with respect to such securities at the time of issuance thereof) except pursuant to (a) an effective registration statement under the Act, (b) Rule 144 under the Act (or any other rule under the Act relating to the disposition of securities), or (c) an opinion of counsel, reasonably satisfactory to counsel for the Company, that an exemption from such registration is available. 9. WARRANTS TRANSFERABLE. Subject to the provisions of Section 8, this Warrant and all rights hereunder are transferable, in whole or in part, without charge to the holder hereof (except for transfer taxes), upon surrender of this Warrant properly endorsed; provided, however, that the Company's Bylaws provide for a right of first refusal in favor of the Company with respect to all sales, assignments, pledges or transfers of shares of stock of the Company or any interest therein. The Company agrees, however, that transfers of this Warrant to any person or entity listed on Schedule 1 (the "Permitted Transferees") hereto shall not be subject to such right of first refusal and hereby waives any such rights with respect thereto, provided that any subsequent transfer by any of the Permitted Transferees shall nonetheless be subject to such right of first refusal. Each permitted taker and holder of this Warrant, by taking or holding the same, consents and agrees that this Warrant, when endorsed in blank, shall be deemed negotiable, and that the holder hereof, when this Warrant shall have been so endorsed, may be treated by the Company and all other persons dealing with this Warrant as the absolute owner hereof for any purpose and as the person entitled to exercise the rights represented by this Warrant, or to the transfer hereof on the books of the Company any notice to the contrary notwithstanding; but until 4. such transfer on such books, the Company may treat the registered owner hereof as the owner for all purposes. 10. RIGHTS AND OBLIGATIONS SURVIVE EXERCISE OF WARRANT. The rights and obligations of the Company, of the holder of this Warrant and of the holder of shares of Common Stock issued upon exercise of this Warrant, contained in Sections 8 and 9 shall survive the exercise of this Warrant. 11. ADJUSTMENT FOR CHANGES IN SERIES A STOCK. The Purchase Price and the number of shares purchasable upon the exercise of this Warrant, as well as the date of exercisability of this Warrant, shall be subject to adjustment from time to time upon the occurrence of certain events described in this Section 11. Upon each adjustment of the Purchase Price, the holder of this Warrant shall thereafter be entitled to purchase, at the Purchase Price resulting from such adjustment, the number of shares obtained by multiplying the Purchase Price in effect immediately prior to such adjustment by the number of shares purchasable pursuant hereto immediately prior to such adjustment, and dividing the product thereof by the Purchase Price resulting from such adjustment. a. SUBDIVISION OR COMBINATION OF STOCK. Should the Company at any time subdivide its outstanding shares of Series A Stock into a greater number of shares, the Purchase Price then in effect immediately prior to such subdivision shall be proportionately reduced, and conversely, in case the outstanding shares of Series A Stock shall be combined into a smaller number of shares, the Purchase Price then in effect immediately prior to such combination shall be proportionately increased. b. DIVIDENDS IN SERIES A STOCK, OTHER STOCK, PROPERTY, RECLASSIFICATION. If at any time or from time to time the holders of Series A Stock (or any shares of stock or other securities at the time receivable upon the exercise of this Warrant) shall have received or become entitled to receive, without payment therefor, i. Series A Stock or any shares of stock or other securities which are at any time directly or indirectly convertible into or exchangeable for Series A Stock, or any rights or options to subscribe for, purchase or otherwise acquire any of the foregoing by way of dividend or other distribution, ii. Series A Stock or additional stock or other securities or property (including cash) by way of spinoff, split-up, reclassification, combination of shares or similar corporate rearrangement, (other than shares of Series A Stock issued as a stock split, adjustments in respect of which shall be covered by the terms of Section 11(a) above), then and in each such case, the holder hereof shall, upon the exercise of this Warrant, be entitled to receive, in addition to the number of shares of Series A Stock receivable thereupon, and without payment of any additional consideration therefor, the amount of stock and other securities and property (including cash in the cases referred to in clauses (i) and (ii) above) which such 5. holder would hold on the date of such exercise had he been the holder of record of such Series A Stock as of the date on which holders of Series A Stock received or became entitled to receive such shares or all other additional stock and other securities and property. c. ACCELERATION OF EXERCISABILITY UPON SALE OF THE COMPANY. If, prior to the Eligibility Date, any Sale of the Company shall be effected, then notwithstanding Section 1, the exercisability of this Warrant shall be accelerated to a date ten (10) days prior to the closing of such Sale of the Company (the "MERGER ELIGIBILITY DATE"), at a price equal to the lesser of (i) the Purchase Price or (ii) $3.00 per share. The Company shall provide notice of such Merger Eligibility Date pursuant to Section 14. 12. EVENTS UPON AN IPO. a. If prior to the Eligibility Date the Company shall effect its first public offering of any equity securities of the Company (an "IPO") pursuant to a registration statement filed with, and declared effective by, the Securities and Exchange Commission pursuant to the Act, then notwithstanding Section 1, the exercisability of this Warrant shall be accelerated to the date of the closing of such IPO (the "IPO ELIGIBILITY DATE"), and this Warrant shall be exercisable with respect to the same amount of shares, and in the same manner, as is set forth in subsection 11(c) above with respect to a Sale of the Company, except that the Warrant shall be exercisable at a purchase price equal to one hundred twenty-five percent (125%) of the price at which the Common Stock of the Company is to be sold in such IPO. The Company shall provide notice of the occurrence of such IPO Eligibility Date pursuant to Section 14. Such accelerated Warrant, and all rights to exercise such Warrant in whole or in part, shall immediately terminate at 5:00 p.m. (Pacific Time), on the fifth (5th) anniversary of the IPO Eligibility Date. Any occurrence of the product milestone event (i.e., the Eligibility Date) set forth in Section 1 following such IPO shall have no effect upon such an accelerated Warrant. b. If subsequent to the Eligibility Date the Company shall effect an IPO, then this Warrant shall continue in full force and effect, and the holder hereof shall have the right to purchase and receive upon the exercise of this Warrant such shares of Series A Stock or Common Stock (assuming conversion of the Series A Stock prior to such IPO) as is set forth in Section 1, at the Purchase Price set forth in Section 3. 13. FRACTIONAL SHARES. No fractional share shall be issued upon exercise of this Warrant. The Company shall, in lieu of issuing any fractional share, pay the holder entitled to such fraction a sum in cash equal to the fair market value of such fraction on the date of exercise (as determined in good faith by the Board of Directors of the Company). 14. NOTICE OF CERTAIN ACTIONS. In the event of any reclassification or recapitalization of the capital stock of the Company, any Sale of the Company, any IPO, or any voluntary or involuntary dissolution, liquidation, or winding up of the Company, the Company shall mail to the holder of this Warrant at least fifteen (15) days prior to the record date specified therein, a notice specifying (a) the date on which any such record is to be taken for the purpose 6. of such dividend or distribution and a description of such dividend or distribution, (b) the date on which any such reclassification, recapitalization, Sale of the Company, IPO, dissolution, liquidation, or winding up is expected to become effective, and (c) the time, if any, that is to be fixed, as to when the holders of record of Common Stock (or other securities) shall be entitled to exchange their shares of Common Stock (or other securities) for securities or other property deliverable upon such reclassification, recapitalization, Sale of the Company, IPO, dissolution, liquidation, or winding up; provided, however, that the Company shall not be required to provide any notice under this Section 14 unless and until the occurrence of the Eligibility Date, except where required pursuant to Section 11(c) and Section 12. 15. MISCELLANEOUS. This Warrant shall be governed by the laws of the State of California, as applied to contracts entered into between California residents and to be performed entirely within the State of California. The headings in this Warrant are for purposes of convenience and reference only, and shall not be deemed to constitute a part hereof. Neither this Warrant nor any term hereof may be changed, waived, discharged or terminated orally but only by an instrument in writing signed by the Company and the registered holder hereof. All notices and other communications from the Company to the holder of this Warrant shall be made by personal delivery (including confirmed telex or telecopy) or shall be mailed by first-class registered or certified mail, postage prepaid, to the address furnished to the Company in writing by the last holder of this Warrant who shall have furnished an address to the Company in writing. IN WITNESS WHEREOF the Company has caused this Warrant to be duly executed by its officers thereunto duly authorized this ___ day of ___________, 1996. AVIRON By ------------------------------------ J. Leighton Read, M.D. Chairman and Chief Executive Officer 7. EXHIBIT A FORM OF SUBSCRIPTION (To be signed only upon exercise of Warrant) To Aviron: The undersigned, the holder of the within Warrant, hereby irrevocably elects to exercise the purchase right represented by such Warrant for, and to purchase thereunder, __________________ _____________________ (___________) shares of Series A Preferred Stock of Aviron and herewith makes payment of ____________ _______________ DOLLARS ($__________) therefor, and requests the certificates for such shares be issued in the name of, and delivered ____________________ to, whose address is . The undersigned represents that it is acquiring such Series A Preferred Stock for its own account for investment and not with a view to or for sale in connection with any distribution thereof. DATED: ----------------- By: ----------------------------------- Title: -------------------------------- Address: ------------------------------ -------------------------------------- 1. SCHEDULE 1 PERMITTED TRANSFEREES Masayoshi Enami, Ph.D. Reinhard Vlasak, Ph.D. Thomas Muster, Ph.D. Jeffrey Parvin, Ph.D. Mark Krystal, Ph.D. Michael Bergmann, M.D. 2. EX-4.6 7 WARRANT FOR SERIES A PREFERRED STOCK Warrant No. PW-2A THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE SECURITIES LAWS. SUCH SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES LAWS. AVIRON WARRANT TO PURCHASE SHARES OF SERIES A PREFERRED STOCK This certifies that MOUNT SINAI SCHOOL OF MEDICINE, ("MOUNT SINAI") for value received, is entitled to purchase from AVIRON, a California corporation (the "COMPANY"), having a principal place of business at 297 North Bernardo Avenue, Mountain View, California 94043, at any time after the Eligibility Date (as defined below) and prior to the Termination Date (as defined below), twenty thousand 20,000 shares fully paid and nonassessable shares of Series A Preferred Stock (the "SERIES A STOCK") of the Company at the Purchase Price (as defined below), subject to the provisions and upon the terms and conditions hereinafter set forth. 1. EXERCISABILITY. Until terminated pursuant to Section 2 below, and except as otherwise provided in Section 12, the purchase rights represented by this Warrant are exercisable at the option of the holder of record hereof, at any time or from time to time after May 1, 1995 (the "ELIGIBILITY DATE"), for all or any part of the Series A Stock (but not for a fraction of a share) which may be purchased hereunder. 2. TERMINATION. This Warrant, and all rights to exercise this Warrant in whole or in part, shall immediately terminate at the earlier of (a) 5:00 p.m. (Pacific Time), on May 1, 2000, or (b) 5:00 p.m. (Pacific Time), on the day preceding the closing of the Company's sale of all or substantially all of its assets or the acquisition of the Company by another entity by means of a merger or consolidation or sale of stock resulting in the exchange of more than fifty percent (50%) of the outstanding shares of the Company for securities or consideration issued, or caused to be issued, by the acquiring entity (a "SALE OF THE COMPANY") (such earlier date herein referred to as the "TERMINATION DATE"). 3. PURCHASE PRICE. Except as otherwise provided in Section 12, this Warrant shall be exercisable, on or after the Eligibility Date, at $0.90 per share (the "PURCHASE PRICE"). 1. 4. RESERVATION OF PREFERRED STOCK. The Company shall at all times reserve and keep available out of its authorized but unissued shares of Preferred Stock and Common Stock, solely for the purpose of effecting the exercise of this Warrant, such number of its shares of Series A Stock (and Common Stock upon conversion of the Series A Stock) as shall from time to time be sufficient to effect the exercise of the Warrants and the conversion of the Series A Stock to Common Stock. 5. NO SHAREHOLDER RIGHTS. Except as expressly provided herein, nothing contained in this Warrant shall be construed as conferring upon the holder hereof or any other person the right to vote or to consent or to receive notice as a stockholder in respect of meetings of stockholders for the election of directors of the Company or any other matter or any rights whatsoever as a stockholder of the Company; and no dividends or interest shall be payable or accrued in respect of this Warrant or the interest represented hereby or the shares purchasable hereunder until, and only to the extent that, this Warrant shall have been exercised. 6. METHOD OF EXERCISE; PAYMENT; ISSUANCE OF NEW WARRANT. Subject to Section 2 hereof, the purchase right represented by this Warrant may be exercised by the holder hereof, in whole or in part, by the surrender of this Warrant (with a duly executed notice of exercise in the form attached hereto as Exhibit A) at the principal office of the Company and by the payment to the Company, by check or wire transfer, of an amount equal to the then applicable Purchase Price per share multiplied by the number of shares then being purchased. In the event of any exercise of the rights represented by this Warrant, certificates for the shares of stock so purchased shall be in the name of, and delivered to, the holder hereof, or as such holder may direct (subject to the restrictions upon transfer contained herein and upon payment by such holder hereof of any applicable transfer taxes). Such delivery shall be made within ten (10) business days after exercise of the Warrant and at the Company's expense and, unless this Warrant has been fully exercised or has expired, a new Warrant representing the number of shares of Series A Stock, if any, with respect to which this Warrant shall not then have been exercised shall also be issued to the holder hereof within ten (10) business days after exercise of the Warrant. 7. EXCHANGE OF WARRANT FOR OTHER WARRANTS. This Warrant, with or without similar Warrants, when surrendered properly endorsed at the principal offices of the Company may be exchanged for another Warrant or Warrants of different denominations, of like tenor and representing in the aggregate the right to purchase a like number of shares of Series A Stock of the Company; provided, however, that the Company's obligations under this Section 7 shall be subject to and conditioned upon the compliance of any such subdivision with applicable state securities laws and with the Securities Act of 1933, as amended (the "ACT"). 8. CERTAIN RESTRICTIONS. a. RESTRICTIONS ON TRANSFERABILITY. The Warrant and the Series A Stock (or such other securities at the time receivable upon exercise of this Warrant) shall not be transferable except upon the conditions specified in this Section 8, which conditions are intended to insure compliance with the provisions of the Act and to assist in an orderly distribution. Each holder 2. of this Warrant or the Series A Stock issuable hereunder will cause any proposed transferee of the Warrant or Series A Stock to agree to take and hold such securities subject to the provisions and upon the conditions specified in this Section 8. b. RESTRICTIVE LEGENDS. Each certificate representing (a) this Warrant, (b) the Series A Stock and (c) any other securities issued in respect of the Series A Stock upon any stock split, stock dividend, recapitalization, merger, consolidation or similar event, shall (unless otherwise permitted by the provisions of Section 8.c or Section 9 below or unless such securities have been registered under the Act or sold under Rule 144) be stamped or otherwise imprinted with legends substantially in the following form (in addition to any legend required under applicable state securities laws): THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE SECURITIES LAWS. SUCH SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES LAWS. COPIES OF THE WARRANT DATED DECEMBER 1, 1994 WHICH CONTAINS RESTRICTIONS APPLICABLE TO THESE SECURITIES, MAY BE OBTAINED AT NO COST BY WRITTEN REQUEST MADE BY THE HOLDER OF RECORD OF THE CERTIFICATE TO THE SECRETARY OF THE CORPORATION. THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A RIGHT OF FIRST REFUSAL OPTION IN FAVOR OF THE CORPORATION AND/OR ITS ASSIGNEE(S), AS PROVIDED IN THE BYLAWS OF THE CORPORATION. In addition, the certificates shall bear all legends required pursuant to state securities and blue sky laws. c. RESTRICTIONS ON TRANSFER. The holder of this Warrant and each person to whom this Warrant is subsequently transferred represents and warrants to the Company (by acceptance of such transfer) that it will not transfer the Warrant (or securities issuable upon exercise hereof unless a registration statement under the Act was in effect with respect to such securities at the time of issuance thereof) except pursuant to (a) an effective registration statement under the Act, (b) Rule 144 under the Act (or any other rule under the Act relating to the disposition of securities), or (c) an opinion of counsel, reasonably satisfactory to counsel for the Company, that an exemption from such registration is available. 9. WARRANTS TRANSFERABLE. Subject to the provisions of Section 8, this Warrant and all rights hereunder are transferable, in whole or in part, without charge to the holder hereof (except for transfer taxes), upon surrender of this Warrant properly endorsed; provided, however, that the Company's Bylaws provide for a right of first refusal in favor of the Company with respect to all sales, assignments, pledges or transfers of shares of stock of the Company or any interest therein. The Company agrees, however, that transfers of this Warrant to any person or 3. entity listed on Schedule 1 (the "Permitted Transferees") hereto shall not be subject to such right of first refusal and hereby waives any such rights with respect thereto, provided that any subsequent transfer by any of the Permitted Transferees shall nonetheless be subject to such right of first refusal. Each permitted taker and holder of this Warrant, by taking or holding the same, consents and agrees that this Warrant, when endorsed in blank, shall be deemed negotiable, and that the holder hereof, when this Warrant shall have been so endorsed, may be treated by the Company and all other persons dealing with this Warrant as the absolute owner hereof for any purpose and as the person entitled to exercise the rights represented by this Warrant, or to the transfer hereof on the books of the Company any notice to the contrary notwithstanding; but until such transfer on such books, the Company may treat the registered owner hereof as the owner for all purposes. 10. RIGHTS AND OBLIGATIONS SURVIVE EXERCISE OF WARRANT. The rights and obligations of the Company, of the holder of this Warrant and of the holder of shares of Common Stock issued upon exercise of this Warrant, contained in Sections 8 and 9 shall survive the exercise of this Warrant. 11. ADJUSTMENT FOR CHANGES IN SERIES A STOCK. The Purchase Price and the number of shares purchasable upon the exercise of this Warrant, as well as the date of exercisability of this Warrant, shall be subject to adjustment from time to time upon the occurrence of certain events described in this Section 11. Upon each adjustment of the Purchase Price, the holder of this Warrant shall thereafter be entitled to purchase, at the Purchase Price resulting from such adjustment, the number of shares obtained by multiplying the Purchase Price in effect immediately prior to such adjustment by the number of shares purchasable pursuant hereto immediately prior to such adjustment, and dividing the product thereof by the Purchase Price resulting from such adjustment. a. SUBDIVISION OR COMBINATION OF STOCK. Should the Company at any time subdivide its outstanding shares of Series A Stock into a greater number of shares, the Purchase Price then in effect immediately prior to such subdivision shall be proportionately reduced, and conversely, in case the outstanding shares of Series A Stock shall be combined into a smaller number of shares, the Purchase Price then in effect immediately prior to such combination shall be proportionately increased. b. DIVIDENDS IN SERIES A STOCK, OTHER STOCK, PROPERTY, RECLASSIFICATION. If at any time or from time to time the holders of Series A Stock (or any shares of stock or other securities at the time receivable upon the exercise of this Warrant) shall have received or become entitled to receive, without payment therefor, i. Series A Stock or any shares of stock or other securities which are at any time directly or indirectly convertible into or exchangeable for Series A Stock, or any rights or options to subscribe for, purchase or otherwise acquire any of the foregoing by way of dividend or other distribution, 4. ii. Series A Stock or additional stock or other securities or property (including cash) by way of spinoff, split-up, reclassification, combination of shares or similar corporate rearrangement, (other than shares of Series A Stock issued as a stock split, adjustments in respect of which shall be covered by the terms of Section 11(a) above), then and in each such case, the holder hereof shall, upon the exercise of this Warrant, be entitled to receive, in addition to the number of shares of Series A Stock receivable thereupon, and without payment of any additional consideration therefor, the amount of stock and other securities and property (including cash in the cases referred to in clauses (i) and (ii) above) which such holder would hold on the date of such exercise had he been the holder of record of such Series A Stock as of the date on which holders of Series A Stock received or became entitled to receive such shares or all other additional stock and other securities and property. 12. EVENTS UPON AN IPO. If the Company shall effect an IPO, then this Warrant shall continue in full force and effect, and the holder hereof shall have the right to purchase and receive upon the exercise of this Warrant such shares of Series A Stock or Common Stock (assuming conversion of the Series A Stock prior to such IPO) as is set forth in Section 1, at the Purchase Price set forth in Section 3. 13. FRACTIONAL SHARES. No fractional share shall be issued upon exercise of this Warrant. The Company shall, in lieu of issuing any fractional share, pay the holder entitled to such fraction a sum in cash equal to the fair market value of such fraction on the date of exercise (as determined in good faith by the Board of Directors of the Company). 14. NOTICE OF CERTAIN ACTIONS. In the event of any reclassification or recapitalization of the capital stock of the Company, any Sale of the Company, any IPO, or any voluntary or involuntary dissolution, liquidation, or winding up of the Company, the Company shall mail to the holder of this Warrant at least fifteen (15) days prior to the record date specified therein, a notice specifying (a) the date on which any such record is to be taken for the purpose of such dividend or distribution and a description of such dividend or distribution, (b) the date on which any such reclassification, recapitalization, Sale of the Company, IPO, dissolution, liquidation, or winding up is expected to become effective, and (c) the time, if any, that is to be fixed, as to when the holders of record of Common Stock (or other securities) shall be entitled to exchange their shares of Common Stock (or other securities) for securities or other property deliverable upon such reclassification, recapitalization, Sale of the Company, IPO, dissolution, liquidation, or winding up. 15. MISCELLANEOUS. This Warrant shall be governed by the laws of the State of California, as applied to contracts entered into between California residents and to be performed entirely within the State of California. The headings in this Warrant are for purposes of convenience and reference only, and shall not be deemed to constitute a part hereof. Neither this Warrant nor any term hereof may be changed, waived, discharged or terminated orally but only by an instrument in writing signed by the Company and the registered holder hereof. All notices and other communications from the Company to the holder of this Warrant shall be made by 5. personal delivery (including confirmed telex or telecopy) or shall be mailed by first-class registered or certified mail, postage prepaid, to the address furnished to the Company in writing by the last holder of this Warrant who shall have furnished an address to the Company in writing. IN WITNESS WHEREOF the Company has caused this Warrant to be duly executed by its officers thereunto duly authorized this ___ day of ___________, 1996. AVIRON By ----------------------------------------- J. Leighton Read, M.D. Chairman and Chief Executive Officer 6. EXHIBIT A FORM OF SUBSCRIPTION (To be signed only upon exercise of Warrant) To Aviron: The undersigned, the holder of the within Warrant, hereby irrevocably elects to exercise the purchase right represented by such Warrant for, and to purchase thereunder, __________________ _____________________ (___________) shares of Series A Preferred Stock of Aviron and herewith makes payment of ____________ _______________ DOLLARS ($__________) therefor, and requests the certificates for such shares be issued in the name of, and delivered ____________________ to, whose address is ____________________________________. The undersigned represents that it is acquiring such Series A Preferred Stock for its own account for investment and not with a view to or for sale in connection with any distribution thereof. DATED: ------------------ By: ---------------------------------------- Title: ------------------------------------- Address: ----------------------------------- ------------------------------------------- 1. SCHEDULE 1 PERMITTED TRANSFEREES Masayoshi Enami, Ph.D. Reinhard Vlasak, Ph.D. Thomas Muster, Ph.D. Jeffrey Parvin, Ph.D. Mark Krystal, Ph.D. Michael Bergmann, M.D. 2. EX-4.7 8 WARRANT FOR SERIES C PREFERRED STOCK No. PCW-1 THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). THIS WARRANT WILL BE ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR FOR RESALE IN CONNECTION WITH, ANY DISTRIBUTION THEREOF. NO SUCH SALE OR OTHER DISTRIBUTION MAY BE MADE WITHOUT AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT AND QUALIFICATION UNDER ANY APPLICABLE STATE SECURITIES LAW RELATED THERETO OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY, AND ITS COUNSEL, THAT SAID REGISTRATION AND QUALIFICATION ARE NOT REQUIRED UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES LAW, RESPECTIVELY. WARRANT TO PURCHASE SERIES C PREFERRED STOCK OF AVIRON (Void after November 9, 2000) WHEREAS, Raymond James & Associates, Inc. (the "Holder") has acted as placement agent in the sale of 7,050,714 shares of the Series C Preferred Stock of Aviron, a California corporation (the "Company"), having a place of business at 297 North Bernardo Avenue, Mountain View, California 94043, pursuant to a Placement Agent Agreement dated July 17, 1995 (the "Placement Agreement"); and WHEREAS, the parties intend to grant the Holder a right to purchase equity securities of the Company in proportion to the number of shares sold; NOW, THEREFORE, it is agreed as follows: 1. GRANT OF RIGHT. This certifies that the Holder, or assigns, for value received, is entitled to purchase at the Stock Purchase Price (as defined below) from the Company Three Hundred Fifty-Two Thousand, Five Hundred Thirty-Six (352,536) fully paid and nonassessable shares of the Company's Series C Preferred Stock ("Series C Stock") at an exercise price of One Dollar and Sixty- Two Cents ($1.62) (the "Stock Purchase Price"), at any time from the date hereof, up to and including 5:00 p.m. (Pacific time) on November 9, 2000, such day being referred to herein as the "Expiration Date," upon surrender to the Company at its principal office (or at such other location as the Company may advise the Holder in writing) of this Warrant properly endorsed with the Form of Subscription attached hereto duly filled in and signed and, if applicable, upon payment in cash or by check of the aggregate Stock Purchase Price for the number of shares for which this Warrant is being exercised determined in accordance with the provisions hereof. The Stock Purchase Price and the number of shares purchasable hereunder are subject to adjustment as provided in Section 4 of this Warrant. 2. EXERCISE; ISSUANCE OF CERTIFICATES; PAYMENT FOR SHARES. 2.1 GENERAL. This Warrant is exercisable at the option of the holder of record hereof, at any time or from time to time up to the Expiration Date, for all or any part of the shares (but not for a fraction of a share) of Series C Stock, or Common Stock issuable upon conversion of Series C Stock, which may be purchased hereunder (the "Exercise Stock"). The Company agrees that the shares of Exercise Stock purchased under this Warrant shall be and are deemed to be issued to the Holder hereof as the record owner of such shares as of the close of business on the date on which this Warrant shall have been surrendered, properly endorsed, the completed, executed Subscription Form delivered and payment made for such shares. Certificates for the shares of Exercise Stock so purchased, together with any other securities or property to which the Holder hereof is entitled upon such exercise, shall be delivered to the Holder hereof by the Company at the Company's expense within a reasonable time after the rights represented by this Warrant have been so exercised. In case of a purchase of less than all the shares which may be purchased under this Warrant, the Company shall cancel this Warrant and execute and deliver a new Warrant or Warrants of like tenor for the balance of the shares purchasable under the Warrant surrendered upon such purchase to the Holder hereof within a reasonable time. Each stock certificate so delivered shall be in such denominations of Exercise Stock as may be requested by the Holder hereof and shall be registered in the name of such Holder. 2.2 NET ISSUE EXERCISE. Notwithstanding any provisions herein to the contrary, if the fair market value of one share of the Company's Exercise Stock is greater than the Stock Purchase Price (at the date of calculation as set forth below), in lieu of exercising this Warrant for cash, the Holder may elect to receive shares equal to the value (as determined below) of this Warrant (or the portion thereof being canceled) by surrender of this Warrant at the principal office of the Company together with the properly endorsed Form of Subscription and notice of such election, in which event the Company shall issue to the Holder a number of shares of Exercise Stock computed using the following formula: X = Y (A-B) ------- A Where X = the number of shares of Exercise Stock to be issued to the Holder Y = the number of shares of Exercise Stock purchasable under the Warrant or, if only a portion of the Warrant is being exercised, the portion of the Warrant being canceled (at the date of such calculation) A = the fair market value of one share of the Company's Exercise Stock (at the date of such calculation) B = Stock Purchase Price (as adjusted to the date of such calculation) 2. For purposes of the above calculation, fair market value of one share of Preferred Stock shall be determined by the Company's Board of Directors in good faith; provided, however, that in the event the Company makes an initial public offering of its Common Stock and (i) if the Exercise Stock is Common Stock, the fair market value per share shall be the Current Market Price of the Company's Common Stock on the date of exercise (the "Common Stock Price") or (ii) if the Exercise Stock is Preferred Stock, the product of (x) the Common Stock Price, and (x) the number of shares of Common Stock into which each share of Preferred Stock is convertible at the time of such exercise. For purposes of this Warrant, the "Current Market Price" of a share of Common Stock is the last reported sales price of the Common Stock as reported by the Nasdaq National Market, or the primary national securities exchange on which the Common Stock is then quoted, on the last trading day prior to the exercise date; PROVIDED, HOWEVER, that if the Common Stock is neither traded on the Nasdaq National Market nor on a national securities exchange, the price referred to above shall be the price reflected in the over-the-counter market as reported by the National Quotation Bureau, Inc. or any organization performing a similar function, and if the Common Stock is not so reported, the Current Market Price shall be determined by the Company's Board of Directors. 3. SHARES TO BE FULLY PAID; RESERVATION OF SHARES. The Company covenants and agrees that all shares of Exercise Stock which may be issued upon the exercise of the rights represented by this Warrant will, upon issuance, be duly authorized, validly issued, fully paid and nonassessable and free from all preemptive rights of any shareholder and free of all taxes, liens and charges with respect to the issue thereof. The Company further covenants and agrees that, during the period within which the rights represented by this Warrant may be exercised, the Company will at all times have authorized and reserved, for the purpose of issue or transfer upon exercise of the subscription rights evidenced by this Warrant, a sufficient number of shares of authorized but unissued Exercise Stock, or other securities and property, when and as required to provide for the exercise of the rights represented by this Warrant and the conversion of the Exercise Stock. The Company will take all such action as may be necessary to assure that such shares of Exercise Stock may be issued as provided herein without violation of any applicable law or regulation, or of any requirements of any domestic securities exchange upon which the Exercise Stock may be listed; provided, however, that the Company shall not be required to effect a registration under Federal or State securities laws with respect to such exercise. The Company will not take any action which would result in any adjustment of the Stock Purchase Price (as defined in Section 4 hereof) (i) if the total number of shares of Exercise Stock issuable after such action upon exercise of all outstanding warrants, together with all shares of Exercise Stock then outstanding and all shares of Exercise Stock then issuable upon exercise of all options and upon the conversion of all convertible securities then outstanding, would exceed the total number of shares of Exercise Stock then authorized by the Company's Articles of Incorporation, or (ii) if the total number of shares of Common Stock issuable after such action upon the conversion of all such shares of Exercise Stock, together with all shares of Common Stock then issuable upon exercise of all options and upon the conversion of all such shares of Exercise Stock, together with all shares of Common Stock then outstanding and all shares of Common Stock then issuable upon exercise of all options 3. and upon the conversion of all convertible securities then outstanding would exceed the total number of shares of Common Stock then authorized by the Company's Articles of Incorporation. 4. ADJUSTMENT OF STOCK PURCHASE PRICE AND NUMBER OF SHARES. The Stock Purchase Price and the number of shares purchasable upon the exercise of this Warrant shall be subject to adjustment from time to time upon the occurrence of certain events described in this Section 4. Upon each adjustment of the Stock Purchase Price, the Holder of this Warrant shall thereafter be entitled to purchase, at the Stock Purchase Price resulting from such adjustment, the number of shares obtained by multiplying the Stock Purchase Price in effect immediately prior to such adjustment by the number of shares purchasable pursuant hereto immediately prior to such adjustment, and dividing the product thereof by the Stock Purchase Price resulting from such adjustment. 4.1 SUBDIVISION OR COMBINATION OF STOCK. In case the Company shall at any time subdivide its outstanding shares of Exercise Stock into a greater number of shares, the Stock Purchase Price in effect immediately prior to such subdivision shall be proportionately reduced, and conversely, in case the outstanding shares of Exercise Stock of the Company shall be combined into a smaller number of shares, the Stock Purchase Price in effect immediately prior to such combination shall be proportionately increased. 4.2 DIVIDENDS IN PREFERRED STOCK, OTHER STOCK, PROPERTY, RECLASSIFICATION. If at any time or from time to time the Holders of Exercise Stock (or any shares of stock or other securities at the time receivable upon the exercise of this Warrant) shall have received or become entitled to receive, without payment therefor, (A) Exercise Stock or any shares of stock or other securities which are at any time directly or indirectly convertible into or exchangeable for Exercise Stock, or any rights or options to subscribe for, purchase or otherwise acquire any of the foregoing by way of dividend or other distribution, (B) any cash paid or payable otherwise than as a cash dividend, or (C) Exercise Stock or additional stock or other securities or property (including cash) by way of spinoff, split-up, reclassification, combination of shares or similar corporate rearrangement, (other than (i) shares of Exercise Stock issued as a stock split, adjustments in respect of which shall be covered by the terms of Section 4.1 above or (ii) an event for which adjustment is otherwise made pursuant to Section 4.4 below), then and in each such case, the Holder hereof shall, upon the exercise of this Warrant, be entitled to receive, in addition to the number of shares of Exercise Stock receivable thereupon, and without payment of any additional consideration therefor, the amount of stock and other securities and property (including cash in the cases referred to in clauses (B) and (C) above) which such Holder would hold on the date of such exercise had it been the holder of record of such Exercise Stock as of the date on which holders of Exercise Stock received or became entitled to receive such shares or all other additional stock and other securities and property. 4. 4.3 REORGANIZATION, RECLASSIFICATION, CONSOLIDATION, MERGER OR SALE. If any capital reorganization of the capital stock of the Company, or any consolidation or merger of the Company with another corporation, or the sale of all or substantially all of its assets to another corporation shall be effected in such a way that holders of Exercise Stock shall be entitled to receive stock, securities, or other assets or property, then, as a condition of such reorganization, reclassification, consolidation, merger or sale, lawful and adequate provisions shall be made whereby the holder hereof shall thereafter have the right to purchase and receive (in lieu of the shares of the Exercise Stock of the Company immediately theretofore purchasable and receivable upon the exercise of the rights represented hereby) such shares of stock, securities or other assets or property as may be issued or payable with respect to or in exchange for a number of outstanding shares of such Exercise Stock equal to the number of shares of such stock immediately theretofore purchasable and receivable upon the exercise of the rights represented hereby; provided, however, that in the event the value of the stock, securities or other assets or property (determined in good faith by the Board of Directors of the Company) issuable or payable with respect to one share of the Exercise Stock of the Company immediately theretofore purchasable and receivable upon the exercise of the rights represented hereby is in excess of the Stock Purchase Price hereof effective at the time of the merger and securities received in such reorganization, if any, are publicly traded, then this Warrant shall expire unless exercised prior to the reorganization. In any reorganization described above, appropriate provision shall be made with respect to the rights and interests of the Holder of this Warrant to the end that the provisions hereof (including, without limitation, provisions for adjustments of the Stock Purchase Price and of the number of shares purchasable and receivable upon the exercise of this Warrant) shall thereafter be applicable, as nearly as may be, in relation to any shares of stock, securities or assets thereafter deliverable upon the exercise hereof. The Company will not effect any such consolidation, merger or sale unless, prior to the consummation thereof, the successor corporation (if other than the Company) resulting from such consolidation or the corporation purchasing such assets shall assume by written instrument, executed and mailed or delivered to the registered Holder hereof at the last address of such Holder appearing on the books of the Company, the obligation to deliver to such Holder such shares of stock, securities or assets as, in accordance with the foregoing provisions, such Holder may be entitled to purchase. 4.4 ADJUSTMENT UPON CONVERSION OF SERIES C PREFERRED STOCK. If at any time after the date hereof, all of the Series C Preferred Stock of the Company is converted to Common Stock, either as part of an initial public offering of the Company's Common Stock or for any other reason, then the Exercise Stock of this Warrant shall hereinafter be Common Stock. The Holder of this Warrant shall have the right to receive upon the exercise of this Warrant such shares of Common Stock as it would have been entitled to had the Warrant been exercised for Series C Preferred Stock immediately prior to such conversion. 4.5 ADJUSTMENTS SET FORTH IN ARTICLES OF INCORPORATION. In addition to the foregoing adjustments, the conversion rate of the Exercise Stock into Common Stock will be subject to adjustments as set forth in the Company's Articles of Incorporation. The Company represents that as of the date this Warrant was first issued, the Company anticipates each share of Preferred Stock will be convertible into one share of Common Stock. 5. 4.6 NOTICE OF ADJUSTMENT. Upon any adjustment of the Stock Purchase Price or in the conversion ratio of the Preferred Stock or any increase or decrease in the number of shares purchasable upon the exercise of this Warrant, the Company shall give written notice thereof, by first class mail, postage prepaid, addressed to the registered Holder of this Warrant at the address of such Holder as shown on the books of the Company. The notice shall be signed by the Company's chief financial officer and shall state the Stock Purchase Price resulting from such adjustment and the increase or decrease, if any, in the number of shares purchasable at such price upon the exercise of this Warrant, setting forth in reasonable detail the method of calculation and the facts upon which such calculation is based. Any written notice delivered pursuant to this Section 4.5 shall be attached to this Warrant and incorporated herein by reference. 4.7 OTHER NOTICES. If at any time: (1) the Company shall declare any cash dividend upon its Exercise Stock; (2) the Company shall declare any dividend upon its Exercise Stock payable in stock or make any special dividend or other distribution to the holders of its Exercise Stock; (3) the Company shall offer for subscription pro rata to the holders of its Exercise Stock any additional shares of stock of any class or other rights; (4) there shall be any capital reorganization or reclassification of the capital stock of the Company; or consolidation or merger of the Company with, or sale of all or substantially all of its assets to, another corporation; (5) there shall be a voluntary or involuntary dissolution, liquidation or winding-up of the Company; or (6) there shall be an initial public offering of Company securities; then, in any one or more of said cases, the Company shall give, by first class mail, postage prepaid, addressed to the Holder of this Warrant at the address of such Holder as shown on the books of the Company, (a) at least thirty (30) days' prior written notice of the date on which the books of the Company shall close or a record shall be taken for such dividend, distribution or subscription rights or for determining rights to vote in respect of any such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation or winding-up, and (b) in the case of any such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation, winding-up or public offering, at least thirty (30) days' prior written notice of the date when the same shall take place; provided, however, that the Holder shall make a best efforts attempt to respond to such notice as early as possible after the receipt thereof. Any notice given in accordance with the foregoing clause (a) shall also specify, in the case of any such dividend, distribution or subscription rights, the date on which the holders of Preferred Stock shall be entitled thereto. Any notice given in accordance with the foregoing clause (b) shall also specify the date on which the holders of Exercise Stock shall be entitled to exchange their Exercise Stock for securities or other property deliverable upon such reorganization, reclassification, consoli- 6. dation, merger, sale, dissolution, liquidation, winding-up, conversion or public offering, as the case may be. 4.8 CERTAIN EVENTS. If any change in the outstanding Exercise Stock of the Company or any other event occurs as to which the other provisions of this Section 4 are not strictly applicable or if strictly applicable would not fairly protect the purchase rights of the Holder of the Warrant in accordance with such provisions, then the Board of Directors of the Company shall make an adjustment in the number and class of shares available under the Warrant, the Stock Purchase Price or the application of such provisions, so as to protect such purchase rights as aforesaid. The adjustment shall be such as will give the Holder of the Warrant upon exercise for the same aggregate Stock Purchase Price the total number, class and kind of shares as he would have owned had the Warrant been exercised prior to the event and had it continued to hold such shares until after the event requiring adjustment. 5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby represents and warrants to the Holder as follows: 5.1 CORPORATE POWER. The Company will have on the date hereof all requisite corporate power to execute and deliver this Warrant and to carry out and perform its obligations under the terms of this Warrant. 5.2 AUTHORIZATION. All corporate action on the part of the Company, its directors and its stockholders necessary for the authorization, execution, delivery and performance of this Warrant by the Company and the performance of the Company's obligations hereunder, has been taken or will be taken prior to the date hereof. This Warrant, when executed and delivered by the Company, shall constitute a valid and binding obligation of the Company enforceable in accordance with its terms, subject to laws of general application relating to bankruptcy, insolvency, the relief of debtors and, with respect to rights to indemnity, subject to federal and state securities laws. 5.3 GOVERNMENTAL CONSENTS. All consents, approvals, orders or authorizations of, or registrations, qualifications, designations, declarations or filings with, any governmental authority, required on the part of the Company in connection with the offer, sale or issuance of this Warrant shall have been obtained and will be effective on the date hereof, except for notices required or permitted to be filed with certain state and federal securities commissions, which notices will be filed on a timely basis. 5.4 OFFERING. Assuming the accuracy of the representations and warranties of the Purchasers contained in Section 6 hereof, the offer, issue and sale of this Warrant is and will be exempt from the registration and prospectus delivery requirements of the Securities Act of 1933, as amended (the "1933 Act"), and has been registered or qualified (or are exempt from registration and qualification) under the registration, permit or qualification requirements of all applicable state securities laws. 7. 6. REPRESENTATIONS AND WARRANTIES OF THE HOLDER. 6.1 PURCHASE FOR OWN ACCOUNT. The Holder represents that it is acquiring this Warrant and the Exercise Stock issuable upon exercise of this Warrant (collectively, the "Securities") solely for its own account and beneficial interest for investment and not for sale or with a view to distribution of the Securities or any part thereof, has no present intention of selling (in connection with a distribution or otherwise), granting any participation in, or otherwise distributing the same, and does not presently have reason to anticipate a change in such intention. 6.2 INFORMATION AND SOPHISTICATION. The Holder acknowledges that it has received all the information it has requested from the Company and considers necessary or appropriate for deciding whether to acquire the Warrant. The Holder represents that it has had an opportunity to ask questions and receive answers from the Company regarding the terms and conditions of the offering of the Warrant and to obtain any additional information necessary to verify the accuracy of the information given the Holder. The Holder further represents that it has such knowledge and experience in financial and business matters that it is capable of evaluating the merits and risk of this investment. 6.3 FURTHER LIMITATIONS ON DISPOSITION. Without in any way limiting the representations set forth above, the Holder further agrees not to make any disposition of all or any portion of the Securities unless and until: (a) There is then in effect a registration statement under the 1933 Act covering such proposed disposition and such disposition is made in accordance with such registration statement; or (b) (i) The Holder shall have notified the Company of the proposed disposition and shall have furnished the Company with a detailed statement of the circumstances surrounding the proposed disposition, and (ii) if reasonably requested by the Company, the Holder shall have furnished the Company with an opinion of counsel, reasonably satisfactory to the Company, that such disposition will not require registration under the 1933 Act. (c) Notwithstanding the provisions of paragraphs (a) and (b) above, no such registration statement or opinion of counsel shall be necessary for a transfer by the Holder to a stockholder or partner (or retired partner) of the Holder, or transfers by gift, will or intestate succession to any spouse or lineal descendants or ancestors, if all transferees agree in writing to be subject to the terms hereof to the same extent as if they were the Holder hereunder. Each certificate for Warrant Shares issued upon exercise of this Warrant, unless at the time of exercise such Warrant Shares are acquired pursuant to a registration statement that has been declared effective under the Act, shall bear a legend substantially in the following form: THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "ACT") AND 8. MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER THE ACT OR, IN THE OPINION OF COUNSEL OR BASED ON OTHER WRITTEN EVIDENCE IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER OF THESE SECURITIES, SUCH OFFER, SALE OR TRANSFER, PLEDGE OR HYPOTHECATION IS IN COMPLIANCE THEREWITH. Any certificate for any Warrant Shares issued at any time in exchange or substitution for any certificate for any Warrant Shares bearing such legend (except a new certificate for any Warrant Shares issued after the acquisition of such Warrant Shares pursuant to a registration statement that has been declared effective under the Act) shall also bear such legend unless, in the opinion of counsel for the Company, the Warrant Shares represented thereby need no longer be subject to the restriction contained herein. The provision of this Section 6.3(d) shall be binding upon all subsequent holders of certificates for Warrant Shares bearing the above legend and all subsequent holders of this Warrant, if any. 6.4 ACCREDITED INVESTOR. The Holder is an "accredited investor" as such term is defined in Rule 501 under the Securities Act. 7. ISSUE TAX. The issuance of certificates for shares of Exercise Stock upon the exercise of the Warrant shall be made without charge to the Holder of the Warrant for any issue tax (other than any applicable income taxes) in respect thereof; provided, however, that the Company shall not be required to pay any tax which may be payable in respect of any transfer involved in the issuance and delivery of any certificate in a name other than that of the then Holder of the Warrant being exercised. 8. CLOSING OF BOOKS. The Company will at no time close its transfer books against the transfer of any warrant or of any shares of Exercise Stock issued or issuable upon the exercise of any warrant in any manner which interferes with the timely exercise of this Warrant. 9. NO VOTING OR DIVIDEND RIGHTS; LIMITATION OF LIABILITY. Nothing contained in this Warrant shall be construed as conferring upon the holder hereof the right to vote or to consent or to receive notice as a shareholder of the Company or any other matters or any rights whatsoever as a shareholder of the Company. No dividends or interest shall be payable or accrued in respect of this Warrant or the interest represented hereby or the shares purchasable hereunder until, and only to the extent that, this Warrant shall have been exercised. No provisions hereof, in the absence of affirmative action by the holder to purchase shares of Exercise Stock, and no mere enumeration herein of the rights or privileges of the holder hereof, shall give rise to any liability of such holder for the Stock Purchase Price or as a shareholder of the Company, whether such liability is asserted by the Company or by its creditors. 10. REGISTRATION RIGHTS. The registration rights and related obligations of the Holder with respect to this Warrant and the Exercise Stock will be the same as those agreed to with certain holders of the Company's Preferred Stock under Section 3 (but excluding Sections 3.1, 3.9 and 9. 3.11) of that certain Amended and Restated Investor's Rights Agreement among the Company and certain of its investors dated as of July 18, 1995. 11. WARRANTS TRANSFERABLE. Subject to compliance with applicable federal and state securities laws and the transfer restrictions set forth Section 6.4 above, this Warrant and all rights hereunder are transferable, in whole or in part, without charge to the holder hereof (except for transfer taxes), upon surrender of this Warrant properly endorsed and compliance with the provisions of this Warrant. Each taker and holder of this Warrant, by taking or holding the same, consents and agrees that this Warrant, when endorsed in blank, shall be deemed negotiable, and that the holder hereof, when this Warrant shall have been so endorsed, may be treated by the Company, at the Company's option, and all other persons dealing with this Warrant as the absolute owner hereof for any purpose and as the person entitled to exercise the rights represented by this Warrant, or to the transfer hereof on the books of the Company any notice to the contrary notwithstanding; but until such transfer on such books, the Company may treat the registered owner hereof as the owner for all purposes. 12. RIGHTS AND OBLIGATIONS SURVIVE EXERCISE OF WARRANT. The rights and obligations of the Company, of the holder of this Warrant and of the holder of shares of Exercise Stock issued upon exercise of this Warrant, referred to in Sections 10 and 11 shall survive the exercise of this Warrant. 13. MODIFICATION AND WAIVER. This Warrant and any provision hereof may be changed, waived, discharged or terminated only by an instrument in writing signed by the party against which enforcement of the same is sought. 14. NOTICES. Any notice, request or other document required or permitted to be given or delivered to the holder hereof or the Company shall be delivered or shall be sent by certified mail, postage prepaid, to each such holder at its address as shown on the books of the Company or to the Company at the address indicated therefor in the first paragraph of this Warrant or such other address as either may from time to time provide to the other. 15. BINDING EFFECT ON SUCCESSORS. This Warrant shall be binding upon any corporation succeeding the Company by merger, consolidation or acquisition of all or substantially all of the Company's assets. All of the obligations of the Company relating to the Exercise Stock issuable upon the exercise of this Warrant shall survive the exercise and termination of this Warrant. All of the covenants and agreements of the Company shall inure to the benefit of the successors and assigns of the holder hereof. 16. DESCRIPTIVE HEADINGS AND GOVERNING LAW. The description headings of the several sections and paragraphs of this Warrant are inserted for convenience only and do not constitute a part of this Warrant. This Warrant shall be construed and enforced in accordance with, and the rights of the parties shall be governed by, the laws of the State of California. 17. LOST WARRANTS. The Company represents and warrants to the Holder hereof that upon receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction, or 10. mutilation of this Warrant and, in the case of any such loss, theft or destruction, upon receipt of an indemnity reasonably satisfactory to the Company, or in the case of any such mutilation upon surrender and cancellation of such Warrant, the Company, at its expense, will make and deliver a new Warrant, of like tenor, in lieu of the lost, stolen, destroyed or mutilated Warrant. 18. FRACTIONAL SHARES. No fractional shares shall be issued upon exercise of this Warrant. The Company shall, in lieu of issuing any fractional share, pay the holder entitled to such fraction a sum in cash equal to such fraction multiplied by the then effective Stock Purchase Price. IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed by its officers, thereunto duly authorized this 10th day of November, 1995. AVIRON a California corporation By: ----------------------------------- Title: -------------------------------- ATTEST: - ----------------------------------- Secretary RAYMOND JAMES & ASSOCIATES, INC. By: ----------------------------------- Title: -------------------------------- 11. EXHIBIT A SUBSCRIPTION FORM Date: -------------- AVIRON 297 North Bernardo Avenue Mountain View, California 94043 Attn: Chief Executive Officer Gentlemen: / / The undersigned hereby elects to exercise the warrant issued to it by AVIRON (the "Company") and dated November 10, 1995 Warrant No. PCW-1 (the "Warrant") and to purchase thereunder Three Hundred Fifty-Two Thousand, Five Hundred Thirty-Six (352,536) shares of the Series C Preferred Stock of the Company at a purchase price of One Dollar and Sixty-Two Cents ($1.62) per Share or an aggregate purchase price of Five Hundred Seventy-One Thousand, One Hundred Eight Dollars and Thirty-Two Cents ($571,108.32) (the "Purchase Price"). FOR USE IN CONNECTION WITH A NET ISSUE EXERCISE: / / The undersigned hereby elects to convert _______________________ percent (____%) of the value of the Warrant pursuant to the provisions of Section 2.2 of the Warrant. Pursuant to the terms of the Warrant the undersigned has delivered the Purchase Price herewith in full in cash or by certified check or wire transfer. The undersigned also makes the representations set forth on the attached Exhibit B of the Warrant. Very truly yours, -------------------------------------- By ----------------------------------- Title -------------------------------- EXHIBIT B INVESTMENT REPRESENTATIONS THIS AGREEMENT MUST BE COMPLETED, SIGNED AND RETURNED TO AVIRON ALONG WITH THE SUBSCRIPTION FORM BEFORE THE SERIES C PREFERRED STOCK ISSUABLE UPON EXERCISE OF THE WARRANT CERTIFICATE DATED NOVEMBER 10, 1995, WILL BE ISSUED. , 19 --------------------- -- AVIRON 297 North Bernardo Avenue Mountain View, California 94043 Attention: Chief Executive Officer The undersigned, Raymond James & Associates, Inc. ("Purchaser"), intends to acquire up to 352,536 shares of the Series C Preferred Stock (the "Stock") of AVIRON (the "Company") from the Company pursuant to the exercise or conversion of certain Warrants to purchase Stock held by Purchaser. The Stock will be issued to Purchaser in a transaction not involving a public offering and pursuant to an exemption from registration under the Securities Act of 1933, as amended (the "1933 Act") and applicable state securities laws. In connection with such purchase and in order to comply with the exemptions from registration relied upon by the Company, Purchaser represents, warrants and agrees as follows: Purchaser is acquiring the Stock for its own account, to hold for investment, and Purchaser shall not make any sale, transfer or other disposition of the Stock in violation of the 1933 Act or the General Rules and Regulations promulgated thereunder by the Securities and Exchange Commission (the "SEC") or in violation of any applicable state securities law. Purchaser has been advised that the Stock has not been registered under the 1933 Act or state securities laws on the ground that this transaction is exempt from registration, and that reliance by the Company on such exemptions is predicated in part on Purchaser's representations set forth in this letter. Purchaser has been informed that under the 1933 Act, the Stock must be held indefinitely unless it is subsequently registered under the 1933 Act or unless an exemption from such registration (such as Rule 144) is available with respect to any proposed transfer or disposition by Purchaser of the Stock. Purchaser further agrees that the Company may refuse to permit Purchaser to sell, transfer or dispose of the Stock (except as permitted under Rule 144) unless there is in effect a registration statement under the 1933 Act and any applicable state securities laws covering such transfer, or unless Purchaser furnishes an opinion of counsel reasonably satisfactory to counsel for the Company, to the effect that such registration is not required. Purchaser also understands and agrees that there will be placed on the certificate(s) for the Stock, or any substitutions therefor, legends stating in substance: "These securities have not been registered under the Securities Act of 1933. They may not be sold, offered for sale, pledged or hypothecated in the absence of an effective registration statement as to the securities under said act or an opinion of counsel satisfactory to the Company that registration is not required." Purchaser has carefully read this letter and has discussed its requirements and other applicable limitations upon Purchaser's resale of the Stock with Purchaser's counsel. Very truly yours, RAYMOND JAMES & ASSOCIATES, INC. By: -------------------------------- Title: ----------------------------- EX-4.8 9 AMENDED AND RESTATED INVESTORS RIGHTS AGREEMENT AVIRON AMENDED AND RESTATED INVESTORS RIGHTS AGREEMENT JULY 18, 1995 AVIRON AMENDED AND RESTATED INVESTORS RIGHTS AGREEMENT THIS AMENDED AND RESTATED INVESTORS RIGHTS AGREEMENT (the "Agreement") is entered into as of July 18, 1995 by and among AVIRON, a California corporation (the "Company"), the parties listed on Exhibit A hereto (the "Investors"), the parties listed on Exhibit B hereto (the "Series A Warrant Holders"), and the parties listed on Exhibit C hereto (the "Series B Warrant Holders"). RECITALS WHEREAS the Company proposes to issue and sell up to 11,111,111 shares of its Series C Preferred Stock ("Series C Preferred") as more fully described in the Private Placement Memorandum, dated as of May 1995 (the "Private Placement"); WHEREAS the Investors are the purchasers of the Company's Series A Preferred Stock pursuant to that certain Series A Preferred Stock Purchase Agreement, dated as of June 19, 1992, by and among the Company and the purchasers named therein (the "Series A Agreement"); the purchasers of the Company's Series B Preferred Stock pursuant to that certain Series B Preferred Stock Purchase Agreement, dated as of September 3, 1993, by and among the Company and the Purchasers named therein (the "Series B Agreement"); and the purchasers of the Company's Series C Preferred Stock pursuant to the Private Placement; WHEREAS the Series A Warrant Holders are the holders of either Series A Preferred Stock or Warrants to purchase Series A Preferred Stock of the Company, the Series B Warrant Holders are the holders of either Series B Preferred Stock or Warrants to purchase Series B Preferred Stock of the Company, and the Founders are Peter Palese, J. Leighton Read, Bernard Roizman and Richard J. Whitley; and WHEREAS, in connection with the Private Placement, the prospective purchasers have requested that the Company extend certain rights to them with respect to the Series C Preferred. The Company has requested and the existing Holders are willing to amend the rights given to them under the Amended and Restated Investor Rights Agreement, dated as of September 3, 1993 (the "Prior Agreement"), as amended as of March 15, 1995 by replacing such rights in their entirety with the rights set forth in this Agreement. NOW, THEREFORE, in consideration of the mutual promises, representations, warranties, covenants, and conditions set forth in this Agreement and in the agreements pursuant to which the Investors acquired their securities in the Company, the parties mutually agree as follows: 1. I. GENERAL 1.1 PRIOR AGREEMENT SUPERSEDED. Effective upon the initial closing of the Private Placement, the Prior Agreement is hereby terminated and superseded in its entirety by this Agreement. 1.2 DEFINITIONS. As used in this Agreement, the following terms shall have the following respective meanings: "COMMISSION" shall mean the Securities and Exchange Commission or any other federal agency at the time administering the Securities Act. "COMMON STOCK" shall mean shares of the Company's Common Stock, no par value. "HOLDER" shall mean any holder of outstanding Registrable Securities. For purposes of Sections 3.2 through 3.12 of this Agreement only, the definition of "Holder" also includes Michigan. "INITIATING HOLDERS" shall mean any Holder or Holders of not less than 40% of the then outstanding Registrable Securities. "MICHIGAN" refers to the Regents of the University of Michigan, a constitutional corporation of the state of Michigan. "MICHIGAN SHARES" refers to shares of Series B Preferred Stock of the Company issued to Michigan, pursuant to the Stock Transfer Agreement, dated as of February 24, 1995, between the Company and Michigan (the "Michigan Agreement"). "MICHIGAN WARRANT" refers to a warrant to purchase shares of Common Stock which the Company is obligated to issue to Michigan under certain circumstances, as provided in the Michigan Agreement. "MICHIGAN WARRANT SHARES" refers to the shares of Common Stock issued under the Michigan Warrant. "PREFERRED STOCK" shall mean shares of the Company's Preferred Stock. "REGISTRABLE SECURITIES" means (i) shares of Common Stock issued or issuable pursuant to the conversion or exercise of the Shares and (ii) shares of Common Stock issued as a dividend or other distribution with respect to, or in exchange or in replacement of, the Shares, excluding in all cases, however (including exclusion from the calculation of the number of outstanding Registrable Securities), any Registrable Securities sold by a person, (x) in a transaction pursuant to Rule 144, or (y) pursuant to a registration statement under this Agreement 2. or (z) in a transaction in which his rights under this Agreement are not transferred, including a transaction pursuant to a registration statement under this Agreement. For purposes of Sections 3.2 through 3.12 of this Agreement only, the definition of "Registrable Securities" also includes the Michigan Warrant Shares. The terms "REGISTER," "REGISTERED" and "REGISTRATION" refer to a registration effected by preparing and filing a registration statement in compliance with the Securities Act, and the declaration or ordering of the effectiveness of such registration statement by the Commission. "REGISTRATION EXPENSES" shall mean all expenses incurred by the Company in complying with Sections 3.1, 3.2 and 3.9 hereof, including, without limitation, all registration and filing fees, printing expenses, fees and disbursements of counsel for the Company, fees and disbursements of a single special counsel for the Holders not to exceed $20,000, blue sky fees and expenses, and the expense of any special audits incident to or required by any such registration (but excluding the compensation of regular employees of the Company which shall be paid in any event by the Company). "RESTRICTED SECURITIES" shall mean the securities of the Company required to bear the legend set forth in Section 2.2 hereof. "SECURITIES ACT" shall mean the Securities Act of 1933, as amended, or any similar federal statute, and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time. "SELLING EXPENSES" shall mean all underwriting discounts and selling commissions applicable to the sale. "SHARES" shall mean (i) the securities of the Company held by the Investors and Founders as described on Exhibit A, (ii) the securities issuable upon exercise of the Warrants to purchase Series A Preferred Stock held by the Series A Warrant Holders as described on Exhibit B, or (iii) the securities issuable upon exercise of the Warrants to purchase Series B Preferred Stock held by the Series B Warrant Holders as described on Exhibit C. For purposes of Sections 3.2 through 3.12 of this Agreement only, the definition of "Shares" also includes the Michigan Shares and the Michigan Warrant Shares. II. TRANSFERABILITY 2.1 RESTRICTIONS ON TRANSFERABILITY. The Shares and any Preferred Stock or Common Stock into which the Shares may be convertible or exercisable, shall not be transferable except upon the conditions specified in this Agreement, which conditions are intended to insure compliance with the provisions of the Securities Act, or, in the case of Section 3.8 hereof, to assist in an orderly distribution. Each Investor will cause any proposed transferee of the Shares (or of the Preferred Stock or Common Stock into which the Shares may be convertible or 3. exercisable) held by an Investor to agree to take and hold such securities subject to the provisions and upon the conditions specified in this Agreement. 2.2 RESTRICTIVE LEGEND. Each certificate representing (i) the Shares, or (ii) shares of the Company's Common Stock or Preferred Stock issued upon conversion or exercise of the Shares and (iii) any securities issued in respect of the Shares or such Common Stock or Preferred Stock, shall (unless otherwise permitted by the provisions of Section 2.3 below) be stamped or otherwise imprinted with a legend in substantially the following form (in addition to any legend required under applicable state securities laws): THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT UNDER AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OF 1933. SUCH SHARES MAY NOT BE OFFERED, SOLD OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER SAID ACT OR AN EXEMPTION THEREFROM OR IN CONTRAVENTION OF THE AGREEMENT COVERING THE PURCHASE OF THESE SHARES AND RESTRICTING THEIR TRANSFER. COPIES OF THE AGREEMENT MAY BE OBTAINED AT NO COST BY WRITTEN REQUEST MADE BY THE HOLDER OF RECORD OF THIS CERTIFICATE TO THE SECRETARY OF THE CORPORATION AT ITS PRINCIPAL OFFICE. 2.3 NOTICE OF PROPOSED TRANSFERS. The holder of each certificate representing Restricted Securities by acceptance thereof agrees to comply in all respects with the provisions of this Section 2.3. Prior to any proposed transfer of any Restricted Securities, unless there is in effect a registration statement under the Securities Act covering the proposed transfer, the holder thereof shall give written notice to the Company of such holder's intention to effect such transfer. Each such notice shall describe the manner and circumstances of the proposed transfer in sufficient detail, and shall be accompanied (except in the following cases, with respect to which the requirements set forth in the balance of this sentence need not be complied with: transactions in compliance with Rule 144 or Rule 144A so long as the Company is furnished with evidence of compliance with such Rule; transactions involving the distribution of Restricted Securities by any Investor which is a general or limited partnership to any of its partners, or retired partners, or to the estate of any of its partners or retired partners; transactions involving the transfer of Restricted Securities by any holder who is an individual to his family members or to a trust for the benefit of such shareholder or his family members; or transfers not involving a change in beneficial ownership) by (i) a written opinion of legal counsel who shall be reasonably satisfactory to the Company addressed to the Company and reasonably satisfactory in form and substance to the Company's counsel, to the effect that the proposed transfer of the Restricted Securities may be effected without registration under the Securities Act, (ii) a "no action" letter from the Commission to the effect that the distribution of such securities without registration will not result in a recommendation by the staff of the Commission that action be taken with respect thereto, or 4. (iii) such other showing that may be reasonably satisfactory to legal counsel to the Company, whereupon the holder of such Restricted Securities shall be entitled to transfer such Restricted Securities in accordance with the terms of the notice delivered by the holder to the Company. Each certificate evidencing the Restricted Securities transferred as above provided shall bear the appropriate restrictive legend set forth in Section 2.2 above, except that such certificate shall not bear such restrictive legend if in the opinion of counsel for the Company such legend is not required in order to establish compliance with any provisions of the Securities Act. All Restricted Securities transferred as above that continue to bear the restrictive legend set forth in Section 2.2 shall continue to be subject to the provisions of this Section 2.3 in the same manner as before such transfer. III. REGISTRATION RIGHTS 3.1 REQUESTED REGISTRATION. Prior to such time as the Company has effected two registrations pursuant to this Section 3.1 and such registrations have been declared or ordered effective, if the Company shall receive from Initiating Holders a written request that the Company effect any registration (other than a registration on Form S-3 or any comparable form of registration statement) with respect to Registrable Securities having an anticipated aggregate offering price to the public of at least $7,500,000 (before deduction of underwriter commissions and expenses), the Company will: (a) promptly give written notice of the proposed registration to all other Holders; and (b) as soon as practicable, use its diligent best efforts to effect such registration (including, without limitation, the execution of an undertaking to file post-effective amendments, appropriate qualification under applicable blue sky or other state securities laws and appropriate compliance with applicable regulations issued under the Securities Act) as may be so requested and as would permit or facilitate the sale and distribution of all or such portion of such Registrable Securities as are specified in such request, together with all or such portion of the Registrable Securities of any Holder or Holders joining in such request as are specified in a written request given within 15 days after receipt of such written notice from the Company; provided that the Company shall not be obligated to take any action to effect any such registration, qualification or compliance pursuant to this Section 3.1: (i) In any particular jurisdiction in which the Company would be required to execute a general consent to service of process in effecting such registration, qualification or compliance unless the Company is already subject to service in such jurisdiction and except as may be required by the Securities Act; (ii) Prior to the earlier to occur of (x) six months following the effective date of the registration statement pertaining to the first underwritten public offering of securities of the Company for its own account and (y) August 31, 1997; or 5. (iii) If at the time of the request to register Registrable Securities the Company gives notice within 30 days of such request that it is engaged or has fixed plans to engage within 90 days of the time of the request in an initial firmly underwritten registered public offering as to which the Holders may include Registrable Securities pursuant to Sections 3.1 or 3.2. Subject to the foregoing clauses (i) through (iii) and to Section 3.1(d), the Company shall file a registration statement covering the Registrable Securities so requested to be registered as soon as practicable after receipt of the request of the Initiating Holders. (c) UNDERWRITING. If the Initiating Holders intend to distribute the Registrable Securities covered by their request by means of an underwriting, they shall so advise the Company as a part of their request made pursuant to Section 3.1 and the Company shall include such information in the written notice referred to in Section 3.1(a). The right of any Holder to registration pursuant to Section 3.1 shall be conditioned upon such Holder's participation in such underwriting and the inclusion of such Holder's Registrable Securities in the underwriting to the extent requested (unless otherwise mutually agreed by a majority in interest of the Holders and such Holder) to the extent provided herein. The Company shall (together with all Holders proposing to distribute their securities through such underwriting) enter into an underwriting agreement in customary form with the underwriter or underwriters selected for such underwriting by a majority in interest of the Initiating Holders with the approval of the Company, which approval shall not be unreasonably withheld. Notwithstanding any other provision of this Section 3.1, if the underwriter determines that marketing factors require a limitation of the number of shares to be underwritten and so advises the Initiating Holders in writing, then the Initiating Holders shall so advise all Holders (except those Holders who have indicated to the Company their decision not to distribute any of their Registrable Securities through such underwriting) and the number of shares of Registrable Securities that may be included in the registration and underwriting shall be allocated among all such Holders in proportion, as nearly as practicable, to the respective amounts of Registrable Securities owned by such Holders at the time of filing the registration statement. No Registrable Securities excluded from the underwriting by reason of the underwriter's marketing limitation shall be included in such registration. If any Holder disapproves of the terms of the underwriting, such person may elect to withdraw therefrom by written notice to the Company, the underwriter and the Initiating Holders. The Registrable Securities and/or other securities so withdrawn from such underwriting shall also be withdrawn from such registration; provided, however, that, if by the withdrawal of such Registrable Securities a greater number of Registrable Securities held by other Holders may be included in such registration (up to the maximum of any limitation imposed by the underwriters), then the Company shall offer to all Holders who have included Registrable Securities in the registration the right to include additional Registrable Securities in the same proportion used above in determining the underwriter limitation; and, provided further that in the event that the withdrawal of a Holder, and the subsequent inclusion of additional Registrable Securities by other 6. Holders, results in an anticipated aggregate offering price to the public of less than $1,000,000 the Company shall no longer be required to effect such registration pursuant to this Section 3.1. If the underwriter has not limited the number of Registrable Securities to be underwritten, the Company may include securities for its own account or the account of others in such registration if the underwriter so agrees and if the number of Registrable Securities which would otherwise have been included in such registration and underwriting will not thereby be limited. (d) DELAY OF REGISTRATION. If the Company shall furnish to the Initiating Holders a certificate signed by the Chief Executive Officer of the Company stating that, in the good faith judgment of the Board of Directors of the Company, it would be seriously detrimental to the Company and its shareholders for such registration statement to be filed on or before the date filing would be required and it is therefore essential to defer the filing of such registration statement, then the Company may direct that such request for registration be delayed for two periods not in excess of 90 days each in any one-year period. 3.2 COMPANY REGISTRATION. (a) If at any time or from time to time, the Company shall determine to register any of its Common Stock, for its own account or for the account of others (other than the Holders), other than a registration relating solely to employee benefit plans or a registration relating solely to a Commission Rule 145 transaction or a registration on any registration form which does not include substantially the same information as would be required to be included in a registration statement covering the sale of Registrable Securities, the Company will: (i) promptly give to each Holder written notice thereof (which shall include a list of the jurisdictions in which the Company intends to attempt to qualify such securities under the applicable blue sky or other state securities laws); and (ii) include in such registration (and any related qualification under blue sky laws or other compliance), and in any underwriting involved therein, all the Registrable Securities specified in a written request or requests, made within 20 days after receipt of such written notice from the Company, by any Holder or Holders. (b) UNDERWRITING. If the registration of which the Company gives notice is for a registered public offering involving an underwriting, the Company shall so advise the Holders as a part of the written notice given pursuant to Section 3.2(a)(i). In such event the right of any Holder to registration pursuant to Section 3.2 shall be conditioned upon such Holder's participation in such underwriting and the inclusion of such Holder's Registrable Securities in the underwriting to the extent provided herein. All Holders proposing to distribute their securities through such underwriting shall (together with the Company and the other holders distributing their securities through such underwriting) enter into an underwriting agreement in customary form with the underwriter or underwriters selected for such underwriting by the Company with the approval of the Board of Directors. Notwithstanding any other provision of this Section 3.2, if the underwriter determines that marketing factors require a limitation of the number of shares 7. to be underwritten, the underwriter may limit the number of Registrable Securities and shares of Common Stock to be included in the registration and underwriting. The Company shall so advise all Holders (except those Holders who have indicated to the Company their decision not to distribute any of their Registrable Securities or Common Stock through such underwriting), and the number of shares of Registrable Securities that may be included in the registration and underwriting shall be allocated among all Holders in proportion, as nearly as practicable, to the respective amounts of Registrable Securities owned by the Holders at the time of filing the registration statement. No Registrable Securities excluded from the underwriting by reason of the underwriter's marketing limitation shall be included in such registration. If any Holder disapproves of the terms of any such underwriting, such person may elect to withdraw therefrom by written notice to the Company and the underwriter. The securities so withdrawn from such underwriting shall also be withdrawn from such registration; provided, however, that, if by the withdrawal of such securities a greater number of Registrable Securities held by other Holders may be included in such registration (up to the maximum of any limitation imposed by the underwriters), then the Company shall offer to all Holders who have included Registrable Securities in the registration the right to include additional Registrable Securities in the same proportion used above in determining the underwriter limitation. 3.3 EXPENSES OF REGISTRATION. All Registration Expenses incurred in connection with any registration, qualification or compliance pursuant to Section 3.1, Section 3.2 or Section 3.9 herein shall be borne by the Company. All Selling Expenses incurred in connection with any registrations hereunder shall be borne by the holders of the securities so registered pro rata on the basis of the number of shares so registered. The Company shall not, however, be required to pay for expenses of any registration proceeding begun pursuant to Section 3.1, the request of which has been subsequently withdrawn by the Initiating Holders (unless the withdrawal is based upon material information concerning the Company of which the Initiating Holders were not aware at the time of such request or unless the Holders of a majority of Registrable Securities agree to forfeit their right to one requested registration pursuant to Section 3.1 in which event such right shall be forfeited by all Holders), in which case such expenses shall be borne by the holders of securities (including Registrable Securities) requesting such registration in proportion to the number of shares for which registration was requested. 3.4 REGISTRATION PROCEDURES. In the case of each registration, qualification or compliance effected by the Company pursuant to this Section 3, the Company will keep each participating Holder advised in writing as to the qualification and compliance and as to the completion thereof. At its expense the Company will: (a) Keep such registration, qualification or compliance effective for a period of 90 days or until the Holder or Holders have completed the distribution described in the registration statement relating thereto, whichever first occurs; (b) Furnish such number of prospectuses and other documents incident thereto in conformity with the requirements of the Act; 8. (c) Prepare and file with the SEC such amendments and supplements to such registration statement and the prospectus used in connection with such registration statement as may be necessary to comply with the provisions of the Act with respect to the disposition of all securities covered by such registration statement; (d) Use its best efforts to register and qualify the securities covered by such registration statement under such other securities or Blue Sky laws of such jurisdictions as shall be reasonably requested by the Holders; provided that the Company shall not be required in connection therewith or as a condition thereto to qualify to do business or to file a general consent to service of process in any such states or jurisdictions, unless the Company is already subject to service in such jurisdiction and except as may be required by the Act; (e) In the event of any underwritten public offering, enter into and perform its obligations under an underwriting agreement, in usual and customary form, with the managing underwriter of such offering. Each Holder participating in such underwriting shall also enter into and perform its obligations under such an agreement; (f) Notify each Holder of Registrable Securities covered by such registration statement at any time when a prospectus relating thereto is required to be delivered under the Act or the happening of any event as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing; (g) Cause all such Registrable Securities registered pursuant hereunder to be listed on each securities exchange on which similar securities issued by the Company are then listed; (h) Provide a transfer agent and registrar for all Registrable Securities registered pursuant hereunder and a CUSIP number for all such Registrable Securities, in each case not later than the effective date of such registration; and (i) Use its best efforts to furnish, at the request of any Holder requesting registration of Registrable Securities pursuant to this Section, on the date that such Registrable Securities are delivered to the underwriters for sale in connection with a registration pursuant to this Section if such securities are being sold through underwriters or, if such securities are not being sold through underwriters, on the date that the registration statement with respect to such securities becomes effective, (i) an opinion, dated such date, of the counsel representing the Company for the purposes of such registration, in form and substance as is customarily given to underwriters in an underwritten public offering, addressed to the underwriters, if any, and to the Holders requesting registration of Registrable Securities and (ii) a letter dated such date, from the independent certified public accountants of the Company, in form and substance as is customarily given by independent certified public accountants to underwriters in an underwritten public offering, addressed to the underwriters, if any, and to the Holders requesting registration of Registrable Securities. 9. 3.5 INDEMNIFICATION. (a) The Company will indemnify each Holder, each of its officers, directors, partners and legal counsel, and each person controlling such Holder, with respect to which registration, qualification or compliance has been effected pursuant to this Section 3, against all claims, losses, damages and liabilities (or actions in respect thereof) arising out of or based on (i) any untrue statement (or alleged untrue statement) of a material fact contained in any prospectus, offering circular or other similar document (including any related registration statement, notification or the like) incident to any such registration, qualification or compliance, or based on any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances under which they were made, or (ii) any violation by the Company of any federal, state or common law rule or regulation applicable to the Company in connection with any such registration, qualification or compliance, and will reimburse each such Holder, each of its officers, directors, partners and legal counsel, and each person controlling such Holder, for any legal and any other expenses reasonably incurred in connection with investigating or defending any such claim, loss, damage, liability or action, as such expenses are incurred, provided that the Company will not be liable in any such case to the extent that any such claim, loss, damage, liability or expense arises out of or is based on any untrue statement or omission based upon written information furnished to the Company by an instrument duly executed by such Holder and stated to be specifically for use therein or furnished by the Holder to the Company in response to a request by the Company stating specifically that such information will be used by the Company therein. (b) Each Holder will, if Registrable Securities held by such Holder are included in the securities as to which such registration, qualification or compliance is being effected, indemnify the Company, each of its directors and officers, each legal counsel and independent accountant of the Company, each person who controls the Company within the meaning of the Securities Act, and each other such Holder, each of its officers, directors, and partners and each person controlling such Holder, against all claims, losses, damages and liabilities (or actions in respect thereof) arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any such registration statement, prospectus, offering circular or other similar document, or any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances under which they were made, and will reimburse the Company, such Holders, such directors, officers, persons, or control persons for any legal or any other expenses reasonably incurred in connection with investigating or defending any such claim, loss, damage, liability or action, as incurred, in each case to the extent, but only to the extent, that such untrue statement (or alleged untrue statement) or omission (or alleged omission) is made in such registration statement, prospectus, offering circular or other document in reliance upon and in conformity with written information furnished to the Company by an instrument duly executed by such Holder and stated to be specifically for use therein; provided, however, that the obligations of such Holders hereunder shall be limited to an amount equal to the proceeds to each such Holder of Registrable Securities sold as contemplated herein. 10. (c) Each party entitled to indemnification under this Section 3.5 (the "Indemnified Party") shall give notice to the party required to provide indemnification (the "Indemnifying Party") promptly after such Indemnified Party has received written notice of any claim as to which indemnity may be sought, and shall permit the Indemnifying Party to assume the defense of any such claim or any litigation resulting therefrom, provided that counsel for the Indemnifying Party, who shall conduct the defense of such claim or litigation, shall be approved by the Indemnified Party (whose approval shall not unreasonably be withheld). The Indemnified Party may participate in such defense at such party's expense; provided, however, that the Indemnifying Party shall bear the expense of such defense of the Indemnified Party if in the opinion of counsel to the Indemnified Party representation of both parties by the same counsel would be inappropriate due to actual or potential conflicts of interest. The failure of any Indemnified Party to give notice as provided herein shall relieve the Indemnifying Party of its obligations under this Section 3.5 only to the extent that such failure to give notice shall materially adversely prejudice the Indemnifying Party in the defense of any such claim or any such litigation. No Indemnifying Party, in the defense of any such claim or litigation, shall, except with the consent of each Indemnified Party, consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnified Party of a release from all liability in respect to such claim or litigation. 3.6 INFORMATION BY HOLDER. Each Holder including securities of the Company in any registration shall furnish to the Company such information regarding such Holder and the distribution proposed by such Holder as the Company may request in writing and as shall be required in connection with any registration, qualification or compliance referred to in this Section 3. 3.7 RULE 144 REPORTING. With a view to making available the benefits of certain rules and regulations of the Commission which may at any time permit the sale of the Restricted Securities to the public without registration, after such time as a public market exists for the Common Stock of the Company, the Company agrees to: (a) Use its best efforts to facilitate the sale of the Restricted Securities to the public, without registration under the Securities Act, pursuant to Rule 144 under the Securities Act, provided that this shall not require the Company to file reports under the Securities Act and the Exchange Act at anytime prior to the Company's being otherwise required to file such reports. (b) Make and keep public information available, as those terms are understood and defined in Rule 144 under the Securities Act at all times after 90 days after the effective date of the first registration under the Securities Act filed by the Company for an offering of its securities to the general public; (c) Use its best efforts to then file with the Commission in a timely manner all reports and other documents required of the Company under the Securities Act and the Securities Exchange Act of 1934, as amended (the "Exchange Act") (at any time after it has become subject to such reporting requirements); 11. (d) So long as a Holder owns any Restricted Securities to furnish to the Holder forthwith upon request a written statement by the Company as to its compliance with the reporting requirements of said Rule 144 (at any time after 90 days after the effective date of the first registration statement filed by the Company for an offering of its securities to the general public), and of the Securities Act and the Exchange Act (at any time after it has become subject to such reporting requirements), a copy of the most recent annual or quarterly report of the Company, and such other reports and documents so filed by the Company as such Holder may reasonably request in availing itself of any rule or regulation of the Commission allowing a Holder to sell any such securities without registration. 3.8 "MARKET STAND-OFF" AGREEMENT. Each Holder agrees not to sell or otherwise transfer or dispose of any Common Stock (or other securities) of the Company held by it for a period not to exceed 120 days following the effective date of a registration statement of the Company filed under the Securities Act if so requested by the Company and the underwriter of Common Stock (or other securities of the Company), provided that: (a) such agreement shall apply only to the first underwritten registered public offering of the Company; and (b) all officers and directors of the Company enter into similar agreements and the Company uses its best efforts to cause all other holders of at least 1% of the Company's voting securities enter into similar agreements. The Company may impose stop-transfer instructions with respect to the shares (or securities) subject to the foregoing restriction until the end of such period. 3.9 FORM S-3. The Company shall use its best efforts to qualify for registration on Form S-3 and to that end the Company shall register (whether or not required by law to do so) its Common Stock under the Exchange Act within 12 months following the effective date of the first registration of any securities of the Company on Form S-1. After the Company has qualified for the use of Form S-3, in addition to the rights contained in the foregoing provisions of this Section 3, the Holders of Registrable Securities shall have the right to request registrations on Form S-3 thereafter under this Section 3.9 (such requests shall be in writing and shall state the number of shares of Registrable Securities to be disposed of and the intended method of disposition of such shares by such Holder or Holders), provided that the Company shall not be required to effect a registration pursuant to this Section 3.9 unless the Holder or Holders requesting registration propose to dispose of shares of Registrable Securities which they reasonably anticipate will have an aggregate disposition price (before deduction of underwriting discounts and expenses of sale) of at least $1,000,000, and provided further that the Company shall not be required to effect more than two registrations pursuant to this Section 3.9 in any 12 month period. The Company shall give notice to all Holders of Registrable Securities of the receipt of a request for registration pursuant to this Section 3.9 and shall provide a reasonable opportunity for other Holders to participate in the registration. Subject to the foregoing, the Company will use its best efforts to effect promptly the registration of all shares of Registrable Securities on 12. Form S-3, as the case may be, to the extent requested by the Holder or Holders thereof for purposes of disposition. 3.10 TRANSFER OF REGISTRATION RIGHTS. (a) Except as otherwise provided herein, the rights contained in this Section 3 may be assigned or otherwise conveyed to a transferee or assignee of Registrable Securities held by the Investors, which transferee or assignee shall be considered a "Holder" for purposes of this Section 3, provided that (i) such transfer is effected in accordance with applicable federal and state securities laws, (ii) such transferee or assignee becomes a party to this Agreement or agrees in writing to be subject to the terms hereof to the same extent as if he were an original purchaser hereunder and (iii) such transferee or assignee (A) is a wholly owned subsidiary or constituent partner (including limited partners and retired partners) or affiliate of the transferring Holder if such Holder is a partnership, or (B) acquires a number of shares of Registrable Securities originally held by the transferring Holder equal to at least 1% of the then- outstanding capital stock of the Company, and, provided further, that the Company is given written notice by such Holder at the time of or within a reasonable time after said transfer, stating the name and address of said transferee or assignee and identifying the securities with respect to which such registration rights are being assigned. (b) Except as otherwise provided herein, the rights contained in Section 3, except for the rights contained in Section 3.1, may be assigned or otherwise conveyed to a transferee or assignee of Registrable Securities held by the Series A Warrant Holders, which transferee or assignee shall be considered a "Holder" for purposes of this Section 3, provided that (i) such transfer is effected in accordance with applicable federal and state securities laws, (ii) such transferee or assignee becomes a party to this Agreement or agrees in writing to be subject to the terms hereof to the same extent as if he were an original purchaser hereunder and, provided further, that the Company is given written notice by such Holder at the time of or within a reasonable time after said transfer, stating the name and address of said transferee or assignee and identifying the securities with respect to which such registration rights are being assigned. 3.11 CERTAIN LIMITATIONS IN CONNECTION WITH FUTURE GRANTS OF REGISTRATION RIGHTS. From and after the date of this Agreement, the Company shall not, without the prior written consent of the Holders of at least a majority of the outstanding Registrable Securities enter into any agreement with any person or persons providing for the granting to such holder of registration rights superior to those granted to Holders pursuant to this Section 3. 3.12 TERMINATION OF REGISTRATION RIGHTS. All rights and duties provided for with respect to any Holder in this Section 3 shall terminate on the later of (a) the date five (5) years from the date of a Qualified IPO (as defined below in Section 4.1 (d)), and (b) on which such Holder owns less than 1% of the then- outstanding capital stock of the Company, except where such amount is held by a Series A Warrant Holder. IV. RIGHT OF FIRST REFUSAL ON COMPANY ISSUANCES 13. 4.1 RIGHT OF FIRST REFUSAL. The Company hereby grants to each Investor (and its affiliates) who holds not less than 1,000,000 shares of Preferred Stock (or Common Stock issued or issuable upon conversion of the Preferred Stock) the right of first refusal to purchase, pro rata, all (or any part) of New Securities (as defined in this Section 4.1) that the Company may, from time to time propose to sell and issue. In the case where the price per share at which the New Securities are being offered is indeterminable or is equal to or less than $1 (as adjusted for stock splits, reclassification or otherwise), such Investor's (and its affiliates') pro rata share, for purposes of this right of first refusal with respect to an offering at such a price, is the ratio, the numerator of which is the number of shares of Common Stock then owned by such Investor (and its affiliates) as a result of the conversion of any Preferred Stock of the Company and issuable upon conversion of the Preferred Stock of the Company then owned by such Investor (and its affiliates), and the denominator of which is the total number of shares of Common Stock then outstanding as a result of the conversion of any Preferred Stock of the Company or issuable upon conversion of the Preferred Stock of the Company then outstanding. In the case where the price per share at which the New Securities are being offered is greater than $1 (as adjusted for stock splits, reclassifications or otherwise), such Investor's (and its affiliates') pro rata share, for purposes of this right of first refusal with respect to an offering at such a price, is the ratio, the numerator of which is the number of shares of Common Stock then owned by such Investor (and its affiliates) as a result of the conversion of any Preferred Stock of the Company and issuable upon conversion of the Preferred Stock of the Company then owned by such Investor (and its affiliates), and the denominator of which is the total number of shares of Common Stock outstanding immediately prior to the issuance of the New Securities, assuming full conversion of all outstanding shares of Preferred Stock of the Company. This right of first refusal shall be subject to the following provisions: (a) "New Securities" shall mean any capital stock of the Company, whether now authorized or not, and rights, options, or warrants to purchase said capital stock, and securities of any type whatsoever that are, or may become, convertible into said capital stock; provided, however, that "New Securities" does not include (i) securities issued in any additional Closings (as defined in the Series B Agreement); (ii) securities issuable upon conversion of or with respect to Series A Preferred Stock or Series B Preferred Stock; (iii) securities issued pursuant to an acquisition by the Company by merger, purchase of substantially all of the assets, or other reorganization whereby the Company owns more than 50% of the voting power of such entity; (iv) shares of the Company's Common Stock (or related options) issued to employees, directors or consultants of the Company pursuant to any employee stock offering, plan, or arrangement approved by the Board of Directors; (v) shares of the Company's Common Stock or Preferred Stock issued in connection with any stock split, stock dividend, or similar recapitalization by the Company; (vi) securities issued pursuant to equipment or debt financing or leases which are approved by the Company's Board of Directors; (vii) securities issued pursuant to any corporate partnering, strategic alliance, joint venture or licensing arrangement between the Company and a third party; or (viii) securities issued by the Company other than for cash or cash equivalents. (b) In the event that the Company proposes to undertake an issuance of New Securities, it shall give each Investor who together with its affiliates holds not less than 1,000,000 shares of Common Stock of the Company issued or issuable upon conversion of Preferred Stock, 14. written notice of its intention, describing the type of New Securities, the price, and the general terms upon which the Company proposes to issue the same. Each Investor who together with its affiliates holds not less than 1,000,000 shares of Common Stock of the Company, issued or issuable upon conversion of Preferred Stock, shall have 20 days from the date of mailing of any such notice to agree to purchase up to its full pro rata share of such New Securities for the price and upon the general terms specified in the notice by giving written notice to the Company and stating therein the quantity of New Securities to be purchased. Each Investor who together with its affiliates holds not less than 1,000,000 shares of Common Stock of the Company, issued or issuable upon conversion of Preferred Stock, shall have a right of over allotment such that if any Investor fails to exercise its right hereunder to purchase its full pro rata portion of New Securities, the Company shall so notify the other Investors and such Investors (and their affiliates) who have agreed to purchase all or any part of their pro rata share of New Securities may purchase the nonpurchasing Investors' portions on a pro rata basis, within ten days from the date of such notice. (c) In the event that Investors (and their affiliates) fail to exercise in full the right of first refusal within said 20 day period (plus the ten day overallotment period, if applicable) the Company shall have 60 days thereafter to sell or enter into an agreement providing for the closing of the sale of the New Securities respecting which the Investors' (and their affiliates') rights were not exercised within 30 days of such agreement at a price and upon general terms no more favorable to the purchasers thereon than specified in the Company's notice. In the event the Company has not sold the New Securities within such 60 day period, the Company shall not thereafter issue or sell any New Securities, without first offering such securities to the Investors (and its affiliates) in the manner provided above. (d) The right of first refusal granted under this Agreement shall not apply to and shall expire upon the first closing of the first firmly underwritten public offering of Common Stock of the Company that is pursuant to a registration statement filed with, and declared effective by, the Commission under the Securities Act, covering the offer and sale of Common Stock to the public at a per share price (prior to underwriter commissions and expenses) of at least $2.50 (as adjusted for stock splits, dividends and similar events) and at an aggregate offering price (before deduction for underwriter commissions and expenses) of not less than $10,000,000 (a "Qualified IPO"). (e) This right of first refusal is assignable only to an affiliate of a Holder or in connection with a sale or transfer of a number of shares of Registrable Securities originally held by the assigning Holder equal to at least 1% of the then-outstanding capital stock of the Company. 15. V. INFORMATION RIGHTS 5.1 FINANCIAL INFORMATION. (a) The Company will furnish the following information to each Investor who holds together with its affiliates not less than 1,000,000 of Common Stock issued or issuable upon conversion of Preferred Stock: (i) As soon as practicable after the end of each fiscal year of the Company, and in any event within 120 days thereafter, a consolidated balance sheet of the Company and its subsidiaries, if any, as at the end of such fiscal year, and consolidated statements of income and consolidated statements of cash flows of the Company and its subsidiaries, if any, for such year, prepared in accordance with generally accepted accounting principles consistently applied and setting forth in each case in comparative form and figures for the previous fiscal year, all in reasonable detail and certified by independent public accountants of national standing selected by the Company. (ii) As soon as practicable after the end of each of the first three quarterly accounting periods in each fiscal year, and in any event within 45 days thereafter, a consolidated balance sheet of the Company and its subsidiaries, if any, as at the end of such quarter, and consolidated statements of income and consolidated statements of cash flows of the Company and its subsidiaries, if any, for each quarter and for the current fiscal year of the Company to date, prepared in accordance with generally accepted accounting principles consistently applied, except that such financial statements will not contain the notes normally required by generally accepted accounting principles. (iii) As soon as practicable after the adoption thereof, and in any event no later than 15 days prior to the commencement of its fiscal year, an annual operating plan for the forthcoming fiscal year, prepared on a consolidated basis, including projected statements of profit and loss, cash flow and balance sheets for each calendar quarter of such year, and, promptly after preparation thereof, any revisions to such annual operating plan and any other budgets. (b) The covenants provided in Sections 5.1 and 5.2 shall terminate upon the closing of a Qualified IPO. 5.2 INSPECTION RIGHTS. The Company shall permit each Investor who with its affiliates holds at least 1,000,000 shares of Preferred Stock of the Company, its attorney, or its other representative to visit and inspect the Company's properties, to examine the Company's books of account and other records, to make copies or extracts therefrom and to discuss the Company's affairs, finances and accounts with its officers, management employees and independent accountants, all at such reasonable times and as often as such Investor may reasonably request. 5.3 ASSIGNMENT OF RIGHTS TO INFORMATION. The rights granted pursuant to Sections 5.1 and 5.2 may not be assigned or otherwise conveyed by any Investor or by any subsequent transferee of any such rights without the written consent of the Company, which consent shall not 16. be unreasonably withheld; provided that the Company may refuse such written consent if the proposed transferee is a competitor of the Company as determined by the Company's Board of Directors; and provided further, that no such written consent shall be required if the transfer is made to a party who is not a competitor of the Company and who is a parent, subsidiary, affiliate, partner or group member of any Investor. 5.4 CONFIDENTIALITY. Each Investor agrees that it will keep confidential and will not disclose or divulge any confidential, proprietary or secret information which such Investor may obtain from the Company, and which the Company has prominently marked "confidential", "proprietary" or "secret" or has otherwise identified as being such, pursuant to financial statements, reports and other materials submitted by the Company as required hereunder, or pursuant to visitation or inspection rights granted hereunder unless such information is or becomes known to the Investor from a source other than the Company or is or becomes publicly known, or unless the Company gives its written consent to the Investor's release of such information, except that no such written consent shall be required (and the Investor shall be free to release such information to such recipient) if such information is to be provided to an Investor's counsel or accountant, or to an officer, director or partner of an Investor, provided that the Investor shall inform the recipient of the confidential nature of such information, and shall instruct the recipient to treat the information as confidential. VI. MISCELLANEOUS 6.1 GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of California applicable to contracts between California residents entered into and to be performed entirely within the State of California. 6.2 SUCCESSORS AND ASSIGNS. Except as otherwise provided herein, the provisions hereof shall inure to the benefit of, and be binding upon, the successors, assigns, heirs, executors and administrators of the parties hereto. 6.3 ENTIRE AGREEMENT. This Agreement, the Series A Agreement and the Series B Agreement constitute the full and entire understanding and agreement among the parties with regard to the subjects hereof and thereof. 6.4 NOTICES, ETC. All notices and other communications required or permitted hereunder shall be in writing and shall be effective five (5) days after deposited by first-class mail, postage prepaid, with the United States mail or delivery by hand or by messenger, if addressed (a) to an Investor, at such Investor's address set forth on the attached Exhibit A, or at such other address as such Investor shall have furnished to the Company in writing, or (b) to any other holder of Registrable Securities, at such address as such holder shall have furnished the Company in writing, or, until any such holder so furnishes an address to the Company, then to and at the address of the last holder of such Registrable Securities who has so furnished an address to the Company, or (c) to the Company, at the address set forth below the Company's name on the signature page to this Agreement or such other address as the Company shall have furnished to each Investor and each such other holder in writing. Notwithstanding the above, any notice or 17. communication to an address outside the United States shall be sent by telecopy and confirmed in writing sent by courier guaranteeing delivery in no more than two (2) business days. 6.5 DELAYS OR OMISSIONS. No delay or omission to exercise any right, power or remedy accruing to any party, upon any breach or default of any other party under this Agreement, shall impair any such right, power or remedy of such party nor shall it be construed to be a waiver of any such breach or default, or an acquiescence therein, or of or in any similar breach or default thereunder occurring; nor shall any waiver of any single breach or default be deemed a waiver of any other breach or default theretofore or thereafter occurring. Any waiver, permit, consent or approval of any kind or character on the part of any party of any breach or default under this Agreement, or any waiver on the part of any party of any provisions or conditions of this Agreement, must be in writing and shall be effective only to the extent specifically set forth in such writing. All remedies, either under this Agreement, or by law or otherwise afforded to any holder, shall be cumulative and not alternative. 6.6 COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which may be executed by less than all of the Investors, each of which shall be enforceable against the parties actually executing such counterparts, and all of which together shall constitute one instrument. 6.7 SEVERABILITY. In the case any provision of this Agreement shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. 6.8 AMENDMENTS. The provisions of this Agreement may be amended at any time and from time to time, and particular provisions of this Agreement may be waived, with and only with an agreement or consent in writing signed by the Company and by the holders of not less than a majority of the number of shares of Registrable Securities outstanding as of the date of such amendment or waiver. Each Investor, Series A Warrant Holder, and Series B Warrant Holder acknowledges that by the operation of this Section 6.8 the holders of a majority of the outstanding Registrable Securities may have the right and power to diminish or eliminate all rights of such Investor, Series A Warrant Holder, or Series B Warrant Holder under this Agreement. Notwithstanding anything herein to the contrary, the parties agree that the Company may amend this Agreement at any time after the date hereof, without obtaining the consent of any Holder, to add as parties to this Agreement any purchasers of the Company's Series C Preferred Stock pursuant to the Private Placement. Any persons added to this Agreement pursuant to this subparagraph shall become "Investors" under this Agreement, and shares of Common Stock issuable upon conversion of the Series C Preferred Stock held by such persons shall be "Registrable Securities" under this Agreement. 18. The foregoing Investors Rights Agreement is hereby executed as of the date first above written. COMPANY AVIRON By: ---- J. Leighton Read, M.D. Chief Executive Officer 1450 Rollins Road Burlingame, CA 94010 INVESTORS: Name of Investor: ---------------------------- Authorized Signature: ------------------------ Name and Title 19. INSTITUTIONAL VENTURE PARTNERS V by its General Partner Institutional Venture Management V By: ----------------------------------- Reid W. Dennis General Partner 3000 Sand Hill Road Building 2, Suite 290 Menlo Park, CA 94025 INSTITUTIONAL VENTURE MANAGEMENT V By: ----------------------------------- Reid W. Dennis General Partner 3000 Sand Hill Road Building 2, Suite 290 Menlo Park, CA 94025 -------------------------------------- J. Leighton Read, M.D. c/o Aviron 1450 Rollins Road Burlingame, California 94010 -------------------------------------- Bernard Roizman 5555 S. Everett, Apt. 11A Chicago, Illinois 60637 -------------------------------------- Betty Roizman 5555 S. Everett, Apt. 11A 20. Chicago, Illinois 60637 21. ARCH VENTURE FUND LIMITED PARTNERSHIP a Delaware Limited Partnership By: ARCH Development Corporation By: ----------------------------------- Steven Lazarus, President 135 South LaSalle Street Suite 3702 Chicago, Illinois 60603 -------------------------------------- Albert L. Zesiger 75 Bluff Avenue Rowayton, Connecticut 06853 -------------------------------------- Peter Palese, Ph.D. 414 Highwood Avenue Leonia, New Jersey 07605 -------------------------------------- John P. Curran 237 Park Avenue Suite 900 New York, New York 10017 22. -------------------------------------- Steven R. Frank c/o Bear Sterns & Co. 245 Park Avenue, 3rd Floor New York, NY 10169 -------------------------------------- David B. Musket One Boston Place, 35th Floor Boston, Massachusetts 02108 GC&H INVESTMENTS By: ----------------------------------- Name: --------------------------------- Executive Partner c/o Jeanne Meyer Cooley Godward Castro Huddleson & Tatum One Maritime Plaza, 20th Floor San Francisco, California 94111 -------------------------------------- Julian N. Stern 84 Selby Lane Atherton, California 94027 -------------------------------------- Richard Whitley 216 Shades Crest Circle Birmingham, Alabama 35216 23. -------------------------------------- Sally B. Whitley 216 Shades Crest Circle Birmingham, Alabama 35216 -------------------------------------- Bruce A. Hironaka 26 Lenox Road Kensington, California 94707 -------------------------------------- Valerie Hironaka 26 Lenox Road Kensington, California 94707 THE MOUNT SINAI SCHOOL OF MEDICINE By: ----------------------------------- Frank R. Landsberger, Ph.D One Gustave L. Levy Plaza New York, NY 10029-6574 ACCEL IV L.P. By: Accel IV Associates L.P. Its: General Partner By: ----------------------------------- General Partner 1 Embarcadero Center Suite 3820 San Francisco, CA 94111 24. ACCEL JAPAN L.P. By: Accel Japan Associates L.P. Its: General Partner By: ----------------------------------- General Partner 1 Embarcadero Center Suite 3820 San Francisco, CA 94111 ABINGWORTH BIOVENTURES By: ----------------------------------- Daniel P. Finkelman Attorney-in-Fact c/o Sanne & Cie Boite Postale 566 L-2015 Luxembourg with a copy to: Dr. Stephen W. Bunting Abingworth Management Limited 26 St. James Street London SW1A 1HA England FERRIS F. HAMILTON FAMILY TRUST By: ----------------------------------- Name: ---------------------------- Title: --------------------------- 25. MARY ANN HAMILTON TRUST FOR SELF By: ----------------------------------- Name: ---------------------------- Title: --------------------------- TAB PRODUCTS CO. PENSION PLAN By: ----------------------------------- Name: ---------------------------- Title: --------------------------- THE JENIFER ALTMAN FOUNDATION By: ----------------------------------- Name: ---------------------------- Title: --------------------------- AMERICAN MEDICAL INT'L. PENSION PLAN By: ----------------------------------- Name: ---------------------------- Title: --------------------------- 26. TEMPLE-INLAND MASTER TRUST By: ----------------------------------- Name: ---------------------------- Title: --------------------------- ARTHUR D. LITTLE EMPLOYEE INVES. PLAN By: ----------------------------------- Name: ---------------------------- Title: --------------------------- THE DEAN WITTER FOUNDATION By: ----------------------------------- Name: ---------------------------- Title: --------------------------- ANDREW HEISKELL By: ----------------------------------- Name: ---------------------------- Title: --------------------------- 27. ALFRED E. HELLER By: ----------------------------------- Name: ---------------------------- Title: --------------------------- ELIZABETH HELLER MANDELL TRUST By: ----------------------------------- Name: ---------------------------- Title: --------------------------- DOMENIC MIZIO By: ----------------------------------- Name: ---------------------------- Title: --------------------------- THE RAISER MARITAL TRUST By: ----------------------------------- Name: ---------------------------- Title: --------------------------- 28. MARY VAN SCHUYLER RAISER By: ----------------------------------- Name: ---------------------------- Title: --------------------------- BARRIE RAMSAY ZESIGER By: ----------------------------------- Name: ---------------------------- Title: --------------------------- BEA ASSOCIATES PROFIT SHARING TRUST By: ----------------------------------- Name: ---------------------------- Title: --------------------------- BRINSON PARTNERS, INC. By: ----------------------------------- Robert D. Blank Partner Brinson Partners, Inc. 209 South LaSalle Street Suite 114 Chicago, IL 60604-1295 29. INTERHEALTH LIMITED, a California Limited Partnership --------------------------------- Dr. Alejandro Zaffaroni 4005 Miranda Avenue, Suite 180 Palo Alto, CA 94304 ARCH VENTURE FUND II, L.P. a Delaware limited partnership By: ARCH Management Partners II, L.P. its general partner By: ARCH Venture Partners, L.P. its general partner By: Lifework, Inc. its general partner By: -------------------- Name: ------------------ Title: Managing Director ------------------------------------------- Eugene Garfield 3501 Market Street Philadelphia, PA 19104 ------------------------------------------- Dr. H. R. Shepherd Opportunities Unlimited c/o Armstrong Pharmaceuticals 71 Elm Street New Caanan, CT 06840 30. BRINSON VENTURE CAPITAL FUND III, L.P. By: Brinson Partners, Inc. its General Partner By: ----------------------------------- Robert D. Blank, Partner BRINSON TRUST COMPANY AS TRUSTEE OF THE BRINSON MAP VENTURE CAPITAL FUND III By: -------------------------------------- Robert D. Blank, Partner 31. WELLS FAMILY TRUST S/P JOEL W. SCHRECK By: ------------------------------------ Name: ---------------------------------- Title: --------------------------------- A. CAREY ZESIGER REVOCABLE TRUST By: ------------------------------------ Name: ---------------------------------- Title: --------------------------------- NICOLA L. ZESIGER By: ------------------------------------ Name: ---------------------------------- Title: --------------------------------- ALEXA L. ZESIGER By: ----------------------------------- Name: ---------------------------- Title: --------------------------- 32. ALZA CORPORATION RETIREMENT PLAN By: ----------------------------------- Name: ---------------------------- Title: --------------------------- SHEANA BUTLER By: ----------------------------------- Name: ---------------------------- Title: --------------------------- 33. ROVENT LIMITED PARTNERSHIP By: Advent International Limited Partnership, General Partner By: Advent International Corporation, General Partner By: ----------------------------------- Charles Hsu, Vice President ADVENTACT LIMITED PARTNERSHIP By: Advent International Limited Partnership, General Partner By: Advent International Corporation, General Partner By: ----------------------------------- Charles Hsu, Vice President GOLDEN GATE DEVELOPMENT AND INVESTMENT LIMITED PARTNERSHIP By: Advent International Limited Partnership, General Partner By: Advent International Corporation, General Partner By: ----------------------------------- Charles Hsu, Vice President 34. ADVENT INTERNATIONAL INVESTORS II LIMITED PARTNERSHIP By: Advent International Corporation, General Partner By: ----------------------------------- Charles Hsu, Vice President -------------------------------------- George Rupp 202 Low Library Columbia University 60 Morningside Drive New York, New York 10027 35. EXHIBIT A SCHEDULE OF INVESTORS AS OF JULY 18, 1995 Name and Address Shares - -------------------------------------------------------------------------------- SERIES A PREFERRED STOCK: Institutional Venture Partners V . . . . . . . . . . . . . . . . . 2,955,000 Institutional Venture Management V . . . . . . . . . . . . . . . . 45,000 Building 2, Suite 290 3000 Sand Hill Road Menlo Park, California 94025 J. Leighton Read, M.D. . . . . . . . . . . . . . . . . . . . . . . 500,000 c/o Aviron 1450 Rollins Road Burlingame, California 94010 Bernard Roizman, Sc.D. and Betty Roizman.. . . . . . . . . . . . . 100,000 5555 S. Everett, Apt. 11A Chicago, Illinois 60637 Albert L. Zesiger. . . . . . . . . . . . . . . . . . . . . . . . . 300,000 75 Bluff Avenue Rowayton, Connecticut 06853 Peter Palese, Ph.D. . . . . . . . . . . . . . . . . . . . . . . . 100,000 Professor and Chairman Department of Microbiology Mount Sinai Medical Center New York, New York 10029 John P. Curran . . . . . . . . . . . . . . . . . . . . . . . . . . 80,000 237 Park Avenue Suite 900 New York, New York 10017 1. Name and Address Shares - -------------------------------------------------------------------------------- Steven R. Frank. . . . . . . . . . . . . . . . . . . . . . . . . . 50,000 c/o Bear Sterns & Co. 245 Park Avenue, 3rd Floor New York, NY 10169 David B. Musket. . . . . . . . . . . . . . . . . . . . . . . . . . 50,000 One Boston Place, 35th Floor Boston, Massachusetts 02108 GC&H Investments.. . . . . . . . . . . . . . . . . . . . . . . . . 50,000 c/o Jeanne Meyer Cooley Godward Castro Huddleson & Tatum One Maritime Plaza, 20th Floor San Francisco, California 94111 Julian N. Stern. . . . . . . . . . . . . . . . . . . . . . . . . . 50,000 84 Selby Lane Atherton, California 94025 Richard Whitley. . . . . . . . . . . . . . . . . . . . . . . . . . 10,000 Sally B. Whitley 216 Shades Crest Circle Birmingham, Alabama 35216 Bruce A. Hironaka. . . . . . . . . . . . . . . . . . . . . . . . . 10,000 Valerie Hironaka 26 Lenox Road Kensington, California 94707 ARCH VENTURE FUND . . . . . . . . . . . . . . . . . . . . . . . . 700,000 Limited Partnership 135 South LaSalle Street Suite 3702 Chicago, Illinois 60603 2. Name and Address Shares - -------------------------------------------------------------------------------- SERIES B PREFERRED STOCK: Accel IV L.P. . . . . . . . . . . . . . . . . . . . . . . . . . . 2,811,111 Accel Japan L.P. . . . . . . . . . . . . . . . . . . . . . . . . . 244,444 One Embarcadero Center Suite 3820 San Francisco, CA 94111 Abingworth Bioventures . . . . . . . . . . . . . . . . . . . . . . 2,777,778 c/o Sanne & Cie Boite Postale 566 L-2015 Luxembourg Attn: Karl U. Sanne Telecopier: (352) 43 54 10 With a copy to: Dr. Stephen W. Bunting Abingworth Management Limited 26 St. James's Street London SW1A 1HA England Telecopier: (44) (71) 930-1891 and to: Daniel P. Finkelman, Esq. Testa, Hurwitz & Thibeault 53 State Street, Exchange Place Boston, Massachusetts 02109 Telecopier: (617) 248-7100 Brinson Venture Capital Fund III, L.P. . . . . . . . . . . . . . . 1,910,624 Brinson Trust Company as Trustee of the. . . . . . . . . . . . . . 311,598 Brinson MAP Venture Capital Fund III c/o Brinson Partners, Inc. 209 South LaSalle Street Suite 114 Chicago, IL 60604-1295 3. Name and Address Shares - -------------------------------------------------------------------------------- Institutional Venture Partners V. . . . . . . . . . . . . . . . . 2,695,500 Institutional Venture Management V. . . . . . . . . . . . . . . . 61,100 Building 2, Suite 290 3000 Sand Hill Road Menlo Park, California 94025 ARCH VENTURE FUND II, L. P.. . . . . . . . . . . . . . . . . . . . 277,778 135 South LaSalle Street Suite 3702 Chicago, Illinois 60603 Ferris F. Hamilton Family Trust. . . . . . . . . . . . . . . . . . 49,500 Mary Ann Hamilton Trust for Self . . . . . . . . . . . . . . . . . 76,500 The Jenifer Altman Foundation. . . . . . . . . . . . . . . . . . . 49,500 American Medical Int'l. Pension Plan . . . . . . . . . . . . . . . 450,000 Temple-Inland Master Trust . . . . . . . . . . . . . . . . . . . . 495,000 Arthur D. Little Employee Inves. Plan. . . . . . . . . . . . . . . 405,000 The Dean Witter Foundation . . . . . . . . . . . . . . . . . . . . 72,000 Andrew Heiskell. . . . . . . . . . . . . . . . . . . . . . . . . . 76,500 Alfred E. Heller . . . . . . . . . . . . . . . . . . . . . . . . . 49,500 Elizabeth Heller Mandell Trust . . . . . . . . . . . . . . . . . . 49,500 Domenic Mizio. . . . . . . . . . . . . . . . . . . . . . . . . . . 76,500 The Raiser Marital Trust . . . . . . . . . . . . . . . . . . . . . 99,000 Mary Van Schuyler Raiser . . . . . . . . . . . . . . . . . . . . . 27,000 Barrie Ramsay Zesiger. . . . . . . . . . . . . . . . . . . . . . . 99,000 BEA Associates Profit Sharing Trust. . . . . . . . . . . . . . . . 99,000 Wells Family Trust S/P Joel W. Schreck . . . . . . . . . . . . . . 99,000 A. Carey Zesiger Revocable Trust . . . . . . . . . . . . . . . . . 36,000 Nicola L. Zesiger. . . . . . . . . . . . . . . . . . . . . . . . . 36,000 Alexa L. Zesiger . . . . . . . . . . . . . . . . . . . . . . . . . 31,500 Alza Corporation Retirement Plan . . . . . . . . . . . . . . . . . 49,500 Sheana Butler. . . . . . . . . . . . . . . . . . . . . . . . . . . 27,000 c/o BEA Associates 153 E. 53rd Street, 58th Floor New York, NY 10022 Dr. H.R. Shepherd. . . . . . . . . . . . . . . . . . . . . . . . . 166,667 Opportunities Unlimited c/o Armstrong Pharmaceuticals 71 Elm Street New Caanan, CT 06840 4. Name and Address Shares - -------------------------------------------------------------------------------- Dr. Alejandro Zaffaroni. . . . . . . . . . . . . . . . . . . . . . 277,778 Attention: Gonzalo Silviera c/o Interhealth Limited 4005 Miranda Avenue, Suite 180 Palo Alto, CA 94304 Eugene Garfield. . . . . . . . . . . . . . . . . . . . . . . . . . 277,778 3501 Market Street Philadelphia, PA 19104 Peter Palese, Ph.D. . . . . . . . . . . . . . . . . . . . . . . . 55,556 414 Highwood Avenue Leonia, New Jersey 07605 GC&H Investments.. . . . . . . . . . . . . . . . . . . . . . . . . 40,000 c/o Jeanne Meyer Cooley Godward Castro Huddleson & Tatum One Maritime Plaza, 20th Floor San Francisco, California 94111 COMMON STOCK: Peter Palese, Ph.D. . . . . . . . . . . . . . . . . . . . . . . . 750,000 414 Highwood Avenue Leonia, New Jersey 07605 J. Leighton Read, M.D. . . . . . . . . . . . . . . . . . . . . . . 750,000 c/o Aviron 1450 Rollins Road Burlingame, CA 94010 Bernard Roizman, Sc.D. . . . . . . . . . . . . . . . . . . . . . . 750,000 5555 S. Everett, Apt. 11A Chicago, IL 60637 Richard J. Whitley . . . . . . . . . . . . . . . . . . . . . . . . 750,000 216 Shades Crest Circle Birmingham, AL 35216 5. EXHIBIT B SCHEDULE OF SERIES A WARRANT HOLDERS Name and Address No. of Shares Purchasable - -------------------------------------------------------------------------------- Mount Sinai Medical Center . . . . . . . . . . . . . . . . . . . . 225,000 One Gustave L. Levy Plaza New York, New York 10029-6574 EXHIBIT C SCHEDULE OF SERIES B WARRANT HOLDERS Name and Address No. of Shares Purchasable - -------------------------------------------------------------------------------- Lease Management Services, Inc.. . . . . . . . . . . . . . . . . . 194,445 2500 Sand Hill Road Suite 101 Menlo Park, CA 94025 TABLE OF CONTENTS PAGE I. General................................................................. 2. 1.1 Prior Agreement Superseded..................................... 2. II. Transferability........................................................ 3. 2.1 Restrictions on Transferability................................ 3. 2.2 Restrictive Legend............................................. 4. 2.3 Notice of Proposed Transfers................................... 4. III. Registration Rights................................................... 5. 3.1 Requested Registration......................................... 5. 3.2 Company Registration........................................... 7. 3.3 Expenses of Registration....................................... 8. 3.4 Registration Procedures........................................ 8. 3.5 Indemnification................................................ 9. 3.6 Information by Holder.......................................... 11. 3.7 Rule 144 Reporting............................................. 11. 3.8 "Market Stand-off" Agreement................................... 12. 3.9 Form S-3....................................................... 12. 3.10 Transfer of Registration Rights................................ 12. 3.11 Certain Limitations in Connection with Future Grants of Registration Rights............................................ 13. 3.12 Termination of Registration Rights............................. 13. IV. RIGHT OF FIRST REFUSAL ON COMPANY ISSUANCES............................ 13. 4.1 Right of First Refusal......................................... 13. V. Information Rights...................................................... 15. 5.1 Financial Information.......................................... 15. 5.2 Inspection Rights.............................................. 16. 5.3 Assignment of Rights to Information............................ 16. 5.4 Confidentiality................................................ 16. VI. Miscellaneous.......................................................... 17. 6.1 Governing Law.................................................. 17. 6.2 Successors and Assigns......................................... 17. 6.3 Entire Agreement............................................... 17. 6.4 Notices, etc................................................... 17. 6.5 Delays or Omissions............................................ 17. 6.6 Counterparts................................................... 18. 6.7 Severability................................................... 18. 6.8 Amendments..................................................... 18. i TABLE OF CONTENTS (CONTINUED) PAGE ii EX-5.1 10 OPINION OF COOLEY GODWARD Exhibit 5.1 [Letterhead] COOLEY GODWARD COOLEY GODWARD CASTRO HUDDLESON & TATUM Five Palo Alto Square 3000 El Camino Real Palo Alto, CA 94306-2155 MAIN 415 843-5000 FAX 415 857-0663 June 3, 1996 Aviron 297 North Bernardo Avenue Mountain View, CA 94043 RE: OPINION Ladies and Gentlemen: You have requested our opinion with respect to certain matters in connection with the filing on June 4, 1996 by Aviron (the "Company") of a Registration Statement on Form S-1 (the "Registration Statement") with the Securities and Exchange Commission (the "Commission"), including a prospectus (which may be filed with the Commission pursuant to Rule 424(b) of Regulation C promulgated under the Securities Act of 1933, as amended) (the "Prospectus"), and the underwritten public offering of up to 3,450,000 shares of the Company's common stock (the "Common Stock") (including 450,000 shares of Common Stock for which the underwriters have been granted an over allotment option). In connection with this opinion, we have (i) examined and relied upon the Registration Statement and related Prospectus, the Company's Articles of Incorporation and Bylaws, as amended, and the originals or copies certified to our satisfaction of such records, documents, certificates, memoranda and other instruments as in our judgment are necessary or appropriate to enable to render the opinion expressed below and (ii) assumed that the shares of the Common Stock will be sold by the underwriters at a price established by the Pricing Committee of the Board of Directors of the Company. On the basis of the foregoing, and in reliance thereon, we are of the opinion that the Common Stock, when sold and issued in accordance with the Registration Statement and related Prospectus, will be validly issued, fully paid and nonassessable. Aviron June 3, 1996 Page 2 We consent to the reference to our firm under the caption "Legal Matters" in the Prospectus included in the Registration Statement and to the filing of this opinion as an exhibit to the Registration Statement. Very truly yours, COOLEY GODWARD CASTRO HUDDLESON & TATUM Robert J. Brigham cc: J. Leighton Read, M.D. EX-10.1 11 LICENSE AGREEMENT EXHIBIT 10.1 CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT HAS BEEN DELETED, AS MARKED BY BRACKETS, AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. LICENSE AGREEMENT License Agreement dated as of July 1, 1992, between ARCH DEVELOPMENT CORPORATION, an Illinois not-for-profit corporation ("ARCH"), and VECTOR PHARMACEUTICALS, INC., a California corporation ("Licensee"). PRELIMINARY STATEMENT ARCH holds rights to the Licensed Patent Rights described below. Licensee wishes to obtain the right to exploit the Licensed Patent Rights in commercial settings. Therefore, in consideration of the mutual obligations set forth herein and of other valuable consideration, the receipt and sufficiency of which are hereby acknowledged, ARCH and Licensee agree as follows. ARTICLE I DEFINITIONS The following capitalized terms are used in this Agreement with the following meanings: "AFFILIATE" means, as to any person or entity, any other person or entity which is directly or indirectly controlled by, or is under common control with, such person or entity. For purposes of the preceding definition, "control" means the right to control, or actual control of, the management of such other entity, whether by ownership of voting securities, by agreement, or otherwise. "COMBINATION PRODUCT" means any product that is comprised in part of a Licensed Product and in part of one or more other biologically active diagnostic, preventive or therapeutic agents which are not themselves Licensed Products (the "Other Agents"). "Other Agents" excludes diluents and vehicles of Licensed Products. "COMMERCIAL SALE" means any transfer to another person or entity, for value, after which transfer the seller has no right or power to determine the transferee's resale price, if any. A transfer by Licensee to an Affiliate or sublicensee shall not constitute a Commercial Sale. "Commercial Sale" does not include distribution of free promotional samples of any Licensed Product or Combination Product by Licensee or any of its Affiliates or sublicensees in amounts determined to be commercially reasonable by Vector. "IMPROVEMENTS" means all modifications, revisions or improvements to the Inventions within the Scope hereafter owned by or subject to the rights of ARCH which improve the performance, marketability, manufacture or quality of the Inventions or any Licensed Product, but only to the extent such modifications, revisions or improvements are not subject to the rights of any third party funding source. "INVENTIONS" means the devices, machines, methods, processes, manufactures, compositions of matter and uses (in each case whether patentable or unpatentable) disclosed in or by the patents and patent applications listed on Schedule I attached hereto. "LATER DEVELOPMENTS" means all discoveries, inventions, or other proprietary matters within the Scope (other than Improvements) now or hereafter owned by or subject to the rights of ARCH, but only to the extent such discoveries, inventions or other proprietary matters are not subject to the rights of any third party funding source. "LICENSED FIELD" means the prediction, monitoring, diagnosis, prevention and treatment of disease in humans, animals and plants. "LICENSED PATENT RIGHTS" means (a) the patents and patent applications in which are disclosed any and all Inventions, and (b) all patents and patent applications which are divisions, continuations, continuations-in-part, reissues, renewals, reexaminations, foreign counterparts, substitutions, or extensions of or to any patent applications or patents described in clause (a) of this sentence. "LICENSED PRODUCT" means any product within the scope of any claim of any patent or patent application within the Licensed Patent Rights and any product made by any art, method or process within the scope of any claim of any patent or patent application within the Licensed Patent Rights. "NET SALES" means: (a) with respect to Licensed Products, the gross sales price actually charged by Licensee or an Affiliate or sublicensee of Licensee in the Commercial Sale of such Licensed Product, less: (i) trade, prompt payment, quantity or cash discounts, rebates, and non-affiliated brokers' or agents' commissions, each as actually and customarily allowed and taken; -2- CONFIDENTIAL TREATMENT REQUESTED (ii) amounts actually repaid or credited to customers on account of rejections or returns of specified products on which Royalties have been paid hereunder or on account of retroactive price reductions affecting such products; (iii) customary freight and other transportation costs, including insurance charges, and duties, tariffs, sales, use and excise taxes and other governmental charges based directly on sales, turnover or delivery of the specified products and actually paid or allowed by Licensee, an Affiliate of Licensee or a sublicensee; and (iv) commercially reasonable allowances for bad debts incurred with respect to the initial Licensed Product during the first full year of Commercial Sales of such Licensed Product, PROVIDED that such bad debt reserve shall be deemed extinguished within 180 days of the end of such first full year, and any amount of such reserve not actually debited in accordance with commercially reasonable practices during that period shall be deemed to be receipts of Net Sales for all purposes of this Agreement; and (b) with respect to Combination Products, the gross sales price actually charged by Licensee or an Affiliate or sublicensee of Licensee in the Commercial Sale of such Combination Product, less the deductions set forth in subsections (a)(i) - (iv) above, multiplied by a fraction having (i) a numerator of [ ] and (ii) a denominator of the [ ] The "fair market value" for any Licensed Product or Other Agent shall be determined for [ ] When no fair market value is available, the fraction set forth above shall be changed to a fraction having (x) a numerator of [ ] and (y) a denominator of [ ] PROVIDED that in no event shall the fraction be less than [ ] if only one Other Agent is included with a Licensed Product(s) in such -3- CONFIDENTIAL TREATMENT REQUESTED Combination Product, (B) [ ], if two Other Agents are included with a Licensed Product(s) in such Combination Product, and (C) [ ], if three or more Other Agents are included with a Licensed Product(s) in such Combination Product. "Cost" as used above means [ ] "PATENT COSTS" means a person's out-of-pocket expenses incurred in connection with the preparation, filing, prosecution and maintenance of the patents under the Licensed Patent Rights, including, among other items, the fees and expenses of attorneys and patent agents, filing fees and maintenance fees, but excluding costs involved in any patent infringement claims. "ROYALTIES" means all amounts payable under clauses (b) and (c) of Section 3.1 of this Agreement. "SCOPE" means and shall be limited to (i) [ ] adapted for use in [ ] that are subject to an obligation of assignment to the University and in which ARCH has obtained property rights, and which have been developed (a) by [ ] in the course of a collaborative research effort with one or more scientists from entities other than the University, or (b) by [ ]in the course of a research effort conducted principally in the laboratory [ ] and not in the course of a collaborative effort with one or more senior scientists at the University, and (ii) the [ ] described in [ ]of Schedule I attached hereto. "Scope" does not include [ ] "SUBLICENSE" means any grant by Licensee of any rights to a sublicensee under the terms of Section 2.1 of this Agreement. "TECHNICAL INFORMATION" means the technical information, know-how, processes, reagents, protocols, and samples of assay components, media and/or cell lines and procedures and formulations for producing same, if any, in ARCH's or [ ] possession, claimed or described in the Licensed Patent Rights, and which contribute in whole or in part to the practice of the Inventions. "TERRITORY" means worldwide. "UNIVERSITY" means the University of Chicago. -4- CONFIDENTIAL TREATMENT REQUESTED ARTICLE II GRANT OF LICENSE 2.1. GRANT. ARCH hereby grants and agrees to grant to Licensee and its Affiliates: (a) an exclusive (except as otherwise specified in Sections 2.2 and 2.3) license to practice the Inventions and make, have made, use and sell Licensed Products (whether singly or as part of a Combination Product, and including the provision of services in connection therewith) under the Licensed Patent Rights within the Licensed Field and within the Territory; and (b) the exclusive right and authority to grant Sublicenses of the rights granted in clause (a) above, subject to the provisions of this Agreement. 2.2. RESERVATIONS. ARCH reserves for itself and the University the irrevocable, non-transferable right to make and use (but not sell) Licensed Products and to use the Licensed Patent Rights, all for educational and research purposes only. In addition, the Inventions may have been conceived with the use of United States government funds. Therefore, there is reserved from the rights granted hereunder the right of the United States government to practice the Inventions for its own purposes in such manner as it sees fit. Licensee further acknowledges that third parties may have ownership interests in Improvements or Later Developments which may preclude the grant of an exclusive license to Licensee in such Improvements or Later Developments. Neither ARCH nor the University shall have any obligation to pay Licensee a royalty or any other fee for the rights reserved in this Section. 2.3. OTHER RIGHTS. Licensee acknowledges and understands that pursuant to that certain Research Agreement by and between the University and [ ] dated [ ] as amended, the patents and patent applications identified as [ ] have been issued and filed [ ] ARCH agrees that it will use its good faith efforts to cause the University to obtain, and thereafter assign to ARCH, the patents and patent applications described above pursuant to the proposed Assignment Agreement between the University [ ] attached hereto as Exhibit A under substantially the same terms as are set forth in the [ ] so as to effectuate fully the intention of the parties to license to Licensee all of the patents and patent applications set forth on Schedule I attached hereto. ARCH agrees that it will keep Licensee fully informed of the status of its efforts to obtain -5- CONFIDENTIAL TREATMENT REQUESTED [ ] agreement to the [ ] as currently exists or as negotiated by ARCH in good faith. Vector acknowledges that (i) notwithstanding ARCH's good faith efforts to enter into the [ ] with [ ] the agreement which ARCH may eventually enter into with [ ] may differ substantially from the [ ] and (ii) in the event the [ ] (or some other assignment instrument) is entered into between the University and [ ] the rights granted in Section 2.1 above are subject to all of the terms and conditions of such [ ] (or alternative assignment instrument). ARCH shall not have any obligation to pay Licensee a royalty or any other fee for the rights granted to [ ] pursuant to the [ ] (or alternative assignment instrument). 2.4. SUBLICENSES. Licensee may enter into Sublicenses for the Licensed Patent Rights as Licensee shall determine in its reasonable discretion, PROVIDED that (i) Licensee shall give ARCH written notice of the execution of any Sublicense immediately upon such an event, (ii) Licensee shall promptly provide ARCH with a copy of each such Sublicense and any amendments and modifications thereto, (iii) Licensee may not assign any of its obligations hereunder to any sublicensee, (iv) each Sublicense shall provide that ARCH shall not be responsible for the performance by Licensee of any of Licensee's obligations under such Sublicense, and (v) the terms of any such Sublicense shall be consistent with the terms of this Agreement. Upon the termination of this Agreement for any reason prior to the expiration of the last-to-expire patent under the Licensed Patent Rights, Licensee's rights (but not obligations) under each Sublicense shall automatically be deemed transferred to ARCH without the necessity of any notice or other communication from ARCH to the sublicensee, and each Sublicense shall continue thereafter in full force and effect in accordance with its terms. Licensee agrees to provide for such an event in each Sublicense in a manner reasonably acceptable to ARCH. 2.5. IMPROVEMENTS. (a) ARCH hereby grants to Licensee an option, [ ] to include any Improvements within the licenses granted pursuant to Section 2.1 on the terms otherwise set forth in this Agreement. Licensee shall have the right, [ ] to request from [ ] either telephonically or in writing, information regarding the existence or nature of any Improvements PROVIDED Licensee acknowledges and agrees that any failure of [ ] to provide such information will not constitute a breach of this Agreement by ARCH. ARCH agrees to notify Licensee in writing of any Improvement [ ]of ARCH acquiring title to such Improvement, which notice shall describe the Improvement in general terms and shall be accompanied by a confidentiality agreement in reasonable form to be executed by Licensee. Upon the execution of such -6- CONFIDENTIAL TREATMENT REQUESTED confidentiality agreement ARCH shall provide Licensee with sufficient details regarding the subject Improvement to allow Licensee to evaluate its commercial potential. (b) Licensee shall have an exclusive period of [ ] after receipt of detailed information concerning an Improvement in which to notify ARCH in writing of its desire to exercise its option with respect to such Improvement. If Licensee fails to deliver such notice within the applicable time, or notifies ARCH that it does not wish to exercise such option, Licensee shall have no further rights with respect to such Improvement of any kind or nature whatsoever. (c) If Licensee exercises its option with respect to an Improvement, the Improvement shall thereafter be deemed an "Invention" for all purposes of this Agreement, and ARCH's and Licensee's rights and obligations with respect thereto shall be as set forth in this Agreement. Licensee agrees that it shall pay, or at ARCH's option reimburse ARCH for, the Patent Costs incurred with respect to the Licensed Patent Rights arising as a consequence of any such Invention (including any Patent Costs for which ARCH is obligated to reimburse any governmental agency), whether incurred before or after the date on which Licensee exercises its option therefor. 2.6. TECHNICAL INFORMATION. ARCH agrees to provide Licensee with Technical Information which comes within ARCH's possession from time to time during the term of this Agreement. Licensee shall be entitled to use (and shall be entitled to allow its Affiliates and sublicensees to use) such Technical Information internally in support of development, discovery, manufacturing and marketing efforts for sales of Licensed Products, PROVIDED that any such use by Licensee or its Affiliates or sublicensees shall be subject to the restrictions set forth in Section 5.4 below. ARCH further agrees to use its good faith efforts to cause [ ] to promptly deliver the reagents contained in the Technical Information and the patent applications contained within the Licensed Patent Rights in his possession to Licensee, at Licensee's expense. 2.7. OWNERSHIP OF DISCOVERIES. Each party acknowledges and agrees that any and all discoveries, know-how, inventions, methods, ideas and the like ("Discoveries") made or discovered solely by its employees, consultants or agents acting within the scope of their respective engagements shall be owned solely by it and that any and all Discoveries made jointly by employees, consultants or agents of each shall be jointly owned, all as determined in accordance with U.S. laws of inventorship. Nothing in the foregoing sentence shall, however, be deemed to constitute the grant of any rights by one party to the other in and to any Discoveries, or any other discoveries or inventions owned by such party, which are not subject to this Agreement. -7- CONFIDENTIAL TREATMENT REQUESTED ARTICLE III PAYMENTS 3.1. ROYALTIES. For the licenses granted in Section 2.1 of this Agreement, Licensee shall pay ARCH the amounts determined pursuant to subsections (a), (b) and (c) below. (a) Licensee shall provide ARCH written notice within fifteen (15) days of achievement of each of the milestone events set forth below in respect of any Licensed Products and Combination Products developed by Licensee, its Affiliates or sublicensees, [ ] events. Within thirty (30) days after delivering each such notice, Licensee shall make the milestone payments to ARCH set forth below: (i) Licensee, any of its Affiliates or any of its sublicensees [ ] for any such Licensed Product or Combination Product: [ ] (ii) [ ] with respect to any such Licensed Product or Combination Product: [ ] and (iii)Licensee, any of its Affiliates or any of its sublicensees [ ] any such Licensed Product or Combination Product: [ ] up to an aggregate maximum amount of [ .] Such milestone payments shall be credited against any and all Royalties due to ARCH hereunder in amounts not to exceed [ ] of the Royalties due in any calendar quarter, if any, until Licensee shall have received credit for all such milestone payments actually made. If no U.S. patent issues to ARCH, or an issued patent is invalidated, which patent or patent application contains significant protection for the Inventions incorporated in a Licensed Product for which milestone payments have been made, such milestone payments shall instead be credited against any and all Royalties due to ARCH hereunder in amounts not to exceed [ ] of the Royalties due in any calendar quarter. (b) A running royalty equal to [ ] of Net Sales of Licensed Products and Combination Products sold by Licensee or any of its Affiliates; and (c) A running royalty determined with respect to each Sublicense entered into by Licensee or any of its Affiliates as follows: -8- CONFIDENTIAL TREATMENT REQUESTED (i) Where either (a) prior to execution of a Sublicense, Licensee or an Affiliate of Licensee has failed to [ ] or (b) Licensee has failed to provide evidence reasonably satisfactory to ARCH that [ ] then all Licensee shall pay to ARCH [ ] of all amounts actually paid to Licensee or an Affiliate of Licensee by a sublicensee with respect to the Licensed Patent Rights so sublicensed (regardless of whether such payments are denominated as fees, royalties or otherwise, and whether paid at the time of or subsequent to the grant of such Sublicense), except that Licensee or an Affiliate of Licensee shall have the right to retain amounts received from such sublicensee specifically related to research and development funding activity, equity investments in Licensee or an Affiliate of Licensee by such sublicensee, loans by such sublicensee to Licensee or an Affiliate of Licensee, or other similar financing activities provided by such sublicensee for the benefit of Licensee or an Affiliate of Licensee; or (ii) in all other such cases, [ ] of Net Sales of Licensed Products and Combination Products sold by the subject sublicensee. All payments made to ARCH pursuant to this Section 3.1 shall be non-refundable under any and all circumstances. 3.2. CALCULATION OF ROYALTIES. (a) Royalties shall be calculated on a calendar quarter basis. Payment of Royalties with respect to each calendar quarter shall be due within sixty (60) days after the end of each quarter, beginning with the calendar quarter in which the first commercial sale of Licensed Products occurs. (b) At the same time that it makes payment of Royalties due with respect to a calendar quarter, Licensee shall deliver to ARCH a true and complete accounting of Commercial Sales of Licensed Products and receipts from those Commercial Sales by Licensee, its Affiliates and its sublicensees during the quarter, -9- CONFIDENTIAL TREATMENT REQUESTED with separate accountings of (i) sales and receipts by country and by Licensed Product and Combination Product, and (ii) a calculation of the Royalty due ARCH for such calendar quarter showing the basis on which the Royalty for a particular Licensed Product or Combination Product was determined. If no Commercial Sales of Licensed Products or Sublicense payments were made in such quarter then Licensee's statement shall be a statement to such effect. (c) Licensee hereby covenants and agrees that it shall promptly notify ARCH of the occurrence of the events giving rise to Licensee's obligations to make payments pursuant to 3.1(b) and (c) above. 3.3. RECORDS. Licensee shall keep, and shall cause its Affiliates and sublicensees to keep, accurate records in sufficient detail to permit the Royalties payable under this Agreement to be determined. During the term of this Agreement and for a period of three (3) years following termination of this Agreement, Licensee shall permit (and shall cause each of its Affiliates and sublicensees to permit), upon written request by ARCH and reasonable notice to Licensee, its books and records regarding the sale of Licensed Products and Combination Products to be examined and copied from time to time (but in no event more than twice in any calendar year), at the request of ARCH during normal business hours by ARCH or any representative of ARCH, and shall require each of its Affiliates and sublicensees to do the same. Such examination shall be made at ARCH's expense, except that if such examination discloses a discrepancy of 5% or more in the amount of Royalties due ARCH, then Licensee shall reimburse ARCH for the reasonable cost of such examination, including any professional fees incurred by ARCH. In connection with any examination or copying of books or records in accordance with the preceding sentence, ARCH or such representative of ARCH shall examine only such information as is required to verify the Licensee's compliance under this Agreement. 3.4. FOREIGN PAYMENTS. In the event of transactions giving rise to an obligation to make a payment hereunder with respect to which Licensee, any of its Affiliates or any sublicensee receives payment in a currency other than currency which is legal tender in the United States of America, all payments required to be made by Licensee under Section 3.1 hereof shall be converted, prior to payment, into United States dollars at the applicable rate of exchange of Citibank, N.A., in New York, New York, on the last day of the quarter in which such transaction occurred. 3.5. OVERDUE PAYMENTS. Payments due to ARCH under this Agreement shall, if not paid when due, bear simple interest at the lower of [ ] or the highest rate permitted by law, calculated on the basis of a 360 day year for the number of days actually elapsed, beginning on the due date and ending on the day prior to -10- the day on which payment is made in full. Interest accruing under this Section shall be due to ARCH on demand. The accrual or receipt by ARCH of interest under this Section shall not constitute a waiver by ARCH of any right it may otherwise have to declare a default under this Agreement or to terminate this Agreement. 3.6. TERMINATION REPORT AND PAYMENT. Within sixty (60) days after the date of termination of this Agreement, Licensee shall make a written report to ARCH which report shall state the number, description, and amount of Licensed Products sold by Licensee, its Affiliates or any sublicensee upon which Royalties are payable hereunder but which were not previously reported to ARCH, a calculation of the Net Sales of such Licensed Products, and a calculation of the Royalty payment due ARCH for such Licensed Products. Concurrent with the making of such report, Licensee shall make the Royalty payment due ARCH for such period. 3.7. PROGRESS REPORT. Licensee shall provide ARCH with an annual written report (the "Annual Report") delivered on or before February 28 of each year during the term of this Agreement. The Annual Reports shall be in reasonable detail and shall include, with respect to the year just completed, reports concerning (a) the status of Licensed Products targeted for commencement of development efforts, (b) the status of Licensed Products under active development, and (c) the status of developed Licensed Products. ARTICLE IV NO WARRANTIES; INDEMNIFICATION 4.1. WARRANTIES. ARCH warrants that it has the right to enter into and perform all of its obligations under this Agreement, and that to ARCH's knowledge there exists no impediment to ARCH's right to enter into this Agreement or perform its obligations hereunder. 4.2. DISCLAIMER OF WARRANTIES. Except as otherwise specifically set forth in Section 4.1 above, ARCH HEREBY EXPRESSLY DISCLAIMS ANY AND ALL WARRANTIES OF ANY KIND OR NATURE, WHETHER EXPRESS OR IMPLIED, RELATING TO THE INVENTIONS, THE TECHNICAL INFORMATION, THE LICENSED PRODUCTS, THE COMBINATION PRODUCTS OR LICENSED PATENT RIGHTS. ARCH FURTHER HEREBY EXPRESSLY DISCLAIMS ANY EXPRESS OR IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, OR THAT THE PRACTICE OF THE LICENSED PATENT RIGHTS, OR THE MAKING, USING OR SELLING OF LICENSED PRODUCTS OR COMBINATION PRODUCTS, WILL NOT INFRINGE ANY PATENT, COPYRIGHT, TRADEMARK, OR OTHER RIGHTS OF THIRD PARTIES. Without limiting the generality of the foregoing, ARCH expressly does not warrant (i) the patentability of any of -11- the Inventions, (ii) the accuracy of the Technical Information, or other information contained in the patents and patent applications listed on Schedule I attached hereto, or (iii) the accuracy, safety, or usefulness for any purpose, of the Technical Information, Licensed Patent Rights, Inventions, Licensed Products or Combination Products. Nothing contained in this Agreement shall be construed as either a warranty or representation by ARCH as to the validity or scope of any of any Licensed Patent Rights. ARCH assumes no liability in respect of any infringement of any patent or other right of third parties due to the activities of Licensee, any of its Affiliates or any sublicensee under this Agreement. 4.3. INDEMNIFICATION. (a) None of ARCH, the University, any Affiliate of any of the foregoing, or any trustee, director, officer, employee, agent or representative of any of the foregoing (each an "Indemnified Person") shall have any liability whatsoever to Licensee, any of its Affiliates, any sublicensee or any other person for or on account of (and Licensee agrees and covenants, and agrees to cause each of its Affiliates and sublicensees to agree and covenant, not to sue any Indemnified Person in connection with) any injury, loss, or damage, of any kind or nature, sustained by, or any damage assessed or asserted against, or any other liability incurred by or imposed upon, Licensee, any of its Affiliates or any sublicensee or any other person, arising out of or in connection with or resulting from (i) the production, use or sale of the Licensed Products and Combination Products by Licensee, any of its Affiliates or its sublicensees, (ii) the use of any Technical Information or Invention by Licensee, any of its Affiliates or its sublicensees, or (iii) any advertising or other promotional activities with respect to either of the foregoing. Licensee shall indemnify and hold ARCH harmless against all claims, demands, losses, damages or penalties (including but not limited to reasonable attorney's fees at the pretrial, trial or appellate level) made against any Indemnified Person with respect to items (i), (ii) and (iii) above (excluding claims made by any third party alleging the invalidity or challenging the scope of any patent included in the Licensed Patent Rights), whether or not such claims are groundless or without merit or basis. This Section 4.3(a) shall not apply to claims by any third party brought against any Indemnified Person claiming an ownership interest in the Inventions, Licensed Products, Combination Products, the Licensed Patent Rights or the Technical Information. (b) This Agreement is entered into by ARCH independently from the University, and ARCH is acting independently from the University and in its own private capacity and is not acting on behalf of the University, nor as its contractor nor its agent. Correspondingly, it is understood and agreed that the University is not a party to this Agreement and in no manner shall be liable for nor assume any responsibility or obligation for any claim, -12- cost or damages arising out of or resulting from this Agreement, the subject matter licensed, or any action or lack thereof by ARCH, the University, Licensee or any of Licensee's Affiliates or sublicensees with respect thereto. (c) Licensee agrees to list ARCH, at Licensee's expense, as an additional insured under each liability insurance policy covering products that Licensee and each of its Affiliates and sublicensees obtains that includes any coverage of claims relating to any of the Inventions, Licensed Patent Rights, Licensed Products or Combination Products. At ARCH's request, Licensee will supply ARCH from time to time with copies of each such policy, and will notify ARCH in writing of any termination of or reduction in coverage under any such policies. (d) Licensee's obligations under this Section 4.3 shall survive the expiration or earlier termination of all or any part of this Agreement. ARTICLE V PROSECUTION AND MAINTENANCE OF LICENSED PATENT RIGHTS 5.1. PROSECUTION AND MAINTENANCE. During the term of this Agreement, and subject to the exceptions and provisions of Section 5.3 below, Licensee shall be solely responsible for prosecuting and maintaining the patents under the Licensed Patent Rights. Except as otherwise specified in this Agreement, Licensee shall pay when due all Patent Costs hereafter incurred with respect to the Licensed Patent Rights. Licensee shall provide ARCH with copies of all official actions and other communications received by Licensee or its patent counsel with respect to patents under the Licensed Patent Rights. Licensee shall further provide ARCH with copies of any and all draft filings with governmental agencies with respect to the Licensed Patent Rights prior to the submission to the recipients, and shall not submit any such filings without the prior approval of ARCH (not unreasonably withheld or delayed). Licensee and ARCH shall mutually agree on the patent counsel to be employed by licensee in connection with the performance of Licensee's obligations under this Article V. Section 5.2. COOPERATION. ARCH agrees to cooperate with Licensee in the preparation, filing, prosecution and maintenance of patents under the Licensed Patent Rights, by disclosing such information as may be necessary and by promptly executing such documents as Licensee may reasonably request to effect such efforts. Licensee shall reimburse ARCH for reasonable out-of-pocket costs and expenses incurred by ARCH in connection with its cooperation with Licensee under this Section 5.2. All patents -13- under the Licensed Patent Rights shall be filed, prosecuted and maintained in ARCH's name or as ARCH shall designate. 5.3. ARCH APPLICATIONS. (a) In the event that ARCH wishes to file a patent application with respect to any of the Inventions in any jurisdiction in which an application has not already been filed, ARCH shall identify the jurisdiction and the Invention in writing to Licensee, and Licensee shall have ninety (90) days after it receives such written notice in which to file such a patent application. If Licensee declines or fails to file such a patent application within the earlier of (i) ninety (90) days after receiving the written notice, or (ii) thirty (30) days prior to the filing deadline with respect to such proposed patent application in such proposed jurisdiction, Licensee shall immediately notify ARCH, and ARCH may, in ARCH's discretion but in ARCH's name, file and prosecute such patent application. (b) If Licensee determines to abandon a patent application previously filed with respect to any of the Inventions, it will give ARCH at least ninety (90) days prior written notice of its intention to abandon such application. ARCH may, by written notice to Licensee, elect to continue the prosecution of the application at ARCH's sole expense and in ARCH's name. If ARCH determines to abandon a patent application previously filed by Licensee with respect to any of the Inventions, it will give Licensee at least ninety (90) days prior written notice of its intention to abandon such application (but in no event shall such period be less than thirty (30) days prior to any filing deadline with respect to such application). Licensee may thereafter elect to continue the prosecution of the application at Licensee's sole expense but in ARCH's name. (c) The abandonment of any patent application by Licensee in accordance with the terms of this Agreement shall not in any way affect the obligations of Licensee for the payment of any amounts owing hereunder with respect to Royalties or otherwise, nor shall it affect Licensee's license in and to the Licensed Patent Rights or otherwise cause the termination of this Agreement (unless the abandoned patent application is the last-to-expire of the Licensed Patent Rights). 5.4. CONFIDENTIALITY. (a) Both Licensee and ARCH agree to treat (and, in the case of Licensee, to cause its Affiliates and sublicensees to treat) as confidential (i) all proprietary information with respect to the Inventions or the Licensed Patent Rights (including the Technical Information) made available by ARCH to Licensee or by Licensee to ARCH, and (ii) the terms and provisions of this Agreement (PROVIDED that ARCH may provide all of the foregoing information to the University). ARCH acknowledges that Licensee may find it beneficial to disclose such information provided by ARCH during the conduct of Licensee's business. Under such circumstances, Licensee may make -14- such information available to third parties (including shareholders of Licensee), PROVIDED that Licensee shall first obtain from the recipients a fully-executed confidentiality agreement which is at least as restrictive as the confidentiality agreement Licensee employs to protect its own most valuable trade secrets. (b) Neither Licensee nor ARCH shall be bound by the provisions of Section 5.4 with respect to information which (i) was previously known to the recipient at the time of disclosure; or (ii) is in the public domain at the time of disclosure; or (iii) becomes a part of the public domain after the time of disclosure, other than through disclosure by the recipient or some other third party who is under an agreement of confidentiality with respect to the subject information; or (iv) is required to be disclosed by law. (c) Notwithstanding the provisions of Section 5.4(a), each of ARCH and the University shall be entitled to make and permit to be made disclosures of information included in the Technical Information and the Inventions in scholarly journals and publications, subject to this Section 5(c). ARCH agrees that it shall use its good faith efforts to provide Licensee with a copy of any manuscript proposed to be published at least 60 days prior to the scheduled publication date. Licensee will review the text or any other material provided to determine if patentable subject matter is disclosed in such text and other material, and will notify ARCH within 20 days of the receipt of the proposed manuscript if it reasonably feels that patentable subject matter is disclosed and that corresponding patent applications should be filed by Licensee in accordance with Section 5.1 above. If it is then determined by ARCH, in the exercise of its reasonable judgement, that patent applications should be filed, ARCH will use its good faith efforts to assist Licensee in the filing by Licensee of patent applications with respect to the patentable subject matter pursuant to Section 5.1 prior to the proposed publication date. (d) Licensee and ARCH shall each take such actions as the other party may reasonably request from time to time to safeguard the confidentiality of any information subject to the terms of this Section 5.4. (e) The obligations of Licensee and ARCH under this Section 5.4 shall survive the expiration or earlier termination of all or any other part of this Agreement for three (3) years after such event. (f) Licensee and ARCH acknowledge that ARCH has previously provided Licensee with information described in Section 5.4(a) above, and that all such information shall be deemed subject to -15- the provisions of this Section 5.(4) as if delivered immediately following the execution of this Agreement. ARTICLE VI INFRINGEMENT 6.1. NOTIFICATION. In the event that either ARCH or Licensee becomes aware of the infringement of any patent under the Licensed Patent Rights within the Licensed Field, each shall promptly inform the other in writing of all details available. 6.2. LICENSEES RIGHT TO PROSECUTE. (a) In the event of infringement by a third party of any patent under the Licensed Patent Rights within the Licensed Field, Licensee may enforce the Licensed Patent Rights against the infringers by appropriate legal proceedings or otherwise, provided that Licensee shall employ counsel reasonably satisfactory to ARCH and shall inform ARCH of all developments in such proceedings. Licensee shall be responsible for all costs and expenses of any enforcement activities, including legal proceedings, against infringers which licensee initiates. ARCH agrees to cooperate with and join in any enforcement proceedings at the request of Licensee, and at Licensee's expense. ARCH may be represented by ARCH's counsel in any such legal proceedings, at ARCH's own expense (subject to reimbursement under Section 6.2(c)), acting in an advisory but not controlling capacity. (b) The prosecution, settlement, or abandonment of any proceeding under Section 6.2(a) shall be at Licensee's reasonable discretion, provided that Licensee shall not have any right to surrender any of ARCH's rights to the Licensed Patent Rights or to grant any infringer any rights to the Licensed Patent Rights other than a sublicense subject to the conditions which would apply to the grant of any other sublicense. (c) All recoveries by way of royalties, damages and claims with respect to infringement actions instituted, and claims made (including penalties and interest), during the term of this Agreement, excluding any prosecuted by ARCH under Section 6.3, shall belong to Licensee. To the extent that Licensee's recoveries with respect to an infringement action or claim exceed Licensee's reasonable expenses with respect to such action or claim, Licensee shall reimburse ARCH for ARCH's reasonable expenses for separate representation as provided in Section 6.2(a) with respect to such action or claim. The gross amount of any such recoveries by Licensee, less any amounts already reimbursed to ARCH for its expenses as provided in the immediately preceding sentence, shall be considered Net Sales under this Agreement, giving rise to Royalty obligations under Section 3.1(b), without any deductions of any kind. -16- 6.3. ARCH'S RIGHT TO PROSECUTE - WITHIN LICENSED FIELD. In the event of infringement by a third party of any Licensed Patent Rights within the Licensed Field which ARCH wishes to prosecute, ARCH shall first make a written request that Licensee proceed. In the event that Licensee fails or declines to proceed within ninety (90) days after receipt of a written request by ARCH to do so, then, in ARCH's sole discretion, (i) ARCH may prosecute the infringer in the name of ARCH or Licensee and (ii) the grant of license to Licensee may become non-exclusive. Any actions by ARCH pursuant to this clause shall be ARCH's own expense, and ARCH may collect and retain for ARCH's own use any and all recoveries in any proceeding by ARCH under this Section 6.3. Recoveries collected and retained by ARCH under this Section 6.3 shall not be considered Net Sales or give rise to royalty obligations under Article III. Licensee will cooperate with ARCH and execute any documents necessary for ARCH to exercise ARCH's rights under this clause. To the extent that ARCH's recoveries with respect to an infringement action or claim exceed ARCH's reasonable expenses with respect to such action or claim, ARCH shall reimburse Licensee for Licensee's reasonable costs in connection with cooperating with ARCH in the prosecution of such action or claim. 6.4 INFRINGEMENT OF RIGHTS OF THIRD PARTIES. If a Licensed Product becomes the subject of a claim for patent infringement anywhere in the world by virtue of the incorporation of the Licensed Patent Rights or the Inventions, the parties shall promptly give notice to the other and meet to consider the claim and the appropriate course of action. Licensee shall have the right to conduct the defense of any such suit brought against Licensee and either or both of ARCH and the University using counsel reasonably acceptable to ARCH, and shall have the sole right and authority to settle any such suit, PROVIDED that (i) ARCH and the University, as applicable, shall have the right (but not the obligation) to participate in such suit at their own cost and expense, and (ii) Licensee shall not have any right to surrender any of ARCH's or the University's rights to the Licensed Patent Rights or to grant to any person or entity any rights to the Licensed Patent Rights other than a sublicense subject to the conditions which would apply to the grant of any other sublicense hereunder. In those circumstances where a third party asserts that its patent dominates the Licensed Patent Rights and Licensee's right to practice such is at issue, Licensee shall have the right to require ARCH's participation in any such suit, upon reasonable prior written notice, but at Licensee's expense. -17- ARTICLE VII TERMINATION 7.1 ARCH RIGHT TO TERMINATE. ARCH shall have the right (without prejudice to any of its other rights conferred on it by this Agreement) to terminate this Agreement if Licensee (or, with respect to subsection (d) below, any of its Affiliates): (a) is in default in (i) payments specified in Section 3.1 above, (ii) payments of any reimbursement obligations provided for in this Agreement, or (iii) the making or giving of any reports or notices required to be made or given under this Agreement, and Licensee fails to remedy any such default within thirty (30) days after written notice thereof by ARCH; (b) is in material breach of Sections 2.4, 3.3, 3.7, 4.3(c), 5.1, 5.4, 10.2(b) or 10.7 hereof, or Articles VIII or XI, and Licensee fails to remedy any such default within ninety (90) days after written notice thereof by ARCH; (c) knowingly or wilfully makes any materially false report; or (d) shall commence a voluntary case as a debtor under the Bankruptcy Code of the United States or any successor statute (the "Bankruptcy Code"), or if an involuntary case shall be commenced against Licensee under the Bankruptcy Code and the petition in such case is not dismissed within 30 days of the commencement of the case, or if an order for relief shall be entered in such case, or if the same or any similar circumstance shall occur under the laws of any foreign jurisdiction. 7.2. LICENSEE RIGHT TO TERMINATE. Licensee may terminate this Agreement at any time by written notice to ARCH, given at least ninety (90) days prior to the termination date specified in the notice. 7.3. EFFECT OF TERMINATION. (a) In the event of the termination of this Agreement for any reason, whether by Licensee or ARCH, Licensee shall immediately cease and shall cause each of its Affiliates to immediately cease (i) using, making and having made the Inventions, the Technical Information and any Licensed Products or Combination Products derived therefrom, and shall return to ARCH, or deliver as ARCH directs, the Inventions and the Technical Information then in its possession, and (ii) selling any Licensed Products or Combination Products out of inventories accumulated by Licensee prior to the effective date of termination within sixty (60) days of such date. -18- CONFIDENTIAL TREATMENT REQUESTED (b) Notwithstanding the termination of this Agreement, the following provisions of this Agreement shall survive: (i) Licensee's obligation to pay Royalties accrued or accruable; (ii) Licensee's obligations under Articles III, IV and XI, Sections 5.1, 5.2, 5.4 and, to the extent proceedings have been initiated, Section 6.2, and this Section 7.3(b); and (iii) any cause of action or claim of Licensee or ARCH, accrued or to accrue, because of any breach or default by the other party. 7.4. EXPIRATION OF PATENT RIGHTS. This Agreement shall terminate upon the expiration of the last-to-expire patents of the Licensed Patent Rights, provided that ARCH's and Licensee's obligations under Sections 4.2 and 5.4 shall survive and continue in effect as provided in such Sections. ARTICLE VIII ADVERTISING Each party agrees not to use (and Licensee agrees to prohibit its Affiliates and sublicensees from using) the name of the other party (and, in the case of Licensee, the names of the University and the inventors of the Inventions) in any commercial activity, marketing, advertising or sales brochures except with the prior written consent of the other party, which such consent may be granted or withheld in such party's sole and complete discretion, PROVIDED that, with the prior written consent of ARCH not unreasonably withheld or delayed, Licensee may disclose (i) the names of ARCH, the University and the inventors) of the Inventions to banks, commercial finance institutions or prospective investors from which Licensee may attempt to obtain debt or equity financing, (ii) the identities of ARCH, the University and the inventor(s) of the Inventions and their respective connections to, and ownership interests in, the Inventions and the Licensed Patent Rights, and (iii) the identity of [ ] in advertising and sales materials. ARTICLE IX LATER DEVELOPMENTS 9.1. ARCH hereby grants Licensee the right to negotiate to obtain, on the terms set forth in this Article IX, a license on any Later Developments, which license shall be on mutually agreeable terms. -19- CONFIDENTIAL TREATMENT REQUESTED 9.2. ARCH shall notify Licensee of any Later Developments by a writing referring to this provision within ninety (90) days of learning of such Later Development, in sufficient detail to allow Licensee to evaluate the commercial potential of such Later Development. Licensee shall then have ninety (90) days after receipt of such disclosure to submit to ARCH a written offer to license the subject Later Developments on the terms set forth in Licensee's written offer. If Licensee shall fail to make such an offer within such period, its rights to obtain such Later Development shall be void, and Licensee shall have no interest in or right to such Later Development. 9.3. If Licensee makes the offer described in Section 9.2 above, ARCH shall, within a period of ninety (90) days of the receipt of such offer, notify Licensee in writing of either (i) ARCH's acceptance of such offer, or (ii) ARCH's acceptance of a competing offer which is, taking into consideration the overall economic benefit to ARCH of Licensee's offer and the competing offer, deemed by ARCH to be materially more favorable to ARCH. If ARCH accepts Licensee's offer to license the subject Later Development, the license shall be on the terms set forth in the offer and otherwise on the terms and conditions set forth in this Agreement to the extent not inconsistent with the offer. If ARCH does not accept Licensee's offer, ARCH shall disclose to Licensee in said notice the basis for its decision, including the disclosure of the terms of the competing offer which ARCH deemed materially more favorable to ARCH. ARTICLE X MISCELLANEOUS 10.1. GOOD FAITH EFFORTS. [ ] 10.2. ASSIGNMENT. (a) This Agreement may, at any time and upon sixty (60) days prior notice to Licensee, be assigned by ARCH without such assignment operating to terminate, impair or in any way change the rights which ARCH would have had, or any of the obligations or rights which Licensee would have had, if such assignment had not occurred, PROVIDED, however, that in no event shall ARCH assign this Agreement to any entity deemed by Licensee in the exercise of its reasonable discretion to be (i) an operating or research and development competitor of Licensee, or (ii) a financial investor entity (excluding any Affiliate of ARCH or the University) which owns a controlling interest in any entity described in (i) above. From and after the making of such assignment, the assignee shall be substituted for ARCH as a party hereto, and ARCH shall no longer be bound hereby, and shall have not further obligations hereunder. (b) This Agreement may be assigned by Licensee to an Affiliate of Licensee upon at least thirty (30) days prior -20- CONFIDENTIAL TREATMENT REQUESTED written notice to ARCH, PROVIDED, that in no event shall such assignment relieve Licensee of its liability for the performance of Licensee's obligations hereunder, nor shall it deprive ARCH of its rights to terminate this Agreement or enforce its rights against Licensee or Licensee's assignee as specifically provided herein. This Agreement shall not be assigned by Licensee in any other circumstances without the prior written consent of ARCH, [ ] 10.3. ENTIRE AGREEMENT, AMENDMENT AND WAIVER. This Agreement (including any schedules and exhibits attached) contains the entire understanding of the parties with respect to the subject matter hereof. This Agreement may be amended, modified or altered only by an instrument in writing duly executed by the parties hereto. The waiver of a breach hereunder may be effected only by a writing signed by the waiving party and shall not constitute a waiver of any other breach. 10.4. NOTICES. Any notice or report required or permitted to be given or made under this Agreement by one of the parties hereto to the other shall be in writing and shall be given by personal delivery or by United States registered or certified mail, return receipt requested, addressed as follows: If to ARCH: ARCH Development Corporation 1115-25 East 58th Street Chicago, Illinois 60637 Attention: President with a copy to: Thomas M. Fitzpatrick, Esq. Fitzpatrick Law Offices 20 North Wacker Drive Chicago, Illinois 60606 If to Licensee: Vector Pharmaceuticals, Inc. 4009 Miranda Avenue, Suite 275 Palo Alto, CA 94304 Attention: President with a copy to: Alan Mendelson, Esq. Cooley, Godward, Castro, Huddleson & Tatum Five Palo Alto Square, 4th Floor Palo Alto, CA 94306 or to such other address of which the intended recipient shall have notified the sender by a written notice given in accordance with the terms of this Section. Any notice under this Agreement shall be effective when received. -21- 10.5. SEVERABILITY. In the event that any one or more of the provisions of this Agreement should for any reason be held by any court or authority having jurisdiction over this Agreement, or either of the parties hereto, to be invalid, illegal or unenforceable, such provision or provisions shall be reformed to approximate as nearly as possible the intent of the parties, and the validity of the remaining provisions shall not be affected. 10.6. GOVERNING LAW. The interpretation and performance of this Agreement shall be governed by the laws of the State of Illinois applicable to contracts made and to be performed in that state. 10.7. MARKING. Licensee shall place in a conspicuous location on any Licensed Product (or its packaging where appropriate) made or sold under this Agreement, a patent notice in accordance with the laws concerning the marking of patented articles. 10.8. IMPLEMENTATION. Each party shall, at the request of the other party, execute any document reasonably necessary to implement the provision of this Agreement. 10.9. COUNTERPARTS. This Agreement may be executed in multiple counterparts, each of which when taken together shall constitute one and the same instrument. 10.10 CAPTIONS. The captions used in this Agreement are for convenience only, and are not intended by the parties to be used in the construction or application of the terms hereof. ARTICLE XI EXPORT CONTROLS Neither Licensee nor ARCH shall (i) knowingly transfer, directly or indirectly, any controlled technical data obtained or to be obtained from the other party hereto to a destination outside the United States, or (ii) knowingly ship, directly or indirectly, any product produced using such controlled technical data to any destination outside the United States, in either case in violation of the U.S. Department of Commerce's Export Administration Regulations. -22- IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective duly authorized officers or representatives on the date first above written. ARCH: ARCH Development Corporation, an Illinois not-for-profit corporation By: /s/ S Tazauus ------------------------------------ Its President ------------------------------- Licensee: Vector Pharmaceuticals, Inc., a California corporation By: /s/ L Reed ------------------------------------ Its President ------------------------------- -23- CONFIDENTIAL TREATMENT REQUESTED Schedule I PATENTS AND PATENT APPLICATIONS 1. [ ] 2. [ ] 3. [ ] 4. [ ] 5. [ ] 6. [ ] 7. [ ] 8. [ ] -24- CONFIDENTIAL TREATMENT REQUESTED Schedule II AGREEMENTS, ASSIGNMENTS, ENCUMBRANCES OR LICENSES Those agreements, assignments, encumbrances, licenses and rights granted to [ ] pursuant to an Assignment Agreement attached hereto as Exhibit 1 anticipated to be entered into between the University [ ]promptly following the execution of this Agreement. -25- CONFIDENTIAL TREATMENT REQUESTED EXHIBIT 1 TO LICENSE AGREEMENT ASSIGNMENT AGREEMENT ASSIGNMENT AGREEMENT dated as of this 26th day of June, 1992 between the UNIVERSITY OF CHICAGO, an Illinois not for profit corporation ("University") and [ ] formerly known as [ ] PRELIMINARY STATEMENT. The University and [ ] have previously entered into a Research Agreement dated [ ] as amended ("Research Agreement"), pursuant to which [ ] has funded certain University research. Several patent applications have been filed in the name of [ ] covering inventions resulting from the research conducted at the University pursuant to the Research Agreement. [ ] desires to assign the rights to such patent applications to the University, and the University desires to be assigned the rights to such patent applications. NOW THEREFORE, in consideration of the mutual promises and covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the University and [ ] agree as follows. AGREEMENT 1. DEFINITIONS. For purposes of this Agreement, the following terms shall have the following meanings: "PATENT RIGHTS" shall mean each and every (a) patent application listed in Exhibit A attached hereto, together with any patents which issue from any such patent application, and (b) patent applications which are divisions, continuations, continuations-in-part, foreign counterparts, reissues, renewals, re-examinations, substitutions, or extensions of or to any patent applications or patents described in clause (a) of this sentence, together with patents that issue from such patent applications. "PATENT COSTS" shall mean the out of pocket expenses incurred by [ ] in connection with the preparation, filing, prosecution and maintenance of the patents under the Patent Rights, as documented in Exhibit B attached hereto. "START-UP COMPANY" shall mean a corporation with fewer than one hundred employees or less than three years of operations. CONFIDENTIAL TREATMENT REQUESTED "ESTABLISHED CORPORATION" shall mean a corporation with one hundred or more employees and at least three years of operations. "VECTOR" shall mean the invention described as [ ] together with any patents which issue from such patent application, and patent applications which are divisions, continuations, continuations-in-part, foreign counterparts, reissues, renewals, re-examinations, substitutions, or extensions of or to such patent application or patents, together with patents that issue from such patent applications. "[ ]" shall mean the invention described as [ ] and patent applications which are divisions, continuations, continuations-in-part,. foreign counterparts, reissues, renewals, re-examinations, substitutions, or extensions of or to such patent, together with patents that issue from such patent applications. 2. ASSIGNMENT AND TERMINATION. [ ] hereby assigns to the University all of [ ] right, title and interest in and to the Patent Rights, and disclaims and terminates all of right, title and interest in and to the Patent Rights. 3. CONTINGENCIES. (a) If the University shall enter into a license agreement for any of the Patent Rights with a third party, the University shall notify [ ] of the name, address and contact name of the licensee under such license. (b) If the University shall enter into a license agreement for any of the Patent Rights with a Start-Up Company, the University shall include in such license agreement the following conditions, one of which licensee shall select prior to the date of first commercial sale of Licensed Products (as that term shall be defined in the license agreement): (i) that the licensee negotiate in good faith either a marketing or a research collaboration agreement with [ ] with respect to such Licensed Products; (ii) that the licensee reimburse [ ] (through the University) for [ ] Patent Costs with respect to the specific Patent Rights covered by the license within ninety (90) days of licensee's first commercial sale of any such Licensed Products. (c) If the University shall enter into a license agreement for any of the Patent Rights with an Established Corporation, the -2- CONFIDENTIAL TREATMENT REQUESTED University shall include in such license agreement the condition that, upon execution of the license agreement, licensee reimburse [ ] (through the University) for [ ] Patent Costs with respect to the specific Patent Rights covered by the license. (d) If the University executes a license agreement for the Vector, the University shall include in such agreement the requirement that upon the grant by such licensee of a nonexclusive sublicense of the Vector (which sublicense does not pertain to a research or development collaboration) , licensee shall offer [ ] a sublicense on substantially the same terms. (e) If the University shall enter into a license agreement with respect to [ ] the University shall pay to [ ]of any fees or royalties that the University receives from the licensee under such license agreement. 4. BOOKS AND RECORDS. The University shall keep accurate books and records of its income and receipts, and all expenses and disbursements, related to the Patent Rights. [ ] shall have the right to inspect only the portions of such books and records which specifically relate to the contingencies listed in Section 3 above, at reasonable times and intervals and upon reasonable notice, at [ ] expense. 5. REPRESENTATIONS AND WARRANTIES. (a) [ ] hereby represents and warrants to the University as follows: (i) [ ] has the full power and right to execute this Agreement, and this Agreement has been duly executed and delivered by [ ] and constitutes the legal, valid and binding obligation of [ ] enforceable against it in accordance with its terms, except to the extent that such enforceability (A) may be limited by bankruptcy, insolvency or other laws affecting the enforcement of creditors' rights generally, and (B) as to equitable relief, is subject to the discretion of the court before which any proceeding may be brought. (ii) This Agreement assigns all of [ ] right, title and interest in the Patent Rights to the University, and terminates all of [ ] right to license the-Patent Rights, and, except for the interest of [ ]created pursuant to this Agreement, [ ] has no other right, claim or interest in any of the Patent Rights. (iii) As of the date of this Agreement, none of the Patent Rights are subject to any agreements, assignments, encumbrances or restrictions; provided however, that -3- CONFIDENTIAL TREATMENT REQUESTED [ ] makes no representations as to persons or entities that may have rights to or in the Patent Rights as inventors or arising through the University. (iv) [ ] makes no product or other warranty except as expressly provided in this Agreement to the University of any kind, express or implied, including any implied warranty of fitness for use or for a particular purpose or for merchantability. (b) The University hereby represents and warrants to [ ] that the University has the full power and right to execute this Agreement, and this Agreement has been duly executed and delivered by the University and constitutes the legal, valid and binding obligation of the University, enforceable against it in accordance with its terms, except to the extent that such enforceability (A) may be limited by bankruptcy, insolvency or other laws affecting the enforcement of creditors' rights generally, and (B) as to equitable relief, is subject to the discretion of the court before which any proceeding may be brought. 6. FURTHER ASSURANCES. [ ] agrees that, up on the written request of the University at any time and from time"to time, [ ] shall execute and deliver such other documents and take such other acts as the University shall reasonably request in order to effectuate, clarify or otherwise implement the agreements set forth in this Agreement, including without limitation, such documents and instruments of assignment or transfer as the University may deem appropriate to effectuate the assignment contemplated by this Agreement. 7. LICENSING DECISIONS. Without prejudice to Section 3 hereof, all decisions as to the marketing and development of the Patent Rights, including without limitation, decisions relating to the future licensing or assignment of the Patent Rights, shall be made by the University in its sole and absolute discretion. 8. ASSIGNMENT. This Agreement shall be binding upon and shall inure to the benefit of the successors or assigns of the University and [ ] as the case may be. [ ] acknowledges that the University shall have the right to assign all of the Patent Rights, and all of its rights and obligations under this Agreement, to ARCH Development Corporation ("ARCH"), an affiliate controlled by the University, in which event all such rights and obligations shall be rights and obligations of ARCH, and [ ] shall look to ARCH, and not the University, for the performance thereof. 9. TERM. This Agreement shall be in effect until the last expiration date of any of the Patent Rights provided that the University's obligations to make the payments described in -4- CONFIDENTIAL TREATMENT REQUESTED Section 3 hereof shall terminate as to any particular Patent Right(s) at such time as such Patent Right(s) shall expire. 10. NONDISCLOSURE AND NON-USE. [ ] agrees not to publish or disclose any information to any third persons about the Patent Rights, or any rights relating thereto, except to inform such third persons that all inquiries relating to such Patent Rights should be directed to ARCH. [ ] further agrees not to use the Patent Rights without the prior written consent of the University, provided that [ ] may use the Patent Rights for non-commercial research purposes, or pursuant to Sections 3(b) - 3(d) of this Agreement. 11. GOVERNING LAW. This Agreement shall be governed by, and interpreted in accordance with, the laws of the State of Illinois applicable to contracts entered into between Illinois residents to be performed solely in Illinois. 12. NOTICE. Any payment, notice or other communication required or desired to be made to either party hereunder shall be made or given to the following address: If to [ ] [ ] If to University: c/o ARCH Development Corporation 1115-25 East 58th Street Chicago, Illinois 60637 Attention: President Either party may change its address for notice by notice to the other party in accordance with this Section 12. All notices shall be deemed effective on the date received. IN WITNESS WHEREOF, [ ] and the University have caused this Agreement to be executed as of the day and year first above written. THE UNIVERSITY OF CHICAGO By: /s/ Fred Clifford ------------------------------------- Its: Director of Special Payouts ------------------------------- [ ] By: /s/ ------------------------------------- Its: ------------------------------- -5- CONFIDENTIAL TREATMENT REQUESTED EXHIBIT A [ ] Foreign counterparts of the above applications are also included. CONFIDENTIAL TREATMENT REQUESTED EXHIBIT B TOTAL U.S. & INTERNATIONAL PATENT COSTS [ ] EX-10.2 12 TECHNOLOGY TRANSFER AGREEMENT EXHIBIT 10.2 CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT HAS BEEN DELETED, AS MARKED BY BRACKETS, AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. TECHNOLOGY TRANSFER AGREEMENT This Technology Transfer Agreement (the "Agreement") is made and entered into as of February 9, 1993, by and between MOUNT SINAI SCHOOL OF MEDICINE OF THE CITY UNIVERSITY OF NEW YORK, a corporation organized and existing under the laws of New York ("MOUNT SINAI"), and VECTOR PHARMACEUTICALS, INC., a corporation organized and existing under the laws of California ("VECTOR"). ARTICLE 1 BACKGROUND 1.1 VECTOR is in the business of developing preventative, therapeutic and diagnostic products for humans, plants and animals. 1.2 MOUNT SINAI is a School of Medicine which engages in research and teaching in the biomedical sciences and which is the assignee of certain Property (as hereinafter defined) developed in the conduct of those activities. 1.3 MOUNT SINAI and VECTOR have entered into a Stock Issuance Agreement on even date herewith, in the form attached hereto as Exhibit A, pursuant to which MOUNT SINAI will be issued shares of VECTOR's common stock (the "Stock Issuance Agreement"). 1.4 VECTOR is desirous of obtaining, and MOUNT SINAI is willing to assign, sell, transfer and convey in CONFIDENTIAL TREATMENT REQUESTED consideration for the VECTOR common stock to be issued pursuant to the Stock Issuance Agreement, all right, title and interest, on a worldwide basis, in and to the Property (as defined below). ARTICLE 2 DEFINITIONS 2.1 The term "AFFILIATE" shall mean, with respect to each party, any entity which controls, is controlled by or is under common control with that party. 2.2 The term "INVENTORS" shall mean [ ] 2.3 The term "FDA" shall mean the United States Food and Drug Administration. 2.4 The term "RELATED TECHNOLOGY" shall mean (i) all patentable information, discoveries, inventions, and the like other than those claimed in the Patent Rights or MOUNT SINAI Improvements, and any and all patent rights relating thereto, the use of which pertains to [ -2- CONFIDENTIAL TREATMENT REQUESTED ] and which are not otherwise subject to the rights or any third party, but only to the extent such discovery, invention and the like shall have occurred or been reduced to practice during the period extending from [ ] 2.5 The term "PRODUCT" shall mean any substance, composition or article of manufacture covered by a claim of one or more of the patents or patent applications contained in the Patent Rights or the Mount Sinai Improvements, to the extent acquired by VECTOR pursuant to Section 3.4. 2.6 The term "PATENT RIGHTS" shall mean all information, inventions or discoveries covered by the patents and patent applications listed on Exhibit B hereto ("Inventions"), and any and all patents issuing therefrom, owned by MOUNT SINAI or any MOUNT SINAI Affiliate. "Patents" as used in this Agreement shall include, without limitation, all substitutions, divisionals, reissues, continuations, continuations-in-part that cover Inventions specifically described in the -3- CONFIDENTIAL TREATMENT REQUESTED patents and applications listed in Exhibit B, inventors' certificates and all foreign counterparts of the aforementioned which MOUNT SINAI now owns or hereafter acquires and which MOUNT SINAI has the lawful right to assign and disclose. 2.7 The term "MOUNT SINAI IMPROVEMENTS" shall mean all modifications, revisions or improvements to the Inventions and any and all patent rights relating thereto which are commercially necessary for the development, manufacture, use or sale of the Inventions or Products, in which MOUNT SINAI in the future acquires any interest and with regard to which MOUNT SINAI has the lawful right to disclose and assign, but only to the extent such modification, revision or improvement shall have occurred or been reduced to practice from the date of filing of the patent applications listed, or the patent applications underlying an issued patent listed, on Exhibit B hereto, up to and including the one (1) year period following the effective date of this Agreement and only to the extent such modification, revision or improvement was [ ] 2.8 The term "TECHNICAL INFORMATION" shall mean (i) all know-how, trade secrets, data, processes, reagents, samples of assay components, media and/or cell lines; and (ii) procedures and formulations for producing any such assay components, models, procedures, devices, -4- CONFIDENTIAL TREATMENT REQUESTED methods, formulas, protocols; and (iii) information: (a) necessary for the practice and commercial exploitation of the Inventions contained within the Patent Rights, or to the extent VECTOR exercises its option in accordance with the provisions of Section 3.4, any MOUNT SINAI Improvements; and (b) which are [ ] owned or acquired by MOUNT SINAI and which MOUNT SINAI has the lawful right to assign and disclose; and (c) which [ ] Technical Information shall include, without limitation, all medical, pharmacological, toxicological and other scientific data relating to any Product. 2.9 The term "PROPERTY" shall mean all Patent Rights and Technical Information. ARTICLE 3 ASSIGNMENT OF RIGHTS 3.1 ASSIGNMENT OF PROPERTY. In consideration of the issuance by VECTOR of shares of its Common Stock and the Warrants, as further set forth in Article 5, MOUNT SINAI hereby assigns to VECTOR, effective upon receipt by MOUNT SINAI of the shares of Common Stock and Warrants, as provided in Article 5, all of its rights, title and interest in and to the Property, and upon such request by VECTOR, MOUNT SINAI agrees to promptly execute -5- assignment and other documents, testify and take other acts, at VECTOR's expense and as reasonably requested by VECTOR, in order to apply for and obtain, in VECTOR's name and for its benefit, patents, trade secrets, and all other technology and intellectual property rights throughout the world related to any of the Property and, to the extent VECTOR exercises its option in accordance with the provisions of Section 3.4, any MOUNT SINAI Improvements, and to transfer, effect, confirm, perfect, record, preserve, protect and enforce all rights, title and interest transferred hereunder. 3.2 LIMITATIONS ON ASSIGNMENT. The rights and interests assigned under Section 3.1 are subject to the following limitations: (a) GOVERNMENT RIGHTS. VECTOR understands that the Property may have been developed under a funding agreement with the Government of the United States of America (the "Government") and, if so, that the Government may have certain rights relative thereto, including, but not limited to those arising under 35 U.S.C. Sections 200-212 and the regulations promulgated thereunder. This Agreement is explicitly made subject to the Government's rights under any such agreement and any applicable law or regulation. To the extent that there is a conflict between any such agreement, applicable law or regulation and this Agreement, the terms of such -6- Government agreement, applicable law or regulation shall prevail. (b) RIGHTS OF THIRD PARTY FUNDING SOURCES. VECTOR understands that portions of the Property may have been developed and/or discovered by the Inventors pursuant to funds supplied pursuant to contractual relationships between one or more of the Inventors and third party, non-Governmental funding entities ("Funding Entities"), and if so, that such Funding Entities may have or may believe themselves to have, certain rights relative thereto with respect to the Property and VECTOR further acknowledges that in that event it shall have no rights against MOUNT SINAI regarding any such technology. (c) RETAINED RIGHTS. VECTOR hereby grants MOUNT SINAI a fully-paid, royalty-free, irrevocable, non-exclusive license to make, have made and use the Inventions contained within the Patent Rights, and the Technical Information, for educational, research and other non-commercial purposes only, including the right to publish the scientific findings from research related to the Property in scholarly journals and publications and to make scientific presentations. 3.3 MOUNT SINAI AND THE INVENTORS. VECTOR understands that MOUNT SINAI's ongoing obligations apply only to the extent that MOUNT SINAI has the lawful right -7- CONFIDENTIAL TREATMENT REQUESTED to disclose and assign the Property. VECTOR further understands and agrees that some Inventors are not currently, have never been, or may not in the future be employed by MOUNT SINAI and are not subject to the conditions of employment with MOUNT SINAI, including MOUNT SINAI's faculty rules. Further, VECTOR agrees that MOUNT SINAI is not required to and has no obligation to VECTOR under this Agreement or otherwise to make certain that the Inventors comply with the terms of this Agreement or with the terms and conditions of MOUNT SINAI's policies or its faculty rules. 3.4 MOUNT SINAI IMPROVEMENTS. MOUNT SINAI hereby grants to VECTOR an option to acquire any MOUNT SINAI Improvements in accordance with the provisions of this Section 3-4. MOUNT SINAI agrees to notify VECTOR in writing of any MOUNT SINAI Improvements within [ ] business days of the filing of an invention disclosure statement with MOUNT SINAI's Dean's office or its Office of Science and Technology Development concerning such MOUNT SINAI Improvement, pursuant to MOUNT SINAI's policies, by one or more of the Inventors. VECTOR shall have a period of [ ] with a right to extend such period for an additional [ ] with the prior written consent of MOUNT SINAI, not to be withheld unreasonably, after receipt of such notice in which to notify MOUNT SINAI in writing of its desire to exercise -8- CONFIDENTIAL TREATMENT REQUESTED its option with respect to such MOUNT SINAI Improvement. If VECTOR exercises its option with respect to such MOUNT SINAI Improvement, such MOUNT SINAI Improvement shall promptly thereafter be assigned as provided for in Section 3.1, and Exhibit B shall be amended accordingly. In the event VECTOR fails to deliver to MOUNT SINAI a notice of election to exercise such option, or notifies MOUNT SINAI that it elects not to exercise such option, VECTOR shall have no further rights with respect to such MOUNT SINAI Improvement, and in such event, MOUNT SINAI shall be free to license, assign or otherwise develop or dispose of such MOUNT SINAI Improvement. 3.5 DELIVERY OF TANGIBLE PROPERTY. As soon as practicable after the effective date of this Agreement or the effective date of VECTOR's exercise of its option pursuant to Section 3.4, as the case may be, but in no event later than [ ] after such effective date (unless otherwise requested by VECTOR), MOUNT SINAI shall cause to be delivered to VECTOR, at VECTOR's expense, any and all tangible manifestations of the Property which are produced by the Inventors and which are in MOUNT SINAI's possession and control, including, without limitation, [ ]in its control which are necessary for the -9- CONFIDENTIAL TREATMENT REQUESTED preparation or practice of the Inventions covered by the Patent Rights, or, to the extent VECTOR has exercised its option in accordance with the provisions of Section 3.4., MOUNT SINAI Improvements. [ ] MOUNT SINAI each retain the right to refrain from producing the above materials if, in their respective opinion, such release would be inappropriate after taking into consideration [ ] 3.6 RELATED TECHNOLOGY. MOUNT SINAI shall notify VECTOR of any Related Technology by a writing referring to this provision [ ] days of learning of such Related Technology, in sufficient detail to the extent such information is available to MOUNT SINAI [ ] Upon receipt of such disclosure, VECTOR shall have the opportunity to negotiate exclusively with MOUNT SINAI for the terms of a license or assignment to such Related Technology provided VECTOR so notifies MOUNT SINAI in writing within [ ] of receipt of such disclosure written notice of its intent to so negotiate. In the event VECTOR decides not to exercise its right of first negotiation, the remainder of this provision shall be of no further force and effect as to that Related Technology. In the event VECTOR decides to exercise its right of first negotiation, both parties will negotiate in good faith for a period of 120 -10- days to license or assign the technology. If no agreement is reached after the expiration of the 120 day period, MOUNT SINAI shall be free to license, assign or otherwise develop or dispose of such Related Technology. Notwithstanding the foregoing sentence, MOUNT SINAI shall not license, assign or otherwise develop or dispose of such Related Technology to a third party on terms substantially less favorable to MOUNT SINAI than those last offered by VECTOR. ARTICLE 4 REPRESENTATIONS AND WARRANTIES 4.1 OWNERSHIP OF THE PROPERTY. MOUNT SINAI represents and warrants that (i) it has received an assignment of the rights of the Inventors in and to the Patent Rights and has recorded each such Assignment with the United States Patent and Trademark Office, (ii) except as otherwise provided herein, MOUNT SINAI has not granted any license or made any assignment of the Patent Rights and knows of no obligation to grant any such license or to make any such assignment, (iii) MOUNT SINAI knows of no liens, encumbrances, agreements or understandings of any kind, either written, oral or implied which would have a material adverse effect on VECTOR's rights hereunder, except as set forth in Exhibit C hereto, which Exhibit C sets forth all -11- information known to MOUNT SINAI, and (iv) the execution, delivery and performance of this Agreement does not conflict with, constitute a breach of, or in any way violate any arrangement, understanding or agreement of which MOUNT SINAI has knowledge. 4.2 NO INFRINGEMENT BY MOUNT SINAI. MOUNT SINAI represents and warrants that it has no knowledge that any individual or entity has asserted that MOUNT SINAI, or any employee, agent, representative or other person affiliated with MOUNT SINAI is infringing or has infringed any foreign or domestic patent or has misappropriated or improperly used or disclosed any trade secret, confidential information or know-how which relates in any manner to the subject matter of this Agreement. 4.3 NO INFRINGEMENT. MOUNT SINAI represents and warrants that it has no knowledge that any person or individual is infringing or has infringed any Patent Rights or has misappropriated or improperly used or disclosed any trade secret, confidential information, or know-how which relates in any manner to the subject matter of this Agreement. 4.4 PATENT PROCEEDINGS. MOUNT SINAI represents and warrants that it has no knowledge that any patent application within the Patent Rights is the subject of any pending interference, opposition, -12- cancellation or other protest proceeding, except as otherwise set forth in Exhibit C. 4.5 KNOWLEDGE OF THIRD PARTY PATENTS. MOUNT SINAI represents and warrants that it has no knowledge of any foreign or domestic patent or patent application which is reasonably expected by MOUNT SINAI to restrict VECTOR from manufacturing, using or selling any Product or any portion of the Technical Information. 4.6 WARRANTY DISCLAIMER. Notwithstanding the foregoing, nothing in this Agreement is or shall be construed as: (i) a warranty or representation by MOUNT SINAI as to the validity or scope of any patent or patent application within the Patent Rights; (ii) a warranty or representation that anything made, used, sold or otherwise disposed of under any license granted in this Agreement is or will be free from infringement of patents, copyrights and other rights of third parties; (iii) a warranty or representation that the Inventors have not entered into arrangements with third parties unbeknownst to MOUNT SINAI, other than those set forth in Exhibit C hereto, which may be inconsistent with the assignment of the entire rights of the Inventors in and to the Property. 4.7 NO WARRANTY OF MERCHANTABILITY OR FITNESS -13- CONFIDENTIAL TREATMENT REQUESTED FOR PARTICULAR PURPOSE. MOUNT SINAI MAKES NO REPRESENTATION AND EXTENDS NO WARRANTIES OF ANY KIND, EITHER EXPRESS OR IMPLIED, INCLUDING WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. MOUNT SINAI FURTHER AFFIRMATIVELY STATES THAT IT HAS NO INFORMATION WHATSOEVER REGARDING VECTOR'S INTENDED USE OR DEVELOPMENT OF THE PRODUCTS. 4.8 MOUNT SINAI KNOWLEDGE. For the purpose of this Agreement, information, data, knowledge or material available or in the possession of an Inventor, regardless of whether the Inventor is an employee of MOUNT SINAI, is [ ] ARTICLE 5 CONSIDERATION FOR ASSIGNMENT For the consideration as set forth herein, VECTOR will issue to MOUNT SINAI no sooner than five days after execution of this Agreement: 5.1 One hundred seventy-five thousand (175,000) shares of VECTOR's Common Stock pursuant to the Stock Issuance Agreement. 5.2 Three (3) warrants, in the forms and -14- CONFIDENTIAL TREATMENT REQUESTED pursuant to the terms attached hereto as Exhibits D-1, D-2 and D-3, respectively, to purchase up to 225,000 shares of VECTOR'S Series A Preferred Stock (individually, a "Warrant" and collectively, the "Warrants"), each exercisable for a term of five (5) years, commencing upon the occurrence of the following milestone events and with respect to the following amounts: (a) the first Warrant to be exercisable with respect to [ ] shares to be issued upon [ ] (b) the second Warrant to be exercisable with respect to [ ] shares to be issued upon [ ] (c) the third Warrant to be exercisable with respect to [ ] shares upon [ ] 5.3 The Warrants shall be exercisable at such a price per share as set forth in the Warrants under -15- Paragraph 3, "Purchase Price." ARTICLE 6 ASSUMPTION OF RISK, RELEASE, INDEMNIFICATION AND INSURANCE 6.1 VECTOR assumes all risk for loss or damage arising out of a Product. MOUNT SINAI and its representatives assume no responsibility for and are hereby released from any losses or damages which may arise out of a Product (including, without limitation, losses related to personal injury and property damage and all general, direct, special, incidental, exemplary, punitive and/or consequential damages), whether due to MOUNT SINAI's or its representatives' sole, joint or several negligence (whether active or passive) or otherwise. VECTOR agrees to defend, indemnify and save harmless MOUNT SINAI and its representatives from and against all claims, liabilities, damages, lawsuits, losses and expenses (including attorney's fees) alleged to be caused by or have arisen out of a Product, whether due to MOUNT SINAI's or its representatives' sole, joint or several negligence (whether active or passive) or otherwise. 6.2 INSURANCE. VECTOR shall obtain a commercially prudent amount of insurance covering any personal injury or property damage that may arise out of VECTOR's or its Transferee's use, sale or distribution of -16- the Product and to add MOUNT SINAI as an additional insured on each such policy. It is expressly agreed and understood that no insurance company, insurer or bonding company or their successors or assigns shall have any rights of subrogation or other rights against MOUNT SINAI or its representatives. ARTICLE 7 CONFIDENTIAL INFORMATION MOUNT SINAI and VECTOR each agree that all information contained in documents marked "Confidential" ("Confidential Information") which are forwarded to one by the other shall be received in strict confidence, used only for the purposes of this Agreement, and not disclosed by the recipient party, its agents or employees without the prior written consent of the other party, unless such Confidential Information (i) was in the public domain at the time of disclosure, (ii) later became part of the public domain through no act or omission of the recipient party, its employees, agents, successors, or assigns, (iii) was lawfully disclosed to the recipient party by a third party having the right to disclose it, or (iv) was already known by the recipient at the time of disclosure. Each party's obligation of confidence hereunder shall be fulfilled by using the same degree of care with the other party's Confidential -17- Information as it uses to protect its own Confidential Information. MOUNT SINAI and VECTOR each further agree to treat as Confidential Information the terms and provisions of this Agreement, except with respect to clause (ix) below and except that MOUNT SINAI may, at its sole option, disclose the terms and provisions of this Agreement to the Inventors provided that each Inventor executes a confidentiality agreement substantially in the form attached hereto as Exhibit E. Nothing contained herein shall prevent MOUNT SINAI or VECTOR or their respective Transferees from disclosing information, except for Confidential Information, to the extent such information is required to be disclosed (v) in connection with the securing of necessary governmental authorization for VECTOR or its Transferees' manufacture, use or sale of a Product, (vi) for the purpose of VECTOR or its Transferees' compliance with governmental regulations, or (vii) for the purpose of licensing or distribution and sale of any Product, (viii) in connection with the development, manufacture, use or sale of any Product, or (ix) in connection with VECTOR's financing efforts. -18- CONFIDENTIAL TREATMENT REQUESTED ARTICLE 8 PATENTS AND COSTS VECTOR shall reimburse MOUNT SINAI for all out-of-pocket legal fees, costs and expenses incurred in connection with the preparation, filing, prosecution and maintenance of the patents and patent applications reflected on Exhibit B (the "Patent Costs") incurred [ ] In addition, VECTOR shall reimburse MOUNT SINAI for all Patent Costs incurred [ ] under the following circumstances and according to the following schedule: [ ] of the Patent Costs attributable to [ ] shall be payable by VECTOR on [ ] The remaining [ ] of such Patent Costs shall be payable by VECTOR [ ] ARTICLE 9 INTELLECTUAL PROPERTY 9.1 DEFENSE OF THIRD PARTY INFRINGEMENT SUITS. -19- In the event any Product manufactured or sold by VECTOR or its Transferee becomes the subject of a claim for patent, trade secret or other proprietary right infringement anywhere in the world, VECTOR shall promptly notify MOUNT SINAI. MOUNT SINAI shall have the right, but not the obligation, at its sole option and at its own expense, to participate in any suit which may be brought by VECTOR. 9.2 SUITS AGAINST INFRINGING THIRD PARTIES. In the event either party becomes aware of any actual or threatened infringement of the Property, that party shall promptly notify the other. VECTOR or its Transferee shall be entitled to prosecute any and all infringements of any proprietary rights in the Property, at its own expense. All monetary compensation awarded in connection with any infringement suit under this Section shall be paid to VECTOR or its Transferee. 9.3. COOPERATION. MOUNT SINAI agrees to cooperate with and assist VECTOR, as reasonably requested by VECTOR and at VECTOR's expense, in any claims or suits undertaken by VECTOR pursuant to Sections 9.1 and 9.2, and VECTOR shall keep MOUNT SINAI informed as to the status of the defense or prosecution of the same. ARTICLE 10 MISCELLANEOUS -20- CONFIDENTIAL TREATMENT REQUESTED 10.1 PROMOTIONAL ADVERTISING. VECTOR agrees not to identify MOUNT SINAI in any promotional advertising or other promotional materials to be disseminated to the public or any portion thereof, or to use the name of any MOUNT SINAI employee, former employee, or trademark, service mark, trade name, or symbol of MOUNT SINAI, or that is associated with them, without MOUNT SINAI's or such employee's, prior written consent, except materials used in connection with VECTOR's financing efforts, which representation must be accurate and appropriate. For example, VECTOR or its Transferees may not represent that MOUNT SINAI endorses or approves any of its financing efforts. Notwithstanding the foregoing, VECTOR may disclose the names of MOUNT SINAI and the Inventors to prospective investors, lenders, or partners and may [ ] (or any subsequent title for purposes of identification) [ ] in any VECTOR materials. 10.2 ENTIRE AGREEMENT. This Agreement, the Stock Issuance Agreement and the Warrants contain the entire agreement and understanding between the parties with respect to the subject matter hereof, and merge all prior discussions, representations and negotiations, either written or oral, between the parties with respect -21- CONFIDENTIAL TREATMENT REQUESTED to the subject matter of this Agreement. Nothing herein is intended to limit, expand, or otherwise affect the terms of the Stock Issuance Agreement. 10.3 ASSIGNMENT. This Agreement shall not be assignable by either party except that VECTOR may assign this agreement to an Affiliate or to a corporation with which it merges or which owns all or substantially all of VECTOR's stock. In the event that this Agreement is properly assigned it shall be binding upon and inure to the benefit of MOUNT SINAI, VECTOR and their respective assigns and successors in interest. Any assignment which is not in accordance with this Section 10.3 will be void. Nothing contained in this Agreement shall be construed as limiting in any way VECTOR's right and ability to sell, license, lease or otherwise transfer the Property. 10.4 HEADINGS. The headings used in this Agreement are for convenience of reference only and are not intended to be a part of or to affect the meaning or interpretation of this Agreement. 10.5 CONSULTING. MOUNT SINAI hereby agrees to grant, upon execution of this Agreement, an exemption [ ] from the rules governing the conduct of faculty of MOUNT SINAI, so as to allow [ ] to consult with and for VECTOR, to enter into a consulting agreement with VECTOR and, in the course of such engagement as a consultant, [ -22- CONFIDENTIAL TREATMENT REQUESTED ]except that this will not include [ ] 10.6 AMENDMENT. No amendment or modification hereof shall be valid or binding upon the parties unless made in writing and signed by both parties. 10.7 FORCE MAJEURE. Any delays in performance by any party under this Agreement shall not be considered a breach of this Agreement if and to the extent caused by occurrences beyond the reasonable control of the party effected, including but not limited to, acts of God, embargoes, governmental restrictions, strikes or other concerted acts or workers, fire, flood, explosion, riots, wars, civil disorder, rebellion or sabotage. The party suffering such occurrence shall immediately notify the other party and any time for performance hereunder shall be extended by the actual time of delay caused by the -23- occurrence. 10.8 ADDRESSES. The reports to be made hereunder to MOUNT SINAI shall be made by mailing the reports to MOUNT SINAI's address. Notices provided for herein shall effectively be given by mailing the same by certified or registered mail, properly addressed. For the purposes of making payments and giving notices, the addresses of the parties hereto are as follows: If to MOUNT SINAI: The Mount Sinai School of Medicine One Gustave L. Levy Place New York, NY 10029-6574 Attention: Director, Office of Science and Technology Development If to VECTOR: Vector Pharmaceuticals, Inc. 1815 Old Country Road Belmont, CA 94002 Attention: President or to such subsequent addresses as either party may furnish the other by giving notice thereof as provided in this Section 10-8. 10.9 INDEPENDENT CONTRACTORS. In making and performing this Agreement, MOUNT SINAI and VECTOR act and shall act at all times as independent contractors and nothing contained in this Agreement shall be construed or implied to create an agency, partnership or employer and employee relationship between MOUNT SINAI and VECTOR. At no time shall one party make commitments or incur any charges or expenses for or in the name of the other party except as specifically provided herein. -24- 10.10 SEVERABILITY. If any term, condition or provision of this Agreement is held to be unenforceable for any reason, it shall, if possible, be interpreted rather than voided, in order to achieve the intent of the parties to this Agreement to the extent possible. In any event, all other terms, conditions and provisions of this Agreement shall be deemed valid and enforceable to the full extent. 10.11 WAIVER. None of the terms, covenants, and conditions of this Agreement can be waived except by the written consent of the party waiving compliance. 10.12 APPLICABLE LAW. This Agreement shall be construed, interpreted, and applied in accordance with the laws of the State of California as applied to contracts entered into and performed entirely within California. -25- IN WITNESS WHEREOF, the parties hereto have executed this Agreement by their duly authorized officers or representatives. MOUNT SINAI SCHOOL OF MEDICINE By /s/ Nathan Kase ----------------------------- Title Dean --------------------------- VECTOR By /s/ L. Read ----------------------------- Title Chairman and CEO --------------------------- -26- EXHIBIT A COMMON STOCK ISSUANCE AGREEMENT This Agreement is made as of the____ day of _______________, 1993, by and between Vector Pharmaceuticals, Inc., a California corporation (the "Corporation"), and Mount Sinai School of Medicine ("Mount Sinai"). WITNESSETH: WHEREAS, the Corporation desires to issue, and Mount Sinai desires to purchase Common Stock of the Corporation as herein described, on the terms and conditions hereinafter set forth; and WHEREAS, the issuance of Common Stock hereunder is in connection with and in consideration of the assignment by Mount Sinai of certain technology to the Corporation, as more fully set forth in that certain Technology Transfer Agreement of even date herewith (the "Technology Agreement"). NOW, THEREFORE, IT IS AGREED between the parties as follows: 1. Mount Sinai hereby agrees to purchase from the Corporation and the Corporation agrees to sell to Mount Sinai 175,000 shares of the Corporation's Common Stock (the "Common Stock") at $.05 per share, for an aggregate purchase price of Eight Thousand Seven Hundred and Fifty Dollars ($8,750.00). Payment of the purchase price shall be made by the assignment to Mount Sinai of the "Property," as defined in and pursuant to the Technology Agreement. The parties agree that the value of the Property is equal to or greater than the aggregate purchase price of the Common Stock. 2. Mount Sinai acknowledges that it is aware that the Common Stock to be issued to it by the Corporation pursuant to this Agreement has not been registered under the Act, and that the Common Stock is deemed to constitute "restricted securities" under Rule 144 promulgated under the Securities Act of 1933, as amended (the "Act"). In this connection, Mount Sinai warrants and represents to the Corporation that Mount Sinai is purchasing the Common Stock for Mount Sinai's own account and Mount Sinai has no present intention of distributing or selling said stock except as permitted under the Act and Section 25102(f) of the California Corporations Code. Mount Sinai further warrants and represents that Mount Sinai has either (i) preexisting personal or business relationships with the Corporation or any of its officers, directors or controlling persons, or (ii) the capacity to protect its own interests in connection with the purchase of the Common Stock by virtue of the business or financial expertise of any professional advisors to Mount Sinai who are unaffiliated with and who are not compensated by the Corporation or any of its affiliates, directly or indirectly. Mount Sinai further acknowledges that the exemption from registration under Rule 144 will not be available for at least three years from the date of sale of the Common Stock unless at least two years from 1. the date of sale (i) a public trading market then exists for the Common Stock of the Corporation, (ii) adequate information concerning the Corporation is then available to the public, and (iii) other terms and conditions of Rule 144 are complied with; and that any sale of the Common Stock may be made only in limited amounts in accordance with such terms and conditions. 3. All certificates representing any shares of Common Stock subject to the provisions of this Agreement shall have endorsed thereon the following legends: (a) THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE SECURITIES LAWS. SUCH SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES LAWS. (b) THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A RIGHT OF FIRST REFUSAL OPTION IN FAVOR OF THE CORPORATION AND/OR ITS ASSIGNEE(S), AS PROVIDED IN THE BYLAWS OF THE CORPORATION. (c) Any legend required to be placed thereon by appropriate Blue Sky officials. 4. Without in any way limiting the foregoing, Mount Sinai further agrees that it shall in no event make any disposition of all or any portion of the Common Stock which it is purchasing unless and until: (i) There is then in effect a registration statement under the Act covering such proposed disposition and such disposition is made in accordance with said registration statement; or (ii) (a) It shall have notified the Corporation of the proposed disposition and shall have furnished the Corporation with a detailed statement of the circumstances surrounding the proposed disposition, (b) it shall have furnished the Corporation with an opinion of its own counsel to the effect that such disposition will not require registration of such shares under the Act, and (c) such opinion of its counsel shall have been concurred in by counsel for the Corporation, such concurrence not to be unreasonably withheld, and the Corporation shall have advised it of such concurrence. 5. Subject to the provisions of Sections 3 and 4, the shares of the Corporation's Common Stock acquired hereunder are transferable, in whole or in part, without charge to the holder hereof (except for transfer taxes), upon surrender of the certificate representing such shares, properly endorsed; PROVIDED, HOWEVER, that the Corporation's Bylaws provide for a right of first refusal in favor of the Company with respect to all sales, assignments, pledges or transfers of shares of stock of the Company or any interest therein. The Company agrees, however, that transfers of the Common Stock acquired hereunder to any person or entity listed on Schedule 1 (the "Permitted Transferees") hereto shall not be subject to such right of first 2. refusal and hereby waives any such rights with respect thereto, provided that any subsequent transfer by any of the Permitted Transferees shall nonetheless be subject to such right of first refusal. 6. The Corporation shall not be required (i) to transfer on its books any shares of Common Stock of the Corporation which shall have been sold or transferred in violation of any of the provisions set forth in this Agreement or (ii) to treat as owner of such shares or to accord the right to vote as such owner or to pay dividends to any transferee to whom such shares shall have been so transferred. 7. Mount Sinai hereby agrees that for a period of not less than 90 days and up to a maximum of 180 days following the effective date of the first registration statement of the Corporation covering Common Stock (or other securities) to be sold on its behalf in an underwritten public offering, it shall not, to the extent requested by the Corporation and any underwriter, sell or otherwise transfer or dispose of (other than to donees who agree to be similarly bound) any Common Stock of the Corporation held by it at any time during such period except Common Stock included in such registration; provided, however, that all officers and directors of the Corporation who hold securities of the Corporation or options to acquire securities of the Corporation enter into similar agreements. In order to enforce the foregoing covenant, the Corporation may impose stop- transfer instructions with respect to the Common Stock held by Mount Sinai (and the shares or securities of every other person subject to the foregoing restriction) until the end of such period. 8. The parties agree to execute such further instruments and to take such further action as may reasonably be necessary to carry out the intent of this Agreement. 9. Any notice required or permitted hereunder shall be given in writing and shall be deemed effectively given upon personal delivery or delivery by express courier, or four days after deposit in the United States Post Office, by registered or certified mail with postage and fees prepaid, addressed to the other party hereto at its address hereinafter shown below its signature or at such other address as such party may designate by ten days' advance written notice to the other party hereto. 10. This Agreement shall be governed by the laws of the State of California and interpreted and determined in accordance with the laws of the State of California, as such laws are applied by California courts to contracts made and to be performed entirely in California by residents of that state. 11. This Agreement shall inure to the benefit of the successors and assigns of the Corporation and, subject to the restrictions on transfer herein set forth, shall be binding upon Mount Sinai, its successors and assigns. 3. 12. This Agreement constitutes the entire agreement of the parties with respect to the subject matter hereof. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. VECTOR PHARMACEUTICALS, INC. By_______________________________ J. Leighton Read Address: 1815 Old County Road Belmont, CA 94002 MOUNT SINAI SCHOOL OF MEDICINE By_______________________________ Address:_________________________ _________________________ 4. CONFIDENTIAL TREATMENT REQUESTED SCHEDULE 1 PERMITTED TRANSFEREES [ ] CONFIDENTIAL TREATMENT REQUESTED EXHIBIT B PATENTS AND PATENT APPLICATIONS DESCRIPTION OF PROPERTY 1. [ ] 2. [ ] CONFIDENTIAL TREATMENT REQUESTED 3. [ ] 4. [ ] CONFIDENTIAL TREATMENT REQUESTED EXHIBIT C 1. [ ] 2. [ ] [For the current versions of Exhibits D-1, D-2, and D-3 of the Mount Sinai Agreement, see Exhibits 4.3, 4.4, 4.5, and 4.6 to the Registration Statement on Form S-1 filed with the SEC on behalf of Aviron on June 5, 1996.] EX-10.3 13 MATERIAL TRANSFER/INTELLECTUAL PROPERTY AGRMT. EXHIBIT 10.3 CONFIDENTIAL TREATMENT REQUESTED MATERIALS TRANSFER AND INTELLECTUAL PROPERTY AGREEMENT This is an Agreement, effective as of the 24th day of February, 1995 (the "Effective Date"), between Aviron, a corporation incorporated in the State of California, with offices located at 1450 Rollins Road, Burlingame, California 94010 ("AVIRON"), and the Regents of the University of MICHIGAN, a constitutional corporation of the State of MICHIGAN, with offices located at Wolverine Tower, Room 2071, 3003 South State Street, Ann Arbor, Michigan 48109-1280, USA ("MICHIGAN"). AVIRON and MICHIGAN agree as follows: 1. BACKGROUND. 1.1 MICHIGAN possesses intellectual property and technology relating to a cold-adapted influenza vaccine and MASTER STRAINS useful in the production of PRODUCTS for vaccination against influenza, and potentially for gene therapy and other uses. 1.2 AVIRON acknowledges that the MASTER STRAINS are the property of MICHIGAN, held in confidence by and to be held in confidence for MICHIGAN. 1.3 AVIRON desires to obtain, and MICHIGAN, consistent with its mission of education and research, desires to grant rights and make covenants to allow AVIRON to develop, manufacture, use, and sell PRODUCTS produced using the MASTER STRAINS and KNOW-HOW for a defined geographic TERRITORY. 2. DEFINITIONS. 2.1 "AFFILIATE(S)", shall mean any individual, corporation, partnership, proprietorship or other entity controlled by, 1 CONFIDENTIAL TREATMENT REQUESTED controlling, or under common control with AVIRON through equity ownership, ability to elect directors, or by virtue of a majority of overlapping directors, and shall include any individual, corporation, partnership, proprietorship or other entity directly or indirectly beneficially owning, owned by or under common ownership with AVIRON to the extent of [ ] or more of the voting securities of or voting interest in the owned entity. 2.2 "FIRST COMMERCIAL SALE" shall mean the first sale of any PRODUCT by AVIRON or an AFFILIATE or SUBLICENSEE, other than for use in clinical trials being conducted to obtain governmental approvals to market PRODUCTS. 2.3 "IMPROVEMENTS" shall mean any patentable improvements or know-how relating to [ ] for PRODUCTS and [ ] for the MASTER STRAINS developed by MICHIGAN's JAPAN CONTRACTEE, AVIRON, AFFILIATES, or SUBLICENSEES. The term "IMPROVEMENTS" is not intended to include [ ] 2.4 "JAPAN CONTRACTEE" shall mean the entity contracting with MICHIGAN for the rights to make, use and sell PRODUCTS in Japan (including the current contracting entity and any replacement or successor entity that may so contract with MICHIGAN). 2.5 "KNOW-HOW" shall mean the production processes, information data, and knowledge developed as of the Effective Date by MICHIGAN's faculty member Dr. Maassab, or under his direction 2 CONFIDENTIAL TREATMENT REQUESTED at MICHIGAN, and necessary or useful for [ ] 2.6 "MASTER STRAINS" shall mean donor strains of influenza viruses [ ] developed by MICHIGAN's faculty member Dr. Maassab, and provided by MICHIGAN hereunder, having the characteristics of and significant homology to the following [ ] 2.7 "NET SALES" shall mean the sum, over the term of this Agreement, of all amounts actually received and all other consideration actually received (or, when in a form other than cash or its equivalent, the fair market value thereof when received) by AVIRON and its AFFILIATES and SUBLICENSEES from persons or entities due to or by reason of the sale, distribution or use of PRODUCTS, less the following deductions and offsets, but only to the extent such sums are otherwise included in the computation of NET SALES, or are paid by AVIRON and its AFFILIATES and SUBLICENSEES and not otherwise reimbursed: refunds, rebates, replacements or credits actually allowed and taken by purchasers for return of PRODUCTS; government-mandated rebates or refunds given by AVIRON, AFFILIATES and SUBLICENSEES for purchases of PRODUCTS; customary trade, quantity and cash discounts actually allowed and taken; excise, value-added, transportation, use and sales taxes actually paid by AVIRON and its AFFILIATES and SUBLICENSEES for PRODUCTS; and 3 CONFIDENTIAL TREATMENT REQUESTED shipping and handling charges actually paid by AVIRON and its AFFILIATES and SUBLICENSEES for PRODUCTS. Sales of PRODUCTS intended for resale to third parties, made internally amongst AVIRON and its AFFILIATES and SUBLICENSEES, shall not be deemed sales for purposes of calculating "NET SALES" subject to royalty pursuant to Paragraph 5.3 of this Agreement (note that the resale by the recipient shall be included in the calculation of "NET SALES" and subject to royalty). Whenever the term "PRODUCT" may apply to a property during various stages of manufacture, use or sale, "NET SALES," as otherwise defined, shall be derived from the sale, distribution or use of such PRODUCT by AVIRON or AFFILIATES or SUBLICENSEES at the stage of its highest invoiced value to unrelated third parties. 2.8 "PATENTS" means any patent applications or patents covering MASTER STRAINS and KNOW-HOW, and also covering IMPROVEMENTS other than those owned by AVIRON, AFFILIATES and SUBLICENSEES, under which and to the extent that MICHIGAN has the right to grant rights and for which MICHIGAN does not have to pay a royalty to a third party. PATENTS owned by MICHIGAN shall be referred to herein as "MICHIGAN PATENTS." 2.9 "PARTIES", in singular or plural usage as required by the context, shall mean AVIRON and/or MICHIGAN. 2.10 "PRIOR CONTRACTEE" shall mean [ ] MICHIGAN's former licensee in the TERRITORY to the MASTER STRAINS pursuant to a terminated agreement. 2.11 "PRODUCTS" shall mean (i) [ ] as well as (ii) [ 4 CONFIDENTIAL TREATMENT REQUESTED ] 2.12 "ROYALTY QUARTERS" shall mean the three-month periods ending on the last day of March, June, September and December of each year. 2.13 "SUBLICENSEE(S)" shall mean any person or entity, except an AFFILIATE, sublicensed by AVIRON under this Agreement to make, have made, use, market or sell, PRODUCTS in the TERRITORY. 2.14 "TECHNOLOGICAL DATA" shall mean any technical data or information relating to the MASTER STRAINS and to PRODUCTS which may be necessary or useful to exercise the rights to MASTER STRAINS and KNOW-HOW granted under this Agreement and to obtain regulatory approval of PRODUCTS in the TERRITORY, and which are generated by AVIRON, its AFFILIATES and SUBLICENSEES, or by[ ] or by MICHIGAN's JAPAN CONTRACTEE or PRIOR CONTRACTEE where such technical data or information is actually provided to MICHIGAN. The term includes without limitation[ ] 2.15 "TERRITORY" means all countries of the world except Japan. 5 CONFIDENTIAL TREATMENT REQUESTED 2.16 "VALID CLAIMS" means any claim(s) in an unexpired patent or pending in a patent application included within MICHIGAN PATENTS which has not been held unenforceable, unpatentable, or invalid by a decision of a court or other governmental agency of competent jurisdiction, unappealable or unappealed within the time allowed for appeal, and which has not been admitted to be invalid or unenforceable through reissue or disclaimer. If in any country there should be two or more such decisions conflicting with respect to the validity of the same claim, the decision of the higher or highest tribunal shall thereafter control; however, should the tribunals be of equal rank, then the decision or decisions upholding the claim shall prevail when the conflicting decisions are equal in number, and the majority of decisions shall prevail when the conflicting decisions are unequal in number. 3. GRANT OF RIGHTS; COVENANTS OF MICHIGAN. 3.1 MICHIGAN hereby grants to AVIRON the exclusive right, under any of MICHIGAN's rights in the MASTER STRAINS, KNOW-HOW and TECHNOLOGICAL DATA, to use MASTER STRAINS and to practice and use KNOW-HOW and TECHNOLOGICAL DATA solely to make, have made, use, market and sell, PRODUCTS in the TERRITORY; with the right to grant sublicenses to AFFILIATES and SUBLICENSEES subject to the terms and provisions of Article 10 below. 3.2 MICHIGAN also hereby grants to AVIRON the exclusive license under PATENTS, to make, have made, use, market, import, offer for sale and sell PRODUCTS in the TERRITORY; with the right to grant sublicenses to AFFILIATES and SUBLICENSEES subject to the terms and provisions of Article 10 below. MICHIGAN reserves the right to practice any PATENTS for internal research and education purposes within the TERRITORY, and to license and practice any PATENTS for any purpose outside of the TERRITORY. 6 CONFIDENTIAL TREATMENT REQUESTED 3.3 MICHIGAN further grants to AVIRON the exclusive option to extend the definition of the term "TERRITORY" under this Agreement to include Japan, should MICHIGAN's agreement with the current JAPAN CONTRACTEE expire or terminate for any reason. MICHIGAN shall notify AVIRON of any such expiration or termination, and AVIRON shall thereafter have [ ] AVIRON may exercise this option without payment of additional consideration other than as provided under this Agreement. 3.4 During the term of this Agreement MICHIGAN covenants not to enter into any agreement allowing any other party to use MASTER STRAINS or practice KNOW-HOW, TECHNOLOGICAL DATA, or IMPROVEMENTS for the purpose of the commercial manufacture or sale of PRODUCTS in the TERRITORY. 3.5 MICHIGAN further reserves the right to grant to the U.S. Government a nonexclusive, irrevocable, royalty-free license or licenses, with the right to sublicense, to any patents and patent applications covered by this Agreement, to the extent that such grant of license(s) is or may be required by research funding agreements between the University and the U.S. Government. 4. PROVISION AND USE OF MASTER STRAINS; USE OF PRODUCTS. 4.1 Within thirty (30) days after the payment of the Agreement issue fee by AVIRON as set forth in Paragraph 5.1 below, MICHIGAN shall provide to AVIRON [ ] 7 CONFIDENTIAL TREATMENT REQUESTED 4.2 AVIRON, AFFILIATES and SUBLICENSEES shall use MASTER STRAINS only for the development, manufacture and sale of PRODUCTS. 4.3 AVIRON, AFFILIATES and SUBLICENSEES may make new passages of the MASTER STRAINS, [ ] All MASTER STRAIN samples, including all passages made by AVIRON and AFFILIATES and SUBLICENSEES, shall be the property of MICHIGAN. 4.4 AVIRON, AFFILIATES and SUBLICENSEES shall not provide MASTER STRAINS including passages thereof to any third party. 4.5 AVIRON, AFFILIATES and SUBLICENSEES shall return or destroy at MICHIGAN's option all [ ] to MICHIGAN upon any termination of this Agreement. 4.6 It is acknowledged that the MASTER STRAINS are confidential materials of MICHIGAN, pursuant to Article 16 below, and that unauthorized disclosure or transfer to third parties may result in financial detriment to MICHIGAN. AVIRON agrees to use its best efforts to limit use of all MASTER STRAINS for [ ]to treat the MASTER STRAINS as confidential pursuant to the terms of Article 16 below, and to limit access to the MASTER STRAINS to those of AVIRON's and its AFFILIATES' and SUBLICENSEES' employees reasonably requiring same for the purpose of manufacturing and commercialization of PRODUCTS, who further are obligated in writing to treat the MASTER STRAINS in a manner and to an equivalent extent as provided herein with regard to confidentiality, use and non-disclosure. 8 4.7 AVIRON, AFFILIATES and SUBLICENSEES shall use their best efforts to manufacture, analyze and store PRODUCTS and MASTER STRAINS in accordance with all applicable government laws and regulatory agency requirements. AVIRON, AFFILIATES and SUBLICENSEES shall be responsible for maintaining the stability and viability of the MASTER STRAINS. 4.8 During the course of the Agreement, MICHIGAN shall have the right to request, at reasonable intervals and quantities, such batch samples of PRODUCTS from AVIRON, AFFILIATES and SUBLICENSEES as it may desire for non-human research purposes only. PRODUCTS supplied to MICHIGAN prior to the FIRST COMMERCIAL SALE shall be maintained in confidence by MICHIGAN pursuant to the terms of Article 16 below and shall not be transferred to any third party unless required by law. 4.9 During the term of this Agreement, MICHIGAN shall not authorize the transfer of any MASTER STRAINS samples to any third party other than the JAPAN CONTRACTEE (subject to restrictions equivalent to those made under MICHIGAN's contract with the current JAPAN CONTRACTEE), except: (i) transfers required under any contractual obligations existing as of the Effective Date, and transfers required (and only to the extent required) under future research agreements between MICHIGAN and the Federal Government; (ii) transfers required by the Federal Government or by law; (iii) transfers, including publicly available deposits, of materials incorporating derivatives of MASTER STRAINS (such as reassortants), in support of academic publications and as consistent with generally accepted publication policies, made under arrangements restricting the use of such materials to uses for research purposes only; (iv) transfers for research purposes only, and only when made on terms reasonably acceptable to AVIRON; and (v) transfers as provided under Paragraph 11.2 or otherwise agreed upon in advance by AVIRON. 9 CONFIDENTIAL TREATMENT REQUESTED MICHIGAN acknowledges that this is a material obligation under this Agreement. Should MICHIGAN authorize a transfer in violation of this Paragraph 4.9 to a third party which thereafter develops a vaccine product produced from a seed virus derived from the MASTER STRAINS so received, and that vaccine product is distributed in competition with PRODUCTS manufactured, marketed, distributed or sold by AVIRON, AFFILIATES or SUBLICENSEES, then[ ] This [ ] This remedy is not exclusive. 4.10 Should any transfer of MASTER STRAINS occur directly from MICHIGAN to a third party, excluding transfers from MICHIGAN permitted under Paragraph 4.9 or occurring prior to the Effective Date, and that third party thereafter develops a vaccine product produced from a seed virus derived from the MASTER STRAINS so received, and that vaccine product is distributed in competition with PRODUCTS manufactured, marketed, distributed or sold by AVIRON, AFFILIATES or SUBLICENSEES, then [ ] 4.11 MICHIGAN represents that, to its knowledge, all third parties which have received MASTER STRAINS directly from MICHIGAN prior to the Effective Date are listed on the List of Known 10 CONFIDENTIAL TREATMENT REQUESTED Recipients of MASTER STRAINS which is attached hereto and incorporated herein as Exhibit B. 5. CONSIDERATION. 5.1 AVIRON shall pay to MICHIGAN a non-creditable, non-refundable fee of [ ] upon execution of this Agreement. 5.2 AVIRON shall also pay to MICHIGAN a further non-creditable, non-refundable fee of [ ] within thirty (30) days of [ ] (AVIRON shall notify MICHIGAN within thirty (30) days of [ ] described in this Paragraph.) 5.3 AVIRON shall also pay MICHIGAN, with respect to each ROYALTY QUARTER, a royalty equal to: (i) [ ] of NET SALES of AVIRON and AFFILIATES for all PRODUCTS defined under Subparagraph 2.11(i) above; and (ii) [ ] of NET SALES of AVIRON and AFFILIATES for all other PRODUCTS. Where NET SALES are generated for PRODUCTS that are vaccines which actually contain, in final form, more than one virus, then the royalty rate otherwise payable upon those NET SALES under Subparagraph 5.3(i) or (ii) above shall be multiplied by a fraction, the numerator of which shall be [ ] and the 11 CONFIDENTIAL TREATMENT REQUESTED denominator of which shall be [ ] 5.5 AVIRON shall also transfer to MICHIGAN, upon execution of this Agreement, shares of AVIRON stock and warrants to shares of AVIRON stock according to the terms of the Stock Transfer Agreement which is attached hereto and incorporated herein as Exhibit A. (Note: AVIRON's obligations under the Stock Transfer Agreement are deemed by the Parties to be material obligations of this Agreement, and MICHIGAN has certain termination rights applicable to this Agreement pursuant to Section 1.2 of the Stock Transfer Agreement.) 5.6 AVIRON and MICHIGAN shall execute, simultaneously with this Agreement, a Research Agreement under which AVIRON shall support continued research relating to the MASTER STRAINS by MICHIGAN for at least [ ] with a support commitment by AVIRON of [ ]. 5.7 The PARTIES acknowledge that the consideration to be received by MICHIGAN herein is made by AVIRON in exchange for the rights granted hereunder especially to MASTER STRAINS, and also to KNOW-HOW, PATENTS (if any, including PATENTS covering IMPROVEMENTS), and TECHNOLOGICAL DATA. AVIRON acknowledges that the provision of the physical MASTER STRAINS, KNOW-HOW and TECHNOLOGICAL DATA by MICHIGAN, and AVIRON's and its AFFILIATES and SUBLICENSEES access to MASTER STRAINS, KNOW-HOW and TECHNOLOGICAL DATA thereby gained, is sufficient to create the obligations for consideration agreed to herein. 6. REPORTS. 6.1 Within [ ] after the close of each ROYALTY QUARTER during the term of this Agreement (including the close of any ROYALTY QUARTER immediately following any termination of this Agreement), AVIRON shall report to 12 MICHIGAN all royalties accruing to MICHIGAN during such ROYALTY QUARTER. Such quarterly reports shall indicate for each ROYALTY QUARTER the gross sales and NET SALES of PRODUCTS by AVIRON, AFFILIATES and SUBLICENSEES; as well as the various calculations used to arrive at said amounts, including the quantity, description (nomenclature and type designation), country of manufacture and country of sale of PRODUCTS. In case no payment is due for any such period, AVIRON shall so report. 6.2 AVIRON covenants that it will promptly establish and consistently employ a system of specific nomenclature and type designations for PRODUCTS so that various types can be identified and segregated in the reports owed under Paragraph 6.1, where necessary; AVIRON, AFFILIATES and SUBLICENSEES shall consistently employ such system when rendering invoices thereon and henceforth agree to inform MICHIGAN, or its auditors, when requested as to the details concerning such nomenclature system as well as to all additions thereto and changes therein. 6.3 AVIRON shall keep, and shall require its AFFILIATES and SUBLICENSEES to keep, true and accurate records and books of account containing data reasonably required for the computation and verification of payments to be made as provided by this Agreement, which records and books shall be open for inspection upon reasonable notice during business hours by either MICHIGAN auditor(s) or an independent certified accountant selected by MICHIGAN, for the purpose of verifying the amount of payments due and payable. Without in any way foreshortening any applicable statute of limitations, said right of inspection will exist for four (4) years from the date of origination of any such record, and this requirement and right of inspection shall survive any termination of this Agreement. MICHIGAN shall be responsible for all expenses of such inspection, except that if such 13 CONFIDENTIAL TREATMENT REQUESTED inspection reveals an underpayment of royalties to MICHIGAN in excess of ten percent (10%), then said inspection shall be at AVIRON's expense and such underpayment shall become immediately due and payable to MICHIGAN. 6.4 The reports provided for hereunder shall be certified by an authorized representative of AVIRON to be correct to the best of AVIRON's knowledge and information. 7. TIMES ANID CURRENCIES OF PAYMENTS. 7.1 All payments accrued during each ROYALTY QUARTER shall be due and payable in Ann Arbor, Michigan on the date each quarterly report is due (as provided in Paragraph 6.1), shall be included with such report and shall be paid in United States dollars. AVIRON agrees to make all payments due hereunder to MICHIGAN by check made payable to "The Regents of The University of Michigan" and sent according to the instructions for notices set forth in Article 23 herein. 7.2 On all amounts outstanding and payable to MICHIGAN, interest shall accrue from the date such amounts are due and payable at [ ] or at such lower rate as may be required by law. 7.3 Where NET SALES are generated in foreign currency, such foreign currency shall be converted into its equivalent in United States dollars at the exchange rate of such currency as reported (or if erroneously reported, as subsequently corrected) in the Wall Street Journal on the last business day of the ROYALTY QUARTER during which such payments are received by AVIRON, AFFILIATES or SUBLICENSEES (or if not reported on that date, as quoted by the Chase Manhattan Bank, N.A., in New York City, New York). 14 CONFIDENTIAL TREATMENT REQUESTED 7.4 Except as provided in the definition of NET SALES, all royalty payments to MICHIGAN under this Agreement shall be without deduction for sales, use, excise, personal property or other similar taxes or other duties imposed on such payments by the government of any country or any political subdivision thereof; and any and all such taxes or duties shall be assumed by and paid by AVIRON. 8. COMMERCIALIZATION. 8.1 As between MICHIGAN and AVIRON, it is understood that AVIRON has the responsibility for obtaining any governmental approvals to manufacture and/or sell PRODUCTS. 8.2 AVIRON agrees to [ ] (i) to develop PRODUCTS, obtain any government approvals necessary, and manufacture and sell PRODUCTS at the earliest possible date; (ii) to effectively exploit, market and manufacture in sufficient quantities to meet anticipated customer demand; and (iii) to make the benefits of the PRODUCTS reasonably available to the public. 8.3 AVIRON shall [ ] to commercialize (or have commercialized) PRODUCTS designed and marketed for all commercially feasible fields of use. 8.4 Within thirty (30) days of the FIRST COMMERCIAL SALE, AVIRON shall resort by written letter to MICHIGAN the date and general terms of that sale. 8.5 [ 15 CONFIDENTIAL TREATMENT REQUESTED ] 9. TECHNOLOGICAL DATA: IMPROVEMENTS. 9.1 As soon as practical and not later than forty-five (45) days after the Effective Date, each PARTY shall disclose to the other TECHNOLOGICAL DATA in its possession (including TECHNOLOGICAL DATA received by MICHIGAN from its PRIOR CONTRACTEE), to the extent not previously made available to the other PARTY. 9.2 During the course of this Agreement, MICHIGAN shall provide AVIRON with any additional TECHNOLOGICAL DATA as said TECHNOLOGICAL DATA is developed [ ] or when said TECHNOLOGICAL DATA is received by MICHIGAN if generated by MICHIGAN's JAPAN CONTRACTEE. 9.3 At least once every six (6) months, AVIRON shall submit to MICHIGAN (i) copies of all reports relating to the TECHNOLOGICAL DATA which AVIRON, including its AFFILIATES and SUBLICENSEES, has generated since the last reporting period, and (ii) a report informing MICHIGAN of the status of the developmental work respecting PRODUCTS. 9.4 All TECHNOLOGICAL DATA and IMPROVEMENTS developed or acquired by AVIRON, AFFILIATES and SUBLICENSEES (other than TECHNOLOGICAL DATA acquired from MICHIGAN), whether or not patented, shall be disclosed to MICHIGAN and an irrevocable, royalty-free license, with the right to sublicense outside the TERRITORY to the JAPAN CONTRACTEE, to utilize such TECHNOLOGICAL DATA or IMPROVEMENTS only with regard to the manufacture, use, marketing or sale of PRODUCTS shall be granted to MICHIGAN. Upon request by MICHIGAN, AVIRON shall 16 CONFIDENTIAL TREATMENT REQUESTED file, prosecute and maintain patents on AVIRON's and its AFFILIATES' and SUBLICENSEES' IMPROVEMENTS outside the TERRITORY (I.E., in Japan) using patent counsel selected by AVIRON and MICHIGAN shall reimburse AVIRON for its costs associated with such patent filing, prosecution and maintenance outside the TERRITORY. AVIRON shall be responsible for prosecuting and maintaining at its own expense all other patents and patent applications on its IMPROVEMENTS. 10. SUBLICENSING. 10.1 AVIRON shall have the exclusive right to grant sublicenses to its rights under Article 3 above to AFFILIATES and SUBLICENSEES, to make, have made, use, market and sell, PRODUCTS in the TERRITORY. 10.2 AVIRON shall notify MICHIGAN of every sublicense agreement and each amendment thereto, within thirty (30) days after their execution, and indicate the name of the SUBLICENSEE or AFFILIATE, the territory of the sublicense, and the scope of the sublicense. 10.3 Any sublicense granted by AVIRON under this Article 10 shall provide for [ 17 CONFIDENTIAL TREATMENT REQUESTED ] 10.4 All sublicenses shall be consistent with the terms and conditions of this Agreement, and shall contain all terms as required by this Agreement, including acknowledgement of MICHIGAN's disclaimer of warranty and the limitation on MICHIGAN's liability, as described by Article 13; and also including the following obligations and duties at least to the extent described in the various noted sections herein, and to the extent required so as to allow AVIRON to fulfill its obligations under the various sections herein: obligations and restrictions relating to MASTER STRAINS, PRODUCTS, and their ownership and use (Article 4); duties of use of a nomenclature system (Paragraph 6.2); duties to keep records (Paragraph 6.4); obligations regarding the periodic reporting, disclosure and grant of rights to TECHNOLOGICAL DATA and IMPROVEMENTS (Article 9); duties to avoid improper representations or responsibilities (Paragraph 13.4); obligations to defend, hold harmless, and indemnify MICHIGAN (Article 14); obligations to obtain insurance (Paragraph 14.3); obligations relating to the return and non-use of MASTER STRAINS and TECHNOLOGICAL DATA and prohibitions on the manufacture of PRODUCTS after termination of the Agreement (Paragraph 15.5); duties to provide rights to MICHIGAN to TECHNOLOGICAL DATA and IMPROVEMENTS upon termination of the Agreement (Paragraph 15.6); duties relating to Confidential Information (Article 16) and to pre-publication disclosure (Article 17); duties to control export (Article 20); and duties to restrict the use of MICHIGAN's name (Article 22). With respect to SUBLICEENSEES sublicensed solely to manufacture PRODUCTS for sale to AVIRON and AFFILIATES, duties regarding use of a nomenclature system and recordkeeping may be inapplicable. 18 11. PATENT APPLICATIONS AND MAINTENANCE. 11.1 MICHIGAN shall control, subject to AVIRON's participation as provided in Paragraph 11.2, all aspects of preparing, filing, prosecuting, and maintaining MICHIGAN PATENTS in the TERRITORY, including foreign filings and Patent Cooperation Treaty filings. AVIRON shall, at its own expense, perform all actions and execute or cause to be executed all documents necessary to support such filing, prosecution, or maintenance. 11.2 MICHIGAN shall notify AVIRON of all information received by MICHIGAN relating to the preparation, filing, prosecution and maintenance of MICHIGAN PATENTS, including any lapse, revocation, surrender, invalidation or abandonment of any of the MICHIGAN PATENTS, in sufficient time to allow AVIRON to review and comment upon such information. AVIRON shall have the right to use its own patent counsel in making its review and comment. MICHIGAN shall deposit or otherwise make available MASTER STRAINS as part of the prosecution of any MICHIGAN PATENTS only after notification of AVIRON, and only provided AVIRON does not reasonably object. 11.3 MICHIGAN may in its sole discretion decide to refrain from or to cease prosecuting or maintaining any of the MICHIGAN PATENTS in the TERRITORY, including any foreign filing or any Patent Cooperation Treaty filing. In the event that MICHIGAN makes such decision, MICHIGAN shall notify AVIRON promptly and in sufficient time to permit AVIRON at its sole discretion to continue such prosecution or maintenance at AVIRON's expense. If AVIRON elects to continue such prosecution or maintenance, MICHIGAN shall execute such documents and perform such acts at AVIRON's expense as may be reasonably necessary for AVIRON to so continue such prosecution or maintenance; however, in no circumstance may MASTER STRAINS samples be provided to any entity for patent 19 CONFIDENTIAL TREATMENT REQUESTED purposes (e.g., registration of samples with a materials repository agency for public access) without MICHIGAN's express consent. 11.4 AVIRON shall reimburse patent expenses paid by MICHIGAN as follows: MICHIGAN shall provide notice to AVIRON of all reasonable and necessary expenses paid by MICHIGAN, with sufficiently detailed documentation to support such expenses in monitoring, drafting, filing, prosecuting and maintaining the MICHIGAN PATENTS in the TERRITORY, and in maintaining or asserting its inventorship or ownership interest in MICHIGAN PATENTS, including [ ] The first such notice of expenses provided by MICHIGAN shall include [ ] Within thirty (30) days of the receipt of each such notice, AVIRON shall reimburse MICHIGAN for all such reasonable and necessary expenses, except that AVIRON shall not be required to reimburse [ ] however, in any case where AVIRON fails to promptly reimburse MICHIGAN for any above-described expenses (whether or not related to filings requested by AVIRON), [ ] 20 CONFIDENTIAL TREATMENT REQUESTED 12. INFRINGEMENT. 12.1 During the term of this Agreement, AVIRON shall have the first option to police MICHIGAN PATENTS against infringement by other parties in the TERRITORY. This right to police includes defending any action for declaratory judgment of noninfringement or invalidity; and prosecuting, defending or settling all infringement and declaratory judgment actions at its expense and through counsel of its selection, except that any such settlement shall only be made with the advice and consent of MICHIGAN. MICHIGAN shall provide reasonable assistance to AVIRON with respect to such actions, provided AVIRON shall reimburse MICHIGAN for out-of-pocket expenses incurred in connection with any such assistance rendered at AVIRON's request or reasonably required by MICHIGAN. In the event AVIRON elects to institute any such action or suit, MICHIGAN agrees to be named as a nominal party therein. MICHIGAN retains the right to participate, with counsel of its own choosing, in any action under this Paragraph 12.1. 12.2 In the event that AVIRON shall institute an action for infringement of MICHIGAN PATENTS or defend a declaratory judgment or other action with respect to MICHIGAN PATENTS, any portion of any resulting settlement payments or damages awarded which is received by AVIRON, less [ ] paid and unrecovered by AVIRON, shall be paid[ ] to AVIRON and [ ] to MICHIGAN. 12.3 In the event that AVIRON fails to take action to abate any alleged infringement of MICHIGAN PATENTS within[ ] of a request by MICHIGAN to do so (or within such shorter period which might be required to preserve the legal rights of MICHIGAN under the laws of any relevant government or political subdivision thereof), then MICHIGAN shall have 21 CONFIDENTIAL TREATMENT REQUESTED the right to take such action (including prosecution of a suit) at its expense and AVIRON shall use reasonable efforts to cooperate in such action, at AVIRON's expense. In the event MICHIGAN elects to institute any such action or suit, AVIRON agrees to be named as a nominal party therein. MICHIGAN shall have full authority to settle on such terms as MICHIGAN shall determine, except that MICHIGAN shall not reach any settlement whereby it licenses a third party under any MICHIGAN PATENTS in the TERRITORY without the consent of AVIRON. Any portion of any resulting settlement payments or damages awarded which is received by MICHIGAN, less [ ] paid and unrecovered by MICHIGAN, shall be paid [ ] to MICHIGAN and [ ]to AVIRON. 12.4 AVIRON shall promptly notify MICHIGAN in writing in detail of the discovery of any allegation by a third party of infringement resulting from the practice of PATENTS, and of the initiation of any legal action by AVIRON or by any third party with regard to any alleged infringement or noninfringement. AVIRON shall in a timely manner keep MICHIGAN informed and provide copies to MICHIGAN of all documents regarding all such proceedings or actions instituted by AVIRON. 13. NO WARRANTIES; LIMITATION ON MICHIGAN'S LIABILTTY. 13.1 MICHIGAN, including its fellows, officers, employees and agents, makes no representations or warranties that any PATENTS are or will be held valid, or that the manufacture, use, sale or other distribution of any PRODUCTS will not infringe upon any patent or other rights not vested in MICHIGAN. 22 13.2 MICHIGAN, INCLUDING ITS FELLOWS, OFFICERS, EMPLOYEES AND AGENTS, MAKES NO REPRESENTATIONS, EXTENDS NO WARRANTIES OF ANY KIND, EITHER EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO THE IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, AND ASSUMES NO RESPONSIBILITIES WHATEVER WITH RESPECT TO DESIGN, DEVELOPMENT, MANUFACTURE, USE, SALE OR OTHER DISPOSITION BY AVIRON, AFFILIATES OR SUBLICENSEES OF MASTER STRAINS OR PRODUCTS. 13.3 THE ENTIRE RISK AS TO PERFORMANCE OF PRODUCTS AND AS TO THE SAFE USE AND HANDLING OF MASTER STRAINS AND PRODUCTS IS ASSUMED BY AVIRON, AFFILIATES AND SUBLICENSEES. In no event shall MICHIGAN, including its fellows, officers, employees and agents, be responsible or liable for any direct, indirect, special, incidental, or consequential damages or lost profits to AVIRON, AFFILIATES, SUBLICENSEES or any other individual or entity regardless of legal theory. The above limitations on liability apply even though MICHIGAN, its fellows, officers, employees or agents may have been advised of the possibility of such damage. Regardless of any testing which may have been done at MICHIGAN, MICHIGAN makes no representations regarding the efficacy or safety of PRODUCTS. 13.4 AVIRON shall not, and shall require that its AFFILIATES and SUBLICENSEES do not, make any statements, representations or warranties or accept any liabilities or responsibilities whatsoever to or with regard to any person or entity which are inconsistent with any disclaimer or limitation included in this Article 12. 14. INDEMNITY; INSURANCE. 14.1 AVIRON shall defend, indemnify and hold harmless and shall require its AFFILIATES and SUBLICENSEES to defend, indemnify and hold harmless MICHIGAN, its fellows, officers, employees 23 and agents, for and against any and all claims, demands, damages, losses, and expenses of any nature (including attorneys, fees and other litigation expenses), resulting from, but not limited to, death, personal injury, illness, property damage, economic loss or products liability arising from or in connection with, any of the following: (1) Any manufacture, use, sale or other disposition by AVIRON, AFFILIATES, SUBLICENSEES or transferees of MASTER STRAINS or PRODUCTS; (2) The direct or indirect use by any person of MASTER STRAINS or PRODUCTS made, used, sold or otherwise distributed by AVIRON, AFFILIATES or SUBLICENSEES; (3) The use, handling, storage or disposal by AVIRON, AFFILIATES or SUBLICENSEES of PRODUCTS, MASTER STRAINS, or any type of derivative of MASTER STRAINS; (4) The use by AVIRON, AFFILIATES or SUBLICENSEES of KNOW-HOW, IMPROVEMENTS or TECHNOLOGICAL DATA. No approval, review, inspection nor receipt by MICHIGAN of any TECHNOLOGICAL DATA, IMPROVEMENTS, samples or otherwise or representations made with respect thereto shall in any manner relieve AVIRON and its AFFILIATES and SUBLICENSEES of the responsibilities under this Paragraph 14.1. 14.2 MICHIGAN shall be entitled to participate at its option and expense through counsel of its own selection, and may join in any legal actions related to any such claims, demands, damages, losses and expenses under Paragraph 12.1 above, provided MICHIGAN reasonably cooperates with AVIRON's handling of such action. 24 CONFIDENTIAL TREATMENT REQUESTED 14.3 Prior to any clinical trials on humans, use in humans, or distribution of any PRODUCT commercially or for any human use by AVIRON or an AFFILIATE, AVIRON shall purchase and maintain in effect a policy of product liability insurance. [ ] Each such insurance policy shall provide [ ] AVIRON shall furnish certificate(s) of such insurance to MICHIGAN, upon request. 15. TERM AND TERMINATION. 15.1 This Agreement will become effective on its Effective Date and, unless terminated under another, specific provision of this Agreement, will remain in effect until and terminate upon the latter of (i) the last to expire of MICHIGAN PATENTS, or (ii) the twentieth anniversary date of the date of the FIRST COMMERCIAL SALE; unless otherwise extended by written agreement of the PARTIES. Upon expiration of this Agreement pursuant to this Paragraph 15.1 (i) or (ii), AVIRON shall have the right to require that MICHIGAN [ ] 25 15.2 Upon any termination of this Agreement, and except as provided herein to the contrary, all rights and obligations of the PARTIES hereunder shall cease, except as follows: (1) Obligations to pay royalties and other sums accruing hereunder up to the day of such termination; (2) MICHIGAN's rights to inspect books and records as described in Article 6, and AVIRON's obligations to keep such records for the required time; (3) Obligations to hold harmless, defend and indemnify MICHIGAN under Article 14; (4) Any cause of action or claim of AVIRON or MICHIGAN accrued or to accrue because of any breach or default by the other PARTY hereunder; (5) The general rights, obligations, and understandings of Articles 2, 13, 20, 22, 30 and 31; (6) Each PARTY's duty of confidentiality, to the extent set out in Article 16; (7) MICHIGAN's licenses to any IMPROVEMENTS and TECHNOLOGICAL DATA of AVIRON, AFFILIATES and SUBLICENSEES, as provided in Paragraph 9.4 above and Paragraph 15.6 below; (8) Solely upon termination by expiration according to Paragraph 15.1 (i) or (ii) , a non-exclusive right under MICHIGAN's rights for AVIRON to practice and use KNOW-HOW, TECHNOLOGICAL DATA and IMPROVEMENTS, as provided in Paragraph 3.1; (9) The obligations of Paragraph 15.5 below; and 26 (10) All other terms, provisions, representations, rights and obligations contained in this Agreement that by their sense and context are intended to survive until performance thereof by either or both PARTIES. 15.3 If AVIRON shall at any time default in the payment of any royalty or the making of any report hereunder, or shall make any false report, or if either PARTY shall commit any material breach of any covenant or promise herein contained, and shall fail to remedy any such default, breach or report within thirty (30) days after written notice thereof by the other PARTY specifying such default, then that other PARTY may, at its option, terminate this Agreement and the rights granted herein by notice in writing to such effect. Any such termination shall be without prejudice to either PARTY's other legal rights for breach of this Agreement. 15.4 Subject to AVIRON's right to terminate pursuant to Paragraph 15.3 above, AVIRON may terminate this Agreement by giving MICHIGAN a notice of termination, which shall include a statement of the reasons, whatever they may be, for such termination and the termination date established by AVIRON, which date shall not be sooner than twelve (12) months after the date of the notice. Such notice shall be deemed by the PARTIES to be final and, immediately upon receipt of such notice of termination, MICHIGAN shall have the right to enter into agreements with third parties for the provision of MASTER STRAINS and KNOW-HOW for the manufacture, sale, and/or use of PRODUCTS and this Agreement shall immediately terminate upon execution by MICHIGAN of any such agreement with a third party. 15.5 Upon any termination of this Agreement, AVIRON shall, and shall require that its AFFILIATES and SUBLICENSEES shall: 27 (1) Promptly return to MICHIGAN or destroy at MICHIGAN's option the MASTER STRAINS and materials as required under Paragraph 4.5; (2) Promptly return to MICHIGAN all TECHNOLOGICAL DATA disclosed to AVIRON by MICHIGAN, its JAPAN CONTRACTEE and its PRIOR CONTRACTEE, and except according to Subparagraph 15.2 (8), refrain from any further use of such TECHNOLOGICAL DATA; (3) Promptly provide to MICHIGAN all TECHNOLOGICAL DATA developed or obtained by AVIRON, AFFILIATES and SUBLICENSEES not otherwise previously disclosed to MICHIGAN; and (4) Except according to Subparagraph 15.2 (8), refrain from all further use of KNOW-HOW, PATENTS and TECHNOLOGICAL DATA made available by MICHIGAN, or its JAPAN CONTRACTEE or PRIOR CONTRACTEE, under this Agreement. 15.6 Upon any termination of this Agreement, MICHIGAN shall have an irrevocable, royalty-free right, with the right to sublicense that right, to use TECHNOLOGICAL DATA and IMPROVEMENTS of AVIRON, AFFILIATES and SUBLICENSEES, only with regard to the manufacture, use or sale of PRODUCTS. 16. CONFIDENTIAL INFORMATION. 16.1 All MASTER STRAINS, KNOW-HOW, TECHNOLOGICAL DATA, and information comprising or relating to IMPROVEMENTS and PATENTS provided by one PARTY to the other PARTY pursuant to the terms of this Agreement shall be deemed "Confidential Information" if it is initially marked as confidential when provided to the recipient PARTY, or, if orally disclosed, if it is indicated as confidential at the time that it is disclosed and is reduced to a writing marked as confidential 28 CONFIDENTIAL TREATMENT REQUESTED and provided to the recipient PARTY within one (1) month thereafter. (All TECHNOLOGICAL DATA provided to AVIRON [by MICHIGAN or directly] from MICHIGAN's JAPAN CONTRACTEE or PRIOR CONTRACTEE shall automatically be deemed Confidential Information.) 16.2 For the duration of this Agreement, and for a period of [ ] thereafter, such Confidential Information shall not be used by the recipient PARTY for purposes other than those stated in this Agreement and shall be protected from disclosure to third parties (except as allowed by this Agreement) with the same degree of care as the recipient PARTY would apply to its own confidential information (MICHIGAN may release all Confidential Information covering TECHNOLOGICAL DATA and IMPROVEMENTS to its JAPAN CONTRACTEE, and also pursuant to any sublicense as authorized by Paragraphs 9.4 and 15.6). AVIRON shall require that its AFFILIATES and SUBLICENSEES given access to Confidential Information are bound to this obligation to the same extent as AVIRON. (Note that use of MASTER STRAINS and PRODUCTS are also subject to the restrictions of Article 4 and Paragraph 15.5.) 16.3 The obligations regarding non-disclosure and non-use set forth in Paragraph 16.2 above shall not apply to any information or data which: (1) Is or becomes published or otherwise publicly available other than by acts of the recipient PARTY in contravention of this Agreement; (2) Can be shown by written records to have been disclosed to the recipient PARTY by a third party (not the JAPAN CONTRACTEE or PRIOR CONTRACTEE) who is not under an obligation of confidentiality to the other PARTY; 29 CONFIDENTIAL TREATMENT REQUESTED (3) Can be shown by written records to have been known to the recipient PARTY at the time of disclosure by the other PARTY hereunder; (4) Can be shown by written records to have been developed by the recipient PARTY independent of disclosures by the other PARTY; (5) Is required to be disclosed by law or court order, including Michigan Freedom of Information Act requirements; or (6) Is disclosed solely to the extent necessary to obtain governmental approvals of PRODUCTS. 17. PUBLICATIQN. This Agreement shall not be construed as to constrain or prohibit [ ] or [ ] from presenting at symposia, national, or regional professional meetings, and from publishing in journals, theses or dissertations, or otherwise of his own choosing, presentations and publications relating to the MASTER STRAINS, KNOW-HOW and TECHNOLOGICAL DATA, provided, however, that AVIRON shall have been furnished copies of any such proposed publication or presentation at least thirty (30) days in advance of the submission of the proposed publication or presentation to a journal, editor, or other third party. AVIRON shall have thirty (30) days after receipt of said copies, to object to the proposed publication or presentation, either because it contains Confidential Information of AVIRON (as defined in Article 16 above), or because it contains potentially patentable subject matter of AVIRON, or to identify potentially patentable subject matter of MICHIGAN, needing protection. In the event that AVIRON makes such objection, then MICHIGAN shall refrain from making 30 such publication or presentation until said Confidential Information of AVIRON is removed, or, for a maximum of six (6) months after the receipt of the objection, in order for AVIRON to file applications covering its patentable subject matter (delays of a publication or presentation in order to file applications covering patentable subject matter of MICHIGAN shall be at MICHIGAN's discretion). 18. ASSIGNMENT. Due to the unique relationship between the PARTIES, this Agreement shall not be assignable by either PARTY without the prior written consent of the other PARTY. Any attempt to assign this Agreement without such consent shall be void from the beginning. MICHIGAN shall not withhold consent for AVIRON to assign this Agreement to a purchaser of all or substantially all of AVIRON's business. No assignment shall be effective unless and until the intended assignee agrees in writing to accept all of the terms and conditions of this Agreement. Further, AVIRON shall refrain from pledging any of the license rights granted in this Agreement as security for any creditor. 19. REGISTRATION AND RECORDATION. 19.1 If the terms of this Agreement, or any assignment or license under this Agreement are or become such as to require that the Agreement or license or any part thereof be registered with or reported to a national or supranational agency of any area in which AVIRON, AFFILIATES or SUBLICENSEES would do business, AVIRON will, at its expense, undertake such registration or report. Prompt notice and appropriate verification of the act of registration or report or any agency ruling resulting from it will be supplied by AVIRON to MICHIGAN. 31 19.2 Any formal recordation of this Agreement or any license herein granted which is required by the law of any country, as a prerequisite to enforceability of the Agreement or license in the courts of any such country or for other reasons, shall also be carried out by AVIRON at its expense, and appropriately verified proof of recordation shall be promptly furnished to MICHIGAN. 20. LAWS AND REGULATIONS OF THE UNITED STATES; EXPORT. 20.1 This Agreement shall be subject to all United States laws and regulations now or hereafter applicable to the subject matter of this Agreement. 20.2 AVIRON shall comply, and shall require its AFFILIATES and SUBLICENSEES to comply, with all provisions of any applicable laws, regulations, rules and orders relating to the rights and license herein granted and to the testing, production, transportation, export, packaging, labeling, sale or use of PRODUCTS, or otherwise applicable to AVIRON's or its AFFILIATES' or SUBLICENSEES' activities hereunder. AVIRON shall obtain, and shall require its AFFILIATES and SUBLICENSEES to obtain, such written assurances regarding export and re-export of technical data (including PRODUCTS made by use of technical data) as may be required by the Office of Export Administration Regulations, and AVIRON hereby gives such written assurances as may be required under those Regulations to MICHIGAN. 21. BANKRUPTCY. If during the term of this Agreement, AVIRON shall make an assignment for the benefit of creditors, or if proceedings in voluntary or involuntary bankruptcy shall be instituted on behalf of or against AVIRON, or if a receiver or trustee shall be appointed for the property of AVIRON, MICHIGAN may, 32 at its option, terminate this Agreement and revoke all rights herein granted by written notice to AVIRON, provided, however, that MICHIGAN may not terminate this Agreement pursuant to this Article 21 so long as AVIRON continues to perform its obligations under this Agreement. 22. USE OF MICHIGAN'S NAME. AVIRON agrees to refrain from using and to require AFFILIATES and SUBLICENSEES to refrain from using the name of MICHIGAN in publicity or advertising without the prior written approval of MICHIGAN. Reports in scientific literature and presentations of joint research and development work are not considered publicity. 23 . NOTICES. Any notice, request, report or payment required or permitted to be given or made under this Agreement by either PARTY shall be given by sending such notice by certified or registered mail, return receipt requested, to the address set forth below or such other address as such PARTY shall have specified by written notice given in conformity herewith. Any notice not so given shall not be valid unless and until actually received, and any notice given in accordance with the provisions of this Paragraph shall be effective when mailed. To MICHIGAN: The University of Michigan Technology Management Office Wolverine Tower, Room 2071 3003 South State Street Ann Arbor, MI 48109-1280 Attn: File #257 33 To AVIRON: Aviron 1450 Rollins Road Burlingame, California 94010 Attn: CEO with a copy to: Cooley Godward Five Palo Alto Square 4th Floor Palo Alto, CA 94306-2155 Attn: Barbara Kosacz 24. INVALIDITY. In the event that any term, provision, or covenant of this Agreement shall be determined by a court of competent jurisdiction to be invalid, illegal or unenforceable, that term will be curtailed, limited or deleted, but only to the extent necessary to remove such invalidity, illegality or unenforceability, and the remaining terms, provisions and covenants shall not in any way be affected or impaired thereby. 25. ENTIRE AGREEMENT AND AMENDMENTS. This Agreement contains the entire understanding of the PARTIES with respect to the matter contained herein. The PARTIES may, from time to time during the continuance of this Agreement, modify, vary or alter any of the provisions of this Agreement, but only by an instrument duly executed by authorized officials of both PARTIES hereto. 34 26. WAIVER. No waiver by either PARTY of any breach of this Agreement, no matter how long continuing or how often repeated, shall be deemed a waiver of any subsequent breach thereof, nor shall any delay or omission on the part of either PARTY to exercise any right, power, or privilege hereunder be deemed a waiver of such right, power or privilege. 27. ARTICLE HEADINGS. The Article headings herein are for purposes of convenient reference only and shall not be used to construe or modify the terms written in the text of this Agreement. 28. NO AGENCY RELATIONSHIP. The relationship between the PARTIES is that of independent contractor and contractee. Neither PARTY shall be deemed to be an agent of the other in connection with the exercise of any rights hereunder, and neither shall have any right or authority to assume or create any obligation or responsibility on behalf of the other. 29. FORCE MAJEURE. Neither PARTY hereto shall be deemed to be in default of any provision of this Agreement, or for any failure in performance, resulting from acts or events beyond the reasonable control of such PARTY, such as Acts of God, acts of civil or military authority, civil disturbance, war, strikes, fires, power failures, natural catastrophes or other "force majeure" events. 35 30. GOVERNING LAW. This Agreement and the relationships between the PARTIES shall be governed in all respects by the law of the State of Michigan (notwithstanding any provisions governing conflict of laws under such Michigan law to the contrary), except that questions affecting the construction and effect of any patent shall be determined by the law of the country in which the patent has been granted. 31. JURISDICTION AND FORUM. The PARTIES hereby consent to the jurisdiction of the courts of the State of Michigan over any dispute concerning this Agreement or the relationship between the PARTIES. Should AVIRON bring any claim, demand or other action against MICHIGAN, its fellows, officers, employees or agents, arising out of this Agreement or the relationship between the PARTIES, AVIRON agrees to bring said action only in the Michigan Court of Claims. IN WITNESS WHEREOF, the PARTIES hereto have executed this Agreement in duplicate originals by their duly authorized officers or representatives. FOR AVIRON FOR THE REGENTS OF THE UNIVERSITY OF MICHIGAN By /s/ L. Read By /s/ Robert L. Robb -------------------------- ------------------------------------ (authorized representative) (authorized representative) Typed Name LEIGHTON READ Typed Name Robert L. Robb ------------------ ---------------------------- Title CEO Title Director, Technology Management ----------------------- Office --------------------------------- Date March 9, 1995 Date 3-15-95 ------------------------ ---------------------------------- MASTER STRAINS AGREEMENT- AVIRON-03/07/95 36 EXHIBIT A TO MATERIALS TRANSFER AND INTELLECTUAL PROPERTY AGREEMENT BETWEEN AVIRON AND THE REGENTS OF THE UNIVERSITY OF MICHIGAN, EFFECTIVE AS OF FEBRUARY 24, 1995. STOCK TRANSFER AGREEMENT 37 STOCK TRANSFER AGREEMENT THIS AGREEMENT is made as of February 24, 1995, by and among AVIRON, a California corporation (the "Company") and THE REGENTS OF THE UNIVERSITY OF MICHIGAN, a Michigan constitutional corporation ("MICHIGAN"). WHEREAS, the Company and Michigan have entered into a Materials Transfer and Intellectual Property Agreement (the "Technology Agreement") dated as of February 24, 1995 (the "Execution Date"). WHEREAS, in connection with the granting to Aviron by Michigan of certain rights under the Technology Agreement, the Company has agreed to issue to Michigan shares of its Series B Preferred Stock and, under certain circumstances, a Warrant to purchase certain shares of the Company's capital stock, as more fully described below; NOW, THEREFORE, in consideration of the mutual promises, covenants and conditions hereinafter set forth, the parties hereto mutually agree as follows: SECTION 1 ISSUANCE OF THE SHARES; AUTHORIZATION OF THE SHARES AND WARRANT 1.1 ISSUANCE OF THE SHARES. In reliance upon the representations and agreements of Michigan contained herein, within thirty (30) days of the Execution Date (the "Issue Date"), in partial consideration of the Technology Agreement, the Company shall issue to Michigan 1,323,734 shares of its Series B Preferred Stock (the "Shares"), having the rights, restrictions, privileges and preferences set forth in the Amended and Restated Articles of Incorporation of the Company, as amended by the Certificate of Amendment, both attached hereto as Exhibit A (the "Articles"). 1.2 AUTHORIZATION OF SHARES AND WARRANT. On or before the Issue Date, the Company shall have (a) authorized the issuance of the Shares; (b) adopted and filed the Articles with the Secretary of State of the State of California; and (c) authorized, under the circumstances set forth in this Agreement, a warrant to purchase shares of its common stock ("Common Stock") in the form attached hereto as Exhibit B (the "Warrant"). Failure by the Company to meet its obligations under this Section 1.2 by the Issue Date shall be a material breach of this Agreement and the Technology Agreement. In addition to all other legal rights which Michigan may have by reason of such breach, Michigan shall have the right upon such breach to immediately terminate this Agreement and the Technology Agreement, and to require specific performance by the Company of its obligations upon termination of the Technology Agreement, including those set forth in Sections 4.5 and 15.5 thereof. Upon the Issue Date the Company shall deliver to Michigan copies of all requisite board and shareholder consents and a file- 1 stamped copy of the Articles, accompanied by a certificate signed by an officer of the Company certifying that the Company's obligations under this Section 1.2 have been fulfilled. SECTION 2 REPRESENTATIONS AND WARRANTIES OF THE COMPANY The Company hereby represents and warrants to Michigan as follows: 2.1 ORGANIZATION AND STANDING. The Company is a corporation duly organized, validly existing, and in good standing under the laws of the State of California. The Company has all requisite corporate power to own and operate its properties and assets, and to carry on its business as presently and as proposed to be conducted. The Company is qualified to do business as a foreign corporation in each jurisdiction in which such qualification is required and where the failure to be so qualified would have a material adverse effect on the Company's business. The Company has no subsidiaries. 2.2 CORPORATE POWER. The Company has all requisite legal and corporate power to execute and deliver this Agreement and any other agreement contemplated hereby, to transfer and issue the Shares and to issue the Warrant, and to carry out and perform its obligations under the terms of this Aareement. 2.3 ARTICLES. Upon the Issue Date, the Articles, in the form attached hereto as Exhibit A, will be the true, correct and complete Articles of Incorporation of the Company. 2.4 CAPITALIZATION. (a) The authorized capital stock of the Company consists, or will consist upon the Issue Date, of 35,000,000 shares of Common Stock, of which 3,484,270 shares are issued and outstanding, and 25,000,000 shares of Preferred Stock; 5,225,000 shares of which have been designated Series A Preferred Stock, of which 5,000,000 are issued and outstanding; 18,650,000 shares of which have been designated Series B Preferred Stock, of which 16,666,667 are issued and outstanding. All such issued and outstanding shares have been duly authorized and validly issued, and are fully paid and nonassessable. The rights, restrictions, privileges and preferences of the Series A Preferred Stock and Series B Preferred Stock are as stated in the Articles. As of the Execution Date, and taking into account the Shares to be issued under this Agreement, the Shares represent five percent (5%) of the issued and outstanding shares of capital stock of the Company. (b) Excepting that certain Amended and Restated Investors Rights Agreement, dated as of September 3, 1993, among the Company and the other parties named therein, as amended to date (the "Rights Agreement" a copy of which is attached hereto as Exhibit C), and except as set forth herein or on the schedule attached hereto as Exhibit D or in the Articles, as of the Execution Date there are no outstanding rights of first refusal, preemptive rights or other 2. rights, options, warrants, conversion rights, or other agreements either directly or indirectly for the purchase or acquisition from the Company of any shares of its capital stock. 2.5 Authorization. All corporate action on the part of the Company, its directors and shareholders necessary for the sale and issuance of the Shares, and the Common Stock issuable upon conversion of the Shares (the "Underlying Stock") and the performance of the Company's obligations hereunder and under each of the other agreements contemplated hereby and the reservation of the Underlying Stock has been taken or will be taken prior to the Issue Date. The Shares (and the Underlying Stock), when issued in compliance with the provisions of this Agreement, will be validly issued and will be fully paid and nonassessable, and will be free of any liens or encumbrances; provided, however, that the Shares (and the Underlying Stock) may be subject to restrictions on transfer under state and/or federal securities laws as set forth herein. 2.6 Litigation. Neither the Company nor any of its property is subject to any claim, action, suit, proceeding, arbitration or any investigation before any court or other authority having jurisdiction and, to the best of the Company's knowledge, none of the same is, or has been, threatened against the Company or any of its property. The Company is not a party or subject to the provision of any order, writ, injunction, judgment or decree of any court or governmental agency or instrumentality. There is no action, suit or proceeding by the Company currently pending or that the Company presently intends to initiate. 2.7 Other Agreements. The execution and delivery of this Agreement by the Company and the consummation of the transactions contemplated under the Technology Agreement and this Agreement do not and will not, with either the passage of time or the giving of notice, conflict with or result in the breach of any condition or provision of, or constitute a default under, any contract, mortgage, lien, lease, agreement, indenture or instrument to which the Company is a party or any judgment to which it is subject. 2.8 Governmental Consents. All consents, approvals, orders or authorizations of, or registrations, qualifications, designations, declarations or filings with, any governmental authority required on the part of the Company in connection with the valid execution and delivery of this Agreement, the offer, transfer, sale or issuance of the Shares and the Underlying Stock, and the consummation of all other transactions contemplated by this Agreement shall have been obtained and will be effective on the Issue Date, except for notices required or permitted to be filed with certain state and federal securities commissions after such date, which notices the Company shall file on a timely basis. 2.9 Offering. Assuming the accuracy of the representations and warranties of the Purchaser contained in Section 3 hereof, the offer, issue and sale of the Shares is exempt from registration under the Securities Act of 1933, as amended ("Securities Act"), and under the Uniform Securities Act of Michigan. 2.10 Absence of Material Adverse Liabilities. The Company has no liabilities, current or contingent, nor are its properties subject to any claim or lien, that currently materially and adversely affect the ability of the Company to conduct its business as presently conducted. 3. 2.11 Operating Rights. The Company has all material operating authority, licenses, franchises, permits, certificates, consents, rights and privileges as are necessary to the operation of its business as now conducted. Section 3 REPRESENTATIONS AND WARRANTIES OF MICHIGAN Michigan hereby represents and warrants only to the Company with respect to the issuance of the Shares as follows: 3.1 Authorization. Michigan has all the requisite power and is duly authorized to execute and deliver this Agreement and each other agreement contemplated hereby and has taken all necessary action to consummate the transactions contemplated hereby and thereby. This Agreement, the Technology Agreement, and each other agreement contemplated hereby have been duly executed and delivered by Michigan and constitute valid and binding obligations of Michigan, enforceable in accordance with their respective terms subject to laws of general application relating to bankruptcy, insolvency and the relief of debtors. 3.2 Accredited Investor. Michigan is an accredited investor within the meaning of Regulation D, as promulgated under the Securities Act. 3.3 Experience. Michigan, alone or together with its advisors, is experienced in evaluating and investing, in start-up biomedical research companies such as the Company. 3.4 Investment. Michigan is acquiring the Shares for investment, for its own account and not with a view to, or for resale in connection with, any distribution thereof, and it has no present intention of selling or distributing the Shares or the Underlying Stock. Michigan understands that the Shares and the Underlying Stock have not been registered under the Securities Act by reason of a specific exemption from the registration provisions of the Securities Act which depends upon, among other things, the bona fide nature of the investment intent as expressed herein. 3.5 Rule 144 and Rule 144A. Michigan acknowledges that, because they have not been registered under the Securities Act, the Shares and the Underlying Stock must be held indefinitely unless subsequently registered under the Securities Act or an exemption from such registration is available. Michigan is aware of the provisions of Rule 144 and Rule 144A promulgated under the Securities Act, which rules permit limited resale of securities purchased in a private placement subject to the satisfaction of certain conditions. 3.6 No Public Market. Michigan understands that no public market now exists for any of the securities issued by the Company and that it is uncertain whether a public market will ever exist for the Shares or the Underlying Stock. 4. 3.7 Access to Data. Michigan has received and reviewed such information that it deemed necessary to make an informed decision concerning its receipt of the Shares and has had an opportunity to discuss the Company's business, management and financial affairs with its management. 3.8 Restrictions on Transfer. Michigan further agrees not to make any disposition of all or any part of the Shares in any event unless and until: (a) There is then in effect a registration statement under the Securities Act covering such proposed disposition and such disposition is made in accordance with said registration statement; or (b) Michigan shall have (i) notified the Company of the proposed disposition, (ii) furnished the Company with a detailed statement of the circumstances surrounding the proposed disposition, and (iii) furnished the Company with an opinion of counsel for Michigan to the effect that such disposition will not require registration of such shares under the Act, and such opinion of counsel for Michigan shall have been concurred in by the Company's counsel and the Company shall have advised Michigan of such concurrence. 3.9 Legends. Michigan understands and agrees that all certificates evidencing the Shares shall bear the following legend: "THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE OFFERED FOR SALE, SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR PURSUANT TO RULE 144 OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY AND ITS COUNSEL THAT SUCH REGISTRATION IS NOT REQUIRED." Section 4 INVESTOR RIGHTS 4.1 Right of First Refusal on Company Issuances. The Company hereby grants to Michigan, for so long as it holds not less than 1,000,000 shares of the Company's Series B Preferred Stock (or Common Stock issued or issuable upon conversion of the Series B Preferred Stock) the right of first refusal to purchase, pro rata, all (or any part) of New Securities (as defined in this Section 4.1) that the Company may, from time to time propose to sell and issue. In the case where the price per share at which the New Securities are being offered is indeterminable or is equal to or less than One Dollar ($1.00) (as adjusted for stock splits, reclassification or otherwise), Michigan's pro rata share, for purposes of this right of first refusal with respect to an offering at such a price, is the ratio, the numerator of which is the number 5. of shares of Common Stock then owned by Michigan as a result of the conversion of any Series B Preferred Stock of the Company and issuable upon conversion of the Series B Preferred Stock of the Company then owned by Michigan, and the denominator of which is the total number of shares of Common Stock then outstanding as a result of the conversion of any Series A and Series B Preferred Stock of the Company or issuable upon conversion of the Series A and Series B Preferred Stock of the Company then outstanding. In the case where the price per share at which the New Securities are being offered is greater than One Dollar ($1.00) (as adjusted for stock splits, reclassifications or otherwise), Michigan's pro rata share, for purposes of this right of first refusal with respect to an offering at such a price, is the ratio, the numerator of which is the number of shares of Common Stock then owned by Michigan as a result of the conversion of any Series B Preferred Stock of the Company and issuable upon conversion of the Series B Preferred Stock of the Company then owned by Michigan, and the denominator of which is the total number of shares of Common Stock outstanding immediately prior to the issuance of the New Securities, assuming full conversion of all outstanding shares of Series A and Series B Preferred Stock of the Company. This right of first refusal shall be subject to the following provisions: (a) "New Securities" shall mean any capital stock of the Company, whether now authorized or not, and rights, options, or warrants to purchase said capital stock, and securities of any type whatsoever that are, or may become, convertible into said capital stock; provided, however, that "New Securities" does not include (i) securities issuable upon conversion of or with respect to Series A Preferred Stock or Series B Preferred Stock; (ii) the Warrant Shares (as defined in Section 5.2 hereof) issuable under Section 5 of this Agreement; (iii) securities issued pursuant to an acquisition by the Company by merger, purchase of substantially all of the assets, or other reorganization whereby the Company owns more than fifty percent (50%) of the voting power of such entity; (iv) shares of the Company's Common Stock (or related options) issued to employees, directors or consultants of the Company pursuant to any employee stock offering, plan, or arrangement approved by the Board of Directors; (v) shares of the Company's Common Stock or Series A or Series B Preferred Stock issued in connection with any stock split, stock dividend, or similar recapitalization by the Company; (vi) securities issued pursuant to equipment or debt financing or leases which are approved by the Company's Board of Directors; (vii) securities issued pursuant to any corporate partnering, strategic alliance, joint venture or licensing arrangement between the Company and a third party; or (viii) securities issued by the Company other than for cash or cash equivalents. The Company agrees that it shall give Michigan notice of the issuance of any of its securities under the circumstances described in the foregoing clauses (vi), (vii) and (viii) not more than thirty (30) days after the date of such issuance, which notice shall describe the securities issued and the consideration received therefor. (b) In the event that the Company proposes to undertake an issuance of New Securities, it shall give Michigan, so long as it holds not less than 1,000,000 shares of Common Stock of the Company issued or issuable upon conversion of the Series B Preferred Stock, written notice of its intention, describing the type of New Securities, the price, and the general terms upon which the Company proposes to issue the same. Michigan, as well as each Investor (as defined under the Rights Agreement) who together with its affiliates holds not less than 6. 1,000,000 shares of Common Stock of the Company issued or issuable upon conversion of the Series A or Series B Preferred Stock, shall have twenty (20) days from the date of mailing of any such notice to agree to purchase up to its full pro rata share of such New Securities for the price and upon the general terms specified in the notice by giving written notice to the Company and stating therein the quantity of New Securities to be purchased. Michigan, so long as it holds not less than 1,000,000 shares of Common Stock of the Company issued or issuable upon conversion of the Series B Preferred Stock, and each Investor who together with its affiliates holds not less than 1,000,000 shares of Common Stock of the Company issued or issuable upon conversion of the Series A or Series B Preferred Stock, shall have a right of over allotment such that if Michigan or any Investor fails to exercise its right to purchase its full pro rata portion of New Securities, the Company shall so notify Michigan and the other Investors and Michigan and such Investors (and their affiliates) who have agreed to purchase all or any part of their pro rata share of New Securities may purchase Michigan's or the nonpurchasing Investors' portions on a pro rata basis, within ten days from the date of such notice. (c) In the event that Michigan and the Investors (and their affiliates) fail to exercise in full the right of first refusal within said twenty (20) day period (plus the ten day overallotment period, if applicable) the Company shall have sixty (60) days thereafter to sell or enter into an agreement providing for the closing of the sale of the New Securities respecting which Michigan's and the Investors' (and their affiliates') rights were not exercised within thirty (30) days of such agreement at a price and upon general terms no more favorable to the purchasers thereon than specified in the Company's notice. In the event the Company has not sold the New Securities within such sixty (60) day period, the Company shall not thereafter issue or sell any New Securities, without first offering such securities to the Investors (and its affiliates) in the manner provided above. (d) The right of first refusal granted under this Agreement shall not apply to and shall expire upon the first closing of the first firmly underwritten public offering of Common Stock of the Company that is pursuant to a registration statement filed with, and declared effective by, the United States Securities and Exchange Commission under the Securities Act. (e) This right of first refusal is not assignable by Michigan. 4.2 Information Rights. The Company will furnish the following information to Michigan, for so long as it holds not less than 1,000,000 shares of Common Stock issued or issuable upon conversion of the Series B Preferred Stock: (i) As soon as practicable after the end of each fiscal year of the Company, and in any event within one hundred and twenty (120) days thereafter, a consolidated balance sheet of the Company and its subsidiaries, if any, as at the end of such fiscal year, and consolidated statements of income and consolidated statements of cash flows of the Company and its subsidiaries, if any, for such year, prepared in accordance with generally accepted accounting principles consistently applied and setting forth in each case in comparative form and figures for the previous fiscal year, all in reasonable detail and certified by independent public accountants of national stariding selected by the Company. 7. (ii) As soon as practicable after the end of each of the first three quarterly accounting periods in each fiscal year, and in any event within forty-five (45) days thereafter, a consolidated balance sheet of the Company and its subsidiaries, if any, as at the end of such quarter, and consolidated statements of income and consolidated statements of cash flows of the Company and its subsidiaries, if any, for each quarter and for the current fiscal year of the Company to date, prepared in accordance with generally accepted accounting principles consistently applied, except that such financial statements will not contain the notes normally required by generally accepted accounting principles. The Company agrees and acknowledges that information furnished to it under this Section 4.2 may be subject to disclosure by law, including the Michigan Freedom of Information Act ("FOIA"). Subject to such disclosure requirements, Michigan agrees to make reasonable efforts not to disclose such information to any third party. Michigan shall be under no obligation to seek exemptions or exclusions of such information from the requirements of FOIA. 4.3 Registration Rights. The Company hereby grants to Michigan the identical rights with respect to the registration of the Shares, the Underlying Stock and the Warrant Shares (as defined in Section 5.2 hereof) as are granted under Section 3.2 through 3.12 of the Rights Agreement to each Holder (as defined under the Rights Agreement), as though (i) Michigan were a "Holder," (ii) the Shares and the Warrant Shares, collectively, were "Shares," and (iii) the Warrant Shares were included within the definition of "Registrable Securities," under the Rights Agreement. Michigan understands and agrees that its rights under this Section 4.3 shall be on parity with, and not superior to, the rights granted to the parties to the Rights Agreement under Sections 3.2 through 3.12 of the Rights Agreement, as though Michigan were a party thereto. In addition, Michigan agrees that it shall be subject to any amendment or waiver of Sections 3.2 through 3.12 of the Rights Agreement pursuant to the vote of a majority of the holders of the outstanding Registrable Securities (as defined under the Rights Agreement) under Section 6.8 of the Rights Agreement, provided such amendment or waiver applies equally to both the holders of the majority and the holders of the minority of such outstanding Registrable Securities. Section 5 OBLIGATION TO ISSUE WARRANT 5.1 Conditions of Issuance. In partial consideration of the Technology Agreement and subject to the remaining provisions of this Section 5, the Company shall be obligated, upon the First Commercial Sale of any Product (as such capitalized terms are defined under Sections 2.2 and 2.11 of the Technology Agreement) (the "Warrant Issue Date"), to issue to Michigan a warrant, in the form attached hereto as Exhibit B (the "Warrant"), on the terms set forth below. The Company's obligations under this Section 5 shall terminate immediately upon any termination of the Technology Aareement. 8. 5.2 Shares Issuable upon Exercise of Warrant. Subject to the provisions of Section 5.4 below, the Warrant shall be exercisable for a number of shares of the Company Common Stock (the "Warrant Shares") equal to one and twenty-five one-hundredths percent (1.25%) of the total number of issued and outstanding shares of the Company Common Stock on the Issue Date (including, on an as-converted basis, outstanding shares of Preferred Stock of the Company); provided, however, that for purposes of calculating this percentage, "issued and outstanding shares of the Company Common Stock" shall not include shares of the Company Common Stock, or securities convertible into the Company Common Stock: (i) issued in connection with an acquisition by the Company of another entity by merger, purchase of substantially all of its assets, or other reorganization whereby the Company acquires, directly or indirectly, more than 50% of the voting power of such entity; (ii) issued in connection with any corporate partnering, strategic alliance, joint venture or licensing arrangement between the Company and a third party not involving or relating to the Technology or a Product (as such capitalized terms are defined under Sections 2.2. and 2.11 of the Technology Agreement); (iii) issued by the Company other than for cash or cash equivalents in transactions not involving or relating to the Technology or a Product (as such capitalized terms are defined under Sections 2.2 and 2.11 of the Technology Agreement); or (iv) issued to employees, directors or consultants which are subject to a right to repurchase at cost (i.e. "unvested" shares). Notwithstanding the foregoing, if as of the Warrant Issue Date there shall not have been an Initial Public Offering (as defined in 5.3 below), then the Company may elect to make the Warrant exercisable for shares of the Company's Preferred Stock convertible into the number of shares of the Company Common Stock determined above, with rights and preferences substantially the same as the rights and privileges of the most recent series of Preferred Stock issued by the Company to outside investors (such Preferred Stock shall also constitute "Warrant Shares," notwithstanding the definition of such term set forth above). The rights granted Michigan under Section 4.3 hereof shall apply to the Warrant Shares regardless of whether they consist of Common Stock or Preferred Stock of the Company. 5.3 Warrant Exercise Price. The initial per share exercise price for the Warrant (the "Exercise Price") shall be equal to one hundred twenty-five percent (125%) of the price at which shares of the Company Common Stock are first sold to the public pursuant to a firm commitment underwritten public offering registered under the Securities Act, other than a registration relating solely to a transaction under Rule 145 of the Securities Act (or any successor thereto) or to an employee benefit plan of the Company (the "Initial Public Offering"); or, if as of the Warrant Issue Date, there shall not have been an Initial Public Offering, the Exercise Price shall be equal to one hundred twenty-five percent (125%) of the per share price of the securities issued to outside investors in the Company's most recent equity financing transaction prior to the Warrant Issue Date in which it raised at least $2 million. 9. 5.4 Acquisition of the Company Prior to Warrant Issue Date. (a) Notwithstanding anything to the contrary in this Section 5, in the event that prior to the Warrant Issue Date there is any consolidation of the Company with, or merger of the Company into, any other corporation or other entity or person, or any other corporate reorganization in which the Company shall not be the continuing, or surviving entity of such consolidation, merger or reorganization, or any transaction or series of transactions by the Company (other than financing transactions in which equity securities are issued to multiple purchasers solely for cash) in which in excess of fifty percent (50%) of the Company's voting power is transferred, or any sale or conveyance of all or substantially all of the assets of the Company (any of the foregoing events being hereafter referred to as an "Acquisition") the Company may, at its sole option, by giving written notice of such election to Michigan prior to the effective date of the Acquisition (the "Acquisition Date"), elect to cancel its obligation to issue the Warrant under this Section 5, in which event the royalties payable by the Company under Paragraphs 5.3(i) and (ii) of the Technology Agreement shall each be doubled, without any need to amend such agreement; provided, however, that in the event such doubled royalty rate is or becomes thereafter unduly economically burdensome to the Company, due to, for example but without limitation, the markets in which the Company intends to market Products or the obligations of the Company to pay to any third party royalties for additional rights or technology necessary for the commercialization of the Products, then Michigan agrees to consider, in good faith, an alternative consideration in lieu of such doubled royalty rate under this Agreement, upon request of the Company. (b) If the Company does not elect to cancel the Warrant under Section 5.4(a) above, then following the Acquisition, the Company or its successor shall remain obligated under this Section 5 to issue the Warrant on the Warrant Issue Date. When and if issued after such an Acquisition, the Warrant shall be exercisable for the amount and type of securities or other consideration that would have been issuable in the Acquisition to a holder of the number of shares of the Company's capital stock for which the Warrant would have been exercisable under Section 5.2 above on the Acquisition Date, as if the Acquisition Date were the same as the Warrant Issue Date. The Exercise Price of the Warrant if issued after such an Acquisition shall be equal to one hundred twenty-five percent (125%) of the Acquisition Price. Section 6 MISCELLANEOUS 6.1 Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of California applicable to contracts between California residents entered into and to be performed entirely within the State of California. 6.2 Successors and Assigns. Except as otherwise provided herein, the provisions hereof shall inure to the benefit of, and be binding upon, the successors, assigns, heirs, executors and administrators of the parties hereto. 10. 6.3 Entire Agreement; Amendment. This Agreement and the other documents delivered pursuant hereto constitute the final, complete and exclusive understanding and agreement between the parties with regard to the subjects hereof and thereof. Any term of this Agreement may be amended and the observance of any term of this Agreement may be waived, with the written consent of Michigan and the Company. 6.4 Notices. All notices or other communications pursuant to this Agreement shall be in writing and deemed given if delivered personally, telecopied, sent by nationally-recognized, overnight courier or mailed by registered or certified mail (return receipt requested) postage prepaid to the parties at the following addresses (or at such other address for a party as shall be specified by like notice) to the other party hereunder: To the Company: 1450 Rollins Road Burlingame, CA 94010 Attention: J. Leighton Read, M.D., Chairman and Chief Executive Officer Telephone: (415) 696-9116 Fax: (415) 347-6274 with a copy to: Cooley Godward Castro Huddleson & Tatum Five Palo Alto Square Palo Alto, CA 94306 Attention: Robert J. Brigham, Esq. Telephone: (415) 843-5000 Fax: (415) 857-0663 To Michigan: University of Michigan Treasurer's Office 5024 Fleming Administration Building Ann Arbor, MI 48109-1340 Telephone: (313) 763-1299 Fax: (313) 747-1483 11 with a copy to: University of Michigan Technology Management Office 3003 S. State Street Wolverine Tower, Room 2071 Ann Arbor, MI 48109-1280 Attention: Robert L. Robb, Director Telephone: (313) 763-0614 Fax: (313) 936-1330 Notwithstanding the foregoing, any payment of funds required hereunder may be made by wire transfer in accordance with written instructions given by the receiver to the sender. 6.5 California Corporate Securities Law. THE SALE OF THE SECURITIES WHICH ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF SUCH SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR PRIOR TO SUCH QUALIFICATION IS UNLAWFUL UNLESS THE SALE OF SECURITIES IS EXEMPT FROM THE QUALIFICATION BY SECTION 25100, 25102 OR 25105 OF THE CALIFORNIA CORPORATIONS CODE. THE RIGHTS OF ALL PARITES TO THIS AGREEMENT ARE EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO EXEMPT. 6.6 Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, and all of which shall constitute one and the same instrument. The foregoing Stock Transfer Agreement is hereby executed as of the date first above written. AVIRON THE REGENTS OF THE UNIVERSITY OF MICHIGAN By: /s/ J. Leighton Read By: /s/ Robert L. Robb ------------------------- ----------------------------------- J. Leighton Read, M.D. Name: Robert L. Robb --------------------------------- Chief Executive Officer Title: Director, Technology Management Office ------------------------- -------------------------------- 12. CERTIFICATE OF AMENDMENT OF ARTICLES OF INCORPORATION OF AVIRON J. Leighton Read and Alan C. Mendelson certify that: 1. They are the Chief Executive Officer and the Secretary, respectively, of Aviron, a California corporation. 2. Article III.B of the Articles of Incorporation of this corporation is amended to read in full as follows: B. Five million two hundred twenty-five thousand (5,225,000) of the authorized shares of Preferred Stock are hereby designated "Series A Preferred Stock." Eighteen million six hundred and fifty thousand (18,650,000) of the authorized shares of Preferred Stock are hereby designated "Series B Preferred Stock." The Series A Preferred Stock and Series B Preferred Stock are collectively referred to as the "Preferred Stock." 3. The foregoing amendment of Articles of Incorporation has been duly approved by the Board of Directors. 4. The forgoing amendment has been duly approved by the required vote of the shareholders of the Corporation in accordance with Sections 902 and 903 of the California Corporations Code. The total number of outstanding shares of the Corporation is 3,484,270 shares of Common Stock, 5,000,000 shares of Series A Preferred Stock, and 16,666,667 shares of Series B Preferred Stock. The number of shares voting in favor of the amendment equated or exceeded the vote required. The percentage vote required was more than 50% of the outstanding shares of the Series B Preferred Stock and more than 50% of the outstanding shares of the Common Stock and the Preferred Stock, voting together on an as-converted basis. We further declare under penalty of perjury under the laws of the State of California that the matters set forth in this certificate are true and correct of our own knowledge. Date: , 1995 ---------------- -------------------------------------- J. Leighton Read, Chief Executive Officer -------------------------------------- Alan C. Mendelson, Secretary 2. [Letterhead State of California Office of the Secretary of State] I, TONY MILLER, ACTING SECRETARY OF STATE OF THE STATE OF CALIFORNIA, HEREBY CERTIFY: THAT THE ANNEXED TRANSCRIPT HAS BEEN COMPARED WITH THE RECORD OF FILE IN THIS OFFICE, OF WHICH IT PURPORTS TO BE A COPY, AND THAT SAME IS FULL, TRUE AND CORRECT [Seal] IN WITNESS WHEREOF, I EXECUTE THIS CERTIFICATE AND AFFIX THE GREAT SEAL OF THE STATE OF CALIFORNIA APR 18 1994 /s/ Tony Miller ACTING SECRETARY OF STATE E N D O R S E D F I L E D In the office of the Secretary of State of the State of California APR 15 1994 TONY MILLER Acting Secretary of State CERTIFICATE OF AMENDMENT OF RESTATED ARTICLES OF INCORPORATION OF AVIRON J. Leighton Read and Alan C. Mendelson certify that: ONE: They are the Chairman of the Board and the Secretary, respectively, of Aviron, a California corporation (the "Corporation"). TWO: Article III, Section B of the Restated Articles of Incorporation of the Corporation is amended in its entirety to read as follows: B. Five million two hundred twenty-five thousand (5,225,000) of the authorized shares of Preferred Stock are hereby designated "Series A Preferred Stock." Seventeen million two hundred seventy-five thousand (17,275,000) of the authorized shares of Preferred Stock are hereby designated as "Series B Preferred Stock." The Series A Preferred Stock and Series B Preferred Stock are collectively referred to as the "Preferred Stock." THREE: The amendment herein set forth has been duly approved by the board of directors. FOUR: The foregoing amendment of the Corporation's Restated Articles of Incorporation have been duly approved by the required vote of shareholders in accordance with Sections 902 and 903 of the Corporations Code. The total number of outstanding shares of the Corporation is 3,427,750 shares of Common Stock, 5,000,000 shares of Series A Preferred Stock and 16,666,667 shares of Series B Preferred Stock. The number of shares voting in favor of the amendment equaled or exceeded the vote required. The percentage vote required was more than 50% of the Common Stock and Preferred Stock voting together on an as-converted basis, 50% of the Preferred Stock voting together on an as-converted basis and 50% of the Series B Preferred Stock. We further declare under penalty of perjury under the laws of the State of California that the matters set forth in the foregoing Certificate of Amendment are true and correct of our own knowledge. IN WITNESS WHEREOF, the undersigned have executed this Certificate of Amendment on April 15, 1994. /s/ J. Leighton Read --------------------------------------- J. Leighton Read, Chairman of the Board /s/ Alan C. Mendelson --------------------------------------- Alan C. Mendelson, Secretary EXHIBIT A ARTICLES OF INCORPORATION AND CERTIFICATE OF AMENDMENT [Letterhead of Secretary of State of California CORPORATION DIVISION I, MARCH FONG EU, Secretary of State of the State of California, hereby certify: That the annexed transcript has been compared with the corporate record on file in this office, of which it purports to be a copy, and that same is full, true and correct. IN WITNESS WHEREOF, I execute this certificate and affix the Great Seal of the State of California this SEP - 3 1993 [Seal] /s/ March Fong Eu SECRETARY OF STATE E N D O R S E D F I L E D In the office of the Secretary of State of the State of California AUG 31 1993 MARCH FONG EU, Secretary of State AMENDED AND RESTATED ARTICLES OF INCORPORATION OF AVIRON J. Leighton Read and Alan C. Mendelson certify that: 1. They are the Chief Executive Officer and Secretary, respectively, of Aviron, a California corporation (the "Corporation"). 2. The Articles of Incorporation of this Corporation are amended and restated as follows: "I. The name of this corporation is Aviron. II. The purpose of this corporation is to engage in any lawful act or activity for which a corporation may be organized under the General Corporation Law of California other than the banking business, the trust company business or the practice of a profession permitted to be incorporated by the California Corporations Code. III. A. This corporation is authorized to issue two classes of stock to be designated, respectively, "Common Stock" and "Preferred Stock." The total number of shares which the corporation is authorized to issue is Sixty Million (60,000,000) shares. Thirty-Five Million (35,000,000) shares shall be Common Stock. Twenty-Five Million (25,000,000) shares shall be Preferred Stock. The Preferred Stock may be issued from time to time in one or more series. Subject to the protective provisions set forth in Section 5 below, the Board of Directors is hereby authorized, to fix or alter the dividend rights, dividend rate, conversion rights, voting rights, rights and terms of redemption (including sinking fund provisions), redemption price or prices, and the liquidation preferences of any wholly unissued series of Preferred Stock, and the number 1. of shares constituting any such series and the designation thereof, or any of them; and to increase or decrease the number of shares of any series subsequent to the issuance of shares of that series, but not below the number of shares of such series then outstanding. In case the number of shares of any series shall be so decreased, the shares constituting such decrease shall resume the status that they had prior to the adoption of the resolution originally fixing the number of shares of such series. B. Five million two hundred twenty-five thousand (5,225,000) of the authorized shares of Preferred Stock are hereby designated "Series A Preferred Stock." Seventeen million sixty-six thousand six hundred sixty-seven (17,066,667) of the authorized shares of Preferred Stock are hereby designated "Series B Preferred Stock." The Series A Preferred Stock and Series B Preferred Stock are collectively referred to as the "Preferred Stock." C. The respective rights, preferences, privileges, restrictions and other matters relating to the Series A Preferred Stock and Series B Preferred Stock are as follows: 1. DIVIDENDS. The holders of the Preferred Stock shall be entitled to receive, payable in preference and priority to the holders of Common Stock, when and as declared by the Board of Directors, out of any assets at the time legally available therefor, dividends at the rate of: (a) with respect to the Series A Preferred Stock, $.05 per share per annum (as appropriately adjusted for any combination, consolidation, stock distribution, stock dividend or similar event with respect to such shares (a "Recapitalization")); and (b) with respect to the Series B Preferred Stock, $.09 per share per annum (as adjusted for any Recapitalization). Such dividends shall not be cumulative and no right to such dividends shall accrue to holders of Series A Preferred Stock or Series B Preferred Stock unless declared by the Board of Directors. No dividends shall be declared or paid with respect to the Common Stock (other than a dividend payable solely in Common Stock of the Corporation) unless a dividend of equal or greater amount per share (on an as-if-converted to Common Stock basis) is first declared and paid with respect to the Series A Preferred Stock and Series B Preferred Stock. Each share of Preferred Stock shall rank on parity with every other share of Preferred Stock, irrespective of series, with regard to dividends, and no dividends shall be paid, declared or set apart for payment on the shares of any series of Preferred Stock unless at the same time a dividend for the same Percentage of the respective dividend rates shall also be paid, declared or set apart for payment, as the case may be, on the shares of Preferred Stock or each other series then outstanding. 2. So long as any shares of Preferred Stock shall be outstanding, no dividend, whether in cash or property, shall be paid or declared, nor shall any other distribution be made, on any Common Stock, nor shall any shares of any Common Stock of the Corporation be purchased, redeemed, or otherwise acquired for value by the Corporation (except for acquisitions of Common Stock by the Corporation from the founders, directors, employees or consultants of the Corporation pursuant to agreements which permit the Corporation to repurchase such shares upon termination of employment or consulting relationship or in exercise of the Corporation's right of first refusal upon a proposed transfer) until all accrued but unpaid dividends on the Preferred Stock shall have been paid or declared and set apart. In the event dividends are paid on any share of Common Stock, an additional dividend shall be paid with respect to all outstanding shares of Preferred Stock in an amount for each such share of Preferred Stock equal to the aggregate amount of such dividends for all shares of Common Stock into which each such share of Preferred Stock could then be converted. The provisions of this Section 1(b) shall not, however, apply to (i) a dividend payable in Common Stock, (ii) the acquisition of shares of any Common Stock in exchange for shares of any other Common Stock, or (iii) any repurchase of any outstanding securities of the Corporation that is approved by the Corporation's Board of Directors. 2. LIQUIDATION PREFERENCE. (a) In the event of any liquidation, dissolution or winding up of the Corporation, either voluntary or involuntary, the holders of the Series A Preferred Stock and Series B Preferred Stock shall be entitled to receive, prior and in preference to any distribution of any of the assets or surplus funds of the Corporation to the holders of Common Stock by reason of their ownership thereof, the amount of $.50 and $.90 per share, respectively (appropriately adjusted for an Recapitalization), plus all declared but unpaid dividends on such share for each share of Series A Preferred Stock or Series B Preferred Stock then held by them. If upon the occurrence of such event, the assets and funds thus distributed among the holders of the Series A Preferred Stock and Series B Preferred Stock shall be insufficient to permit the payment to such holders of the full aforesaid preferential amount, then the entire assets and funds of the Corporation legally available for distribution shall be distributed among the holders of the Series A Preferred Stock and Series B Preferred Stock in proportion to the full amounts to which they would otherwise be entitled and in proportion to the number of shares of Series A Preferred Stock and Series B Preferred Stock then held by them. (b) After payment to the holders of the Series A Preferred Stock and Series B Preferred Stock of the amount set forth in subparagraph (a) above, the entire remaining assets and funds of the Corporation legally available for distribution, if any, shall be distributed among the holders of the Series A Preferred Stock, Series B Preferred Stock and Common Stock pro rata based on the number of shares of Common Stock held by them (assuming conversion of all Series A Preferred Stock and Series B Preferred Stock). 3. (c) A consolidation or merger of the Corporation with or into any other corporation or corporations, or a sale of all or substantially all of the assets of the Corporation, other transaction or series of related transactions resulting in a change of voting control shall be deemed a liquidation, dissolution or winding up within the meaning of this Section 2 if (a) more than 50% of the outstanding securities of each class of the surviving entity, or (b) an interest in equity securities representing at least 50% of the voting power or at least 50% of the equity interest in the surviving entity, is not owned by persons who were holders of capital stock or securities convertible into capital stock of the Corporation immediately prior to such merger, consolidation or sale; provided, however, that the sale of Preferred Stock to private investors pursuant to a Preferred Stock Purchase Agreement shall not constitute a liquidation, dissolution or winding up within the meaning of this section. 3. VOTING RIGHTS. Except as otherwise expressly provided herein or as required by law, the holder of each share of the Series A Preferred Stock and Series B Preferred Stock shall be entitled to the number of votes equal to the number of shares of Common Stock into which such share of Series A Preferred Stock or Series B Preferred Stock could be converted on the record date for the vote or the date of the solicitation of any written consent of shareholders and shall have voting rights and powers equal to the voting rights and powers of the Common Stock (except as otherwise expressly provided herein or as required by law, voting together with the Common Stock as a single class) and shall be entitled to notice of any stockholders' meeting in accordance with the Bylaws of the Corporation. Fractional votes shall not, however, be permitted and any fractional voting rights resulting from the above formula (after aggregating all shares into which shares of Series A Preferred Stock or Series B Preferred Stock held by each holder could be converted) shall be rounded to the nearest whole number (with one-half being rounded upward). 4. CONVERSION. The holders of the Series A Preferred Stock and Series B Preferred Stock shall have conversion rights as follows (the "Conversion Rights"): (a) RIGHT TO CONVERT. Each share of Series A Preferred Stock and Series B Preferred Stock shall be convertible, at the option of the holder thereof, at any time after the date of issuance of such share, at the office of the Corporation or any transfer agent for such stock. The number of fully paid and nonassessable shares of Common Stock to which a holder of Series A Preferred Stock shall be entitled upon conversion shall be the product obtained by multiplying the "Series A Conversion Rate" then in effect (determined as provided in Section 4(b)) by the number of shares of Series A Preferred Stock being converted. The number of fully paid and nonassessable shares of Common Stock to which a holder of Series B Preferred Stock shall be entitled upon conversion shall be the product obtained by multiplying the "Series B Conversion Rate" then in effect (determined as provided in Section 4(c)) by the number of shares of Series B Preferred being converted. 4. (b) SERIES A CONVERSION RATE. The conversion rate in effect at any time for conversion of the Series A Preferred Stock (the "Series A Conversion Rate") shall be the quotient obtained by dividing $.50 by the "Series A Conversion Price," calculated as provided in Section 4(d). (c) SERIES B CONVERSION RATE. The conversion rate in effect at any time for conversion of the Series B Preferred Stock (the "Series B Conversion Rate") shall be the quotient obtained by dividing $.90 by the "Series B Conversion Price," calculated as provided in Section 4(d). (d) CONVERSION PRICE. The conversion price for the Series A Preferred Stock shall initially be $.50 (the "Series A Conversion Price"). The conversion price of the Series B Preferred Stock shall initially be $.90 (the "Series B Conversion Price"). Such initial Series A Conversion Price and Series B Conversion Price (the "Conversion Prices") shall be adjusted from time to time in accordance with this Section 4. All references to the Conversion Prices herein shall mean the Conversion Prices as so adjusted. (e) AUTOMATIC CONVERSION. Each share of Series A Preferred Stock and Series B Preferred Stock shall automatically be converted into shares of Common Stock at the then effective Conversion Price immediately upon (i) the closing of the sale of the Corporation's Common Stock in a firm commitment, underwritten public offering registered under the Securities Act of 1933, as amended (other than a registration relating solely to a transaction under Rule 145 under such Act (or any successor thereto) or to an employee benefit plan of the Company), at a public offering price equal to or exceeding $2.50 per share of Common Stock (appropriately adjusted for any Recapitalization) and the aggregate net proceeds to the Corporation (before deduction for underwriter commissions and expenses relating to the issuance, including without limitation fees of the Corporation's counsel) of which equal or exceed $10,000,000 or (ii) upon receipt by the Corporation of the affirmative vote at a duly noticed shareholders meeting or pursuant to a duly solicited written consent of approval of the holders of at least a majority of the then outstanding shares of the Series A Preferred Stock and Series B Preferred Stock voting together as a single class in favor of the conversion of all of the shares of Series A Preferred Stock and Series B Preferred Stock into Common Stock. (f) MECHANICS OF CONVERSION. Before any holder of Series A Preferred Stock or Series B Preferred Stock shall be entitled to convert the same into shares of Common Stock, he shall surrender the certificate or certificates thereof, duly endorsed, at the office of the Corporation or of any transfer agent for such stock, and shall give written notice to the Corporation at such office that he elects to convert the same and shall state therein the name or names in which he wishes the certificate or certificates for shares of Common Stock to be issued. The Corporation shall, as soon as practicable thereafter, issue and deliver at such office to such holder of Series A Preferred Stock or Series B Preferred Stock, a certificate or 5. certificates for the number of shares of Common Stock to which he shall be entitled as aforesaid. Such conversion shall be deemed to have been made immediately prior to the close of business on the date of surrender of the shares of Series A Preferred Stock or Series B Preferred Stock to be converted, except that in the case of an automatic conversion pursuant to Section 4(e) hereof, such conversion shall be deemed to have been made (i) immediately prior to the closing of the offering referred to in Section 4(e)(i) or (ii) immediately upon the approval by vote or written consent referred to in Section 4(e)(ii) above, and the person or persons entitled to receive the shares of Common Stock issuable upon such conversion shall be treated for all purposes as the record holder or holders of such shares of Common Stock on such date. (g) ADJUSTMENTS TO CONVERSION PRICE. (i) SPECIAL DEFINITIONS. For purposes of this Section 4(g) "ORIGINAL ISSUE DATE" shall mean the date on which a share of Series B Preferred Stock was first issued. (ii) ADJUSTMENTS FOR COMBINATIONS OR SUBDIVISIONS OF COMMON STOCK. In the event the Corporation at any time or from time to time after the Original Issue Date shall declare or pay any dividend on the Common Stock payable in Common Stock or in any right to acquire Common Stock, or shall effect a subdivision of the outstanding shares of Common Stock into a greater number of shares of Common Stock (by stock split, reclassification or otherwise), or in the event the outstanding shares of Common Stock shall be combined or consolidated, by reclassification or otherwise, into a lesser number of shares of Common Stock, then the respective Conversion Prices of the Series A Preferred Stock and Series B Preferred Stock in effect immediately prior to such event shall, concurrently with the effectiveness of such event, be proportionately decreased or increased, as appropriate. (h) OTHER DISTRIBUTIONS. In the event the Corporation shall at any time or from time to time make or issue, or fix a record date for the determination of holders of Common Stock entitled to receive, a dividend or other distribution payable in securities of the Corporation or any of its subsidiaries, then in each such event provision shall be made so that the holders of Series A Preferred Stock and Series B Preferred Stock shall receive, upon the conversion thereof, the securities of the Corporation or any of its subsidiaries which they would have received had their stock been converted into Common Stock on the date of such event. (i) NO IMPAIRMENT. The Corporation will not, by amendment of its Articles of Incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Corporation, but will at all times in good faith assist in the carrying out of all the provisions of this Section 4 and in the taking of all such action as may be necessary or 6. appropriate in order to protect the Conversion Rights of the holders of the Series A Preferred Stock and Series B Preferred Stock against impairment. (j) CERTIFICATES AS TO ADJUSTMENTS. Upon the occurrence of each adjustment or readjustment of the Conversion Price pursuant to this Section 4, the Corporation at its expense shall promptly compute such adjustment or readjustment in accordance with the terms hereof and cause independent public accountants selected by the Corporation to verify such computation and prepare and furnish to each holder of Series A Preferred Stock and Series B Preferred Stock a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. The Corporation shall, upon the written request at any time of any holder of Series A Preferred Stock or Series B Preferred Stock, furnish or cause to be furnished to such holder a like certificate setting forth (i) such adjustments and readjustments, (ii) the Conversion Price at the time in effect, and (iii) the number of shares of Common Stock and the amount, if any, of other property which at the time would be received upon the conversion of Series A Preferred Stock or Series B Preferred Stock. (k) NOTICES OF RECORD DATE. In the event of any taking by the Corporation of a record of the holders of any class of securities for the purpose of determining the holders thereof who are entitled to receive any dividend (other than a cash dividend) or other distribution, any security or right convertible into or entitling the holder thereof to receive shares of Common Stock, or any right to subscribe for, purchase or otherwise acquire any shares of stock of any class or any other securities or property, or to receive any other right, the Corporation shall mail to each holder of Series A Preferred Stock and Series B Preferred Stock at least 20 days prior to the date specified therein, a notice specifying the date on which any such record is to be taken for the purpose of such dividend, distribution, security or right, and the amount and character of such dividend, distribution, security or right. (1) ISSUE TAXES. The Corporation shall pay any and all issue and other taxes, excluding federal, state or local income taxes, that may be payable in respect of any issue or delivery of shares of Common Stock on conversion of shares of Series A Preferred Stock or Series B Preferred Stock pursuant hereto; provided, however, that the Corporation shall not be obligated to pay any transfer taxes resulting from any transfer requested by any holder in connection with any such conversion. (m) RESERVATION OF STOCK ISSUABLE UPON CONVERSION. The Corporation shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock, solely for the purpose of effecting the conversion of the shares of the Series A Preferred Stock and Series B Preferred Stock, such number of its shares of Common Stock as shall from time to time be sufficient to effect the conversion of all outstanding shares of the Series A Preferred Stock and Series B Preferred Stock; and if at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the conversion of all then 7. outstanding shares of the Series A Preferred Stock and Series B Preferred Stock, the Corporation will take such corporate action as may, in the opinion of its counsel, be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purpose, including, without limitation, engaging in best efforts to obtain the requisite shareholder approval of any necessary amendment to this Articles of Incorporation. (n) CONSENT TO CERTAIN DISTRIBUTIONS. Each holder of Series A Preferred Stock and Series B Preferred Stock shall be deemed to have consented for purposes of Sections 502, 503 and 506 of the General Corporation Law to distributions and payments made by the Corporation and approved by the Board of Directors of the Corporation in connection with the repurchases of shares of Common Stock issued or to held by directors, board advisors and employees of, or consultants to, the Corporation upon termination of their employment or services. (o) FRACTIONAL SHARES. No fractional share shall be issued upon the conversion of any share or shares of Series A Preferred Stock or Series B Preferred Stock. All shares of Common Stock (including fractions thereof) issuable upon conversion of more than one share of Series A Preferred Stock or Series B Preferred Stock by a holder thereof shall be aggregated for purposes of determining whether the conversion would result in the issuance of any fractional share. If, after the aforementioned aggregation, the conversion would result in the issuance of a fraction of a share of Common Stock, the Corporation shall, in lieu of issuing any fractional share, pay the holder otherwise entitled to such fraction a sum in cash equal to the fair market value of such fraction on the date of conversion (as determined in good faith by the Board of Directors of the Corporation). (p) NOTICES. Any notice required by the provisions of this Section 4 to be given to the holders of shares of Series A Preferred Stock and Series B Preferred Stock shall be deemed given if deposited in the United States mail, postage prepaid, and addressed to each holder of record at its address appearing on the books of the Corporation. Nothwithstanding the above, any notice or communication to an address outside the United States shall be sent by telecopy and confirmed in writing sent by courier guaranteeing delivery in no more than two (2) business days. (q) ADJUSTMENTS. In case of any reorganization or any reclassification of the capital stock of the Corporation, any consolidation or merger of the Corporation with or into another corporation or corporations, or the conveyance of all or substantially all of the assets of the Corporation to another corporation, each share of Series A Preferred Stock and Series B Preferred Stock shall thereafter be convertible into the number of shares of stock or other securities or property (including cash) to which a holder of the number of shares of Common Stock deliverable upon conversion of such share of Series A Preferred Stock or Series B 8. Preferred Stock would have been entitled upon the record date of (or date of, if no record date is fixed) such reorganization, reclassification, consolidation, merger or conveyance; and, in any case, appropriate adjustment (as determined by the Board of Directors) shall be made in the application of the provisions herein set forth with respect to the rights and interests thereafter of the holders of such Series A Preferred Stock or Series B Preferred Stock, to the end that the provisions set forth herein shall thereafter be applicable, as nearly as equivalent as is practicable, in relation to any shares of stock or the securities or property (including cash) thereafter deliverable upon the conversion of the shares of such Series A Preferred Stock or Series B Preferred Stock. 5. RESTRICTIONS AND LIMITATIONS. So long as at least 5,000,000 of the authorized shares of Preferred Stock remain outstanding, the Corporation shall not, without the vote or written consent by the holders of majority of the then outstanding shares of Series A Preferred Stock and Series B Preferred Stock, voting together as a single class on an as converted basis: (a) Amend, repeal or waive any provision of, or add any provision to, the Corporation's Articles of Incorporation if such action would alter or change in an adverse manner the preferences, rights, privileges or powers of, or the restrictions provided for the benefit of, the Preferred Stock; (b) Increase the total number of authorized shares of Common Stock or Preferred Stock of the Corporation or the number of shares designated as any series of Preferred Stock; (c) Authorize or issue, or obligate itself to issue, any other equity security senior to the Series A Preferred Stock or Series B Preferred Stock as to dividend or redemption rights, liquidation preferences, conversion rights, voting rights or otherwise, or create any obligation or security convertible into or exchangeable for, or having any option rights to purchase, any such equity security which is senior to the Series A Preferred Stock or Series B Preferred Stock; provided, however, that an equity security issued subsequent to the issuance of the Series A Preferred Stock or Series B Preferred Stock for a share price and corresponding liquidation price higher than that of the Series A Preferred Stock or Series B Preferred Stock shall not be deemed senior to the Series A Preferred Stock or Series B Preferred Stock solely by reason of such share price and liquidation price; (d) Do any act or thing which would result in taxation of the holders of shares of the Series A Preferred Stock or Series B Preferred Stock under Section 305 of the Internal Revenue Code of 1968, as amended (the "Code") (or any comparable provision of the Code as hereafter from time to time amended); 9. (e) Effect any sale or other conveyance of all or substantially all of the assets of the Corporation or any of its subsidiaries, or any consolidation or merger involving the Corporation or any of its subsidiaries with or into any other corporation, if more than 50% of the surviving entity is not owned by persons who were holders of capital stock or securities convertible into capital stock of the Corporation immediately prior to such merger, consolidation or sale; or (f) Set aside any amounts for or purchase, or declare or pay any dividend or make any other distribution on, any shares of capital stock other than the Series A Preferred Stock or Series B Preferred Stock except for repurchases required by current agreements with directors, consultants or employees. 6. NO REISSUANCE OF PREFERRED STOCK. No share or shares of Series A Preferred Stock or Series B Preferred Stock acquired by the Corporation by reason of redemption, purchase, conversion or otherwise shall be reissued, and all such shares shall be returned to the status of undesignated shares of Preferred Stock. IV. A. The liability of the directors of this corporation for monetary damages shall be eliminated to the fullest extent permissible under California law. B. This corporation is authorized to provide indemnification of agents (as defined in Section 317 of the California Corporations Code) for breach of duty to the corporation and its shareholders through bylaw provisions or through agreements with the agents, or through shareholder resolutions, or otherwise, to the fullest extent permitted by California law. C. Any repeal or modification of this Article shall only be prospective and shall not affect the rights under this Article in effect at the time of the alleged occurrence of any act or omission to act giving rise to liability or indemnification. 3. The foregoing Amended and Restated Articles of Incorporation has been duly approved by the board of directors. 4. The foregoing Amended and Restated Articles of Incorporation has been duly approved by the required vote of shareholders in accordance with Sections 902 and 903 of the Corporations Code. The total number of Outstanding shares of the corporation is 3,419,000 shares of Common Stock and 5,000,000 shares of Series A Preferred Stock. The number of shares voting in favor of the amendment equaled or exceeded the vote required. The percentage vote required was more than 50% of the Common Stock and 66 2/3% of the Series A Preferred Stock voting as a separate class. 10. We further declare under penalty of perjury under the laws of the State of California that the matters set forth in this certificate are true and correct of our own knowledge DATE: 8/30/93 /s/ J. Leighton Road --------------------------------------- J. Leighton Read, Chief Executive Officer /s/ Alan C. Mendelson --------------------------------------- Alan C. Mendelson, Secretary 11. EXHIBIT B FORM OF WARRANT EXHIBIT B TO STOCK TRANSFER AGREEMENT THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE OFFERED FOR SALE, SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR PURSUANT TO RULE 144 OR AN OPINION OF COUNSEL, REASONABLY SATISFACTORY TO THE COMPANY AND ITS COUNSEL, THAT SUCH REGISTRATION IS NOT REQUIRED. WARRANT TO PURCHASE SHARES OF -------------- Company: AVIRON, a California corporation (the "Company"), and any corporation that shall succeed to the obligations of the Company under this Warrant. Number of Shares: _______________ Class of Stock: _______________ Initial Exercise Price: _______________ Date of Grant: _______________ THIS CERTIFIES THAT, for value received, The Regents of the University of Michigan ("Michigan") or any permitted transferee of its rights hereunder is entitled to purchase the above number (as adjusted pursuant to Section 5 hereof) of fully paid and nonassessable shares of the above Class of Stock of the Company at the Initial Exercise Price above (as adjusted pursuant to Section 5 hereof), subject to the provisions and upon the terms and conditions set forth herein. The Expiration Date of this Warrant shall be five years from the Date of Grant. I. Definitions. In addition to the terms defined above, the following capitalized terms shall have the following meanings, unless the context otherwise requires: (a) "Act" shall mean the Securities Act of 1933, as amended, or any similar federal statute, and the rules and regulations thereunder, as shall be in effect at the time. (b) "Common Stock" shall mean shares of the authorized common stock of the Company and any stock into which such common stock may hereafter be exchanged. (c) "Warrantholder" shall mean any person who shall at the time be the holder of this Warrant. 1. (d) "Shares" shall mean the shares of the Class of Stock that the Warrantholder is entitled to purchase upon exercise of this Warrant, as adjusted pursuant to Section 5 hereof. (e) "Warrant Price" shall mean the Initial Exercise Price at which this Warrant may be exercised, as adjusted pursuant to Section 5 hereof. 2. Term. The purchase right represented by this Warrant is exercisable, in whole or in part, at any time on or before the Expiration Date. 3. Method of Exercise; Payment; Issuance of New Warrant. Subject to Section 2 hereof, the purchase right represented by this Warrant may be exercised by the Warrantholder, in whole or in part, by the surrender of this Warrant (with the notice of exercise form attached hereto as Appendix A duly executed) at the principal office of the Company and by the payment to the Company, by check made payable to the Company drawn on a United States bank and for United States funds of an amount equal to the then applicable Warrant Price per share multiplied by the number of Shares then being purchased. In the event of any exercise of the purchase right represented by this Section 3, certificates for the Shares so purchased shall be delivered to the Warrantholder within thirty (30) days of receipt of such payment and, unless this Warrant has been fully exercised or expired, a new Warrant representing the portion of the Shares, if any, with respect to which this Warrant shall not then have been exercised shall also be issued to the Warrantholder within such thirty (30) day period. 4. Exercise Price. The Warrant Price at which this Warrant may be exercised shall be the Initial Exercise Price, as adjusted from time to time pursuant to Section 5 hereof. 5. Adjustment of Number and Kind of Shares and Adjustment of Warrant Price. 5.1 Certain Definitions. As used in this Section 5 the following terms shall have the following respective meanings: (a) "Options" shall mean rights, options or warrants to subscribe for, purchase or otherwise acquire either shares of Common Stock or Convertible Securities; 2. (b) "Convertible Securities" shall mean any evidences of indebtedness, shares of stock or other securities directly or indirectly convertible into or exchangeable for Common Stock. 5.2 Adjustments. The number and kind of securities purchasable upon the exercise of this Warrant and the Warrant Price shall be subject to adjustment from time to time upon the occurrence of certain events, as follows: (a) Reclassification, Reorganization, Consolidation or Merger. In the case of any reclassification of the Class of Stock that the Warrantholder is entitled to purchase upon exercise of this Warrant, or any reorganization, consolidation or merger of the Company with or into another corporation (other than a merger or reorganization with respect to which the Company is the surviving corporation and which does not result in any reclassification of such Class of Stock), the Company, or such successor corporation, as the case may be, shall execute a new warrant, providing that the Warrantholder shall have the right to exercise such new warrant and upon such exercise to receive, in lieu of each share of the Class of Stock theretofore issuable upon exercise of this Warrant, the kind of securities receivable upon such reclassification, reorganization, consolidation or merger by a holder of shares of the same Class of Stock of the Company. The Warrant Price and the number of shares of such new securities to be received by the Warrancholder upon exercise of the Warrant shall be adjusted so that the Warrantholder shall receive upon exercise of the Warrant and payment of the same aggregate consideration the number of shares of new securities which the Warrantholder would have owned immediately following such reclassification, reorganization, consolidation or merger if the Warrantholder had exercised the Warrant immediately prior to such reclassifications, reorganization, consolidation or merger. The provisions of this subsection (a) shall similarly apply to successive reclassification, reorgranizations, consolidations or mergers. (b) Split, Subdivision or Combination of Shares. If the Company at any time while this Warrant remains outstanding and unexpired shall split, subdivide or combine the Class of Stock for which this Warrant is then exercisable, the Warrant Price shall be proportionately decreased in the case of a split or subdivision or proportionately increased in the case of a combination. Any adjustment under this subsection (b) shall become effective when the split, subdivision or combination becomes effective. (c) Stock Dividends. If the Company at any time while this Warrant remains outstanding and unexpired shall pay a dividend with respect to the Class of Stock for which this Warrant is then exercisable, payable in shares of that Class of Stock, Options or Convertible Securities, the Warrant Price shall be adjusted, from and after the date of determination of the stockholders entitled to receive such dividend or distributions, to that price determined by multiplying the Warrant Price in effect immediately prior to such date of determination by a fraction (i) the numerator of which shall be the total number of shares of that Class of Stock outstanding immediately prior to such dividend or distribution, and (ii) the denominator of which shall be the total number of shares of the same Class of Stock outstanding immediately after such dividend or distribution (including shares of that Class of Stock issuable upon exercise, conversion or exchange of any Options or Convertible Securities issued as such dividend or 3. distribution). If the Options or Convertible Securities issued as such dividend or distribution by their terms provide, with the passage of time or otherwise, for any decrease in the consideration payable to the Company, or any increase in the number of shares issuable upon exercise, conversion or exchange thereof (by change of rate or otherwise), the Warrant Price shall, upon any such decrease or increase becoming effective, be reduced to reflect such decrease or increase as if such decrease or increase became effective immediately prior to the issuance of the Options or Convertible Securities as the dividend or distribution. Any adjustment under this subsection (c) shall become effective on the record date set for such dividend or distribution. (d) Adjustment Of Number of Shares. Upon each adjustment in the Warrant Price pursuant to Section 5(b) or 5(c) above, the number of Shares issuable upon exercise of this Warrant shall be adjusted to the product obtained by multiplying the number of Shares issuable immediately prior to such adjustment in the Warrant Price by a fraction (i) the numerator of which shall be the Warrant Price immediately prior to such adjustment, and (ii) the denominator of which shall be the Warrant Price immediately after such adjustment. 6. Notice of Adjustments. So long as this Warrant remains outstanding and unexpired, whenever the Warrant Price shall be adjusted pursuant to Section 5 hereof, the Company shall issue a certificate signed by its chief financial officer setting forth, in reasonable detail, the event requiring the adjustment, the amount of the adjustment, the method by which such adjustment was calculated and the Warrant Price after giving effect to such adjustment, and shall cause a copy of such certificate to be mailed (by first class mail, postage prepaid) to the Warrantholder. 7. Right to Convert Warrant Into Stock. 7.1 Right to Convert. In addition to the rights granted under Section 3 of this Warrant, the Warrantholder shall have the right to require the Company to convert this Warrant (the "Conversion Right") into shares of the Class of Stock for which the Warrant is then exercisable, as provided in this Section 7. Upon exercise of the Conversion Right, the Company shall deliver to the Warrantholder (without payment by the Warrantholder of any Warrant Price) that number of shares of stock equal to the quotient obtained by dividing (x) the value of this Warrant at the time the Conversion Right is exercised (determined by subtracting the aggregate Warrant Price immediately prior to the exercise of the Conversion Right from the aggregate fair market value of the Shares issuable upon exercise of this Warrant immediately prior to the exercise of the Conversion Right, as determined pursuant to Section 7.3 below) by (y) the fair market value (as determined pursuant to Section 7.3 below) of one share of that Class of Stock immediately prior to the exercise of the Conversion Right. 7.2 Method of Exercise. So long as the Warrant remains outstanding and unexpired, the Conversion Right may be exercised at any time by the Warrantholder by the surrender of this Warrant at the principal office of the Company together with a written statement specifying that the Warrantholder thereby intends to exercise the Conversion Right. Certificates of the shares of stock issuable upon exercise of the Conversion Right shall be delivered to the 4. Warrantholder within thirty (30) days following the Company's receipt of this Warrant together with the aforesaid written statement. 7.3 Valuation of Stock. For purposes of this Section 7, the fair market value of one share of the Class of Stock issuable upon exercise of this Warrant shall, mean: (a) The product of (i) the average of the closing price or, if no closing price is reported, the closing bid and asked prices of the Common Stock, quoted in the Over-The-Counter Market Summary or the closing price quoted on any exchange on which the Common Stock is listed, whichever is applicable, as published in the Western Edition of The Wall Street Journal for the ten (10) trading days prior to the date of determination of fair market value, and (ii) the number of shares of Common Stock into which each share of the Class of Stock is then convertible, if applicable; (b) If the Common Stock is not traded Over-The-Counter or on an exchange, the fair market value of the Class of Stock per share shall be as determined in good faith by the Company's Board of Directors; provided, however, that if the Warrantholder disputes in writing the fair market value determined by the Board of Directors within thirty (30) days of being informed of such fair market value, the fair market value shall be determined by an independent appraiser, appointed in good faith by the Company's Board of Directors. 8. Compliance With Act; Transferability of Warrant; Disposition of Shares. 8.1 Legends. This Warrant and the Shares issued upon exercise thereof shall be imprinted with a legend in substantially the following form: "THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE OFFERED FOR SALE, SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR PURSUANT TO RULE 144 OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY AND ITS COUNSEL THAT SUCH REGISTRATION IS NOT REQUIRED." 8.2 Transferability of Warrant and Shares. This Warrant and the Shares issued upon exercise thereof shall not be sold, transferred or assigned in whole or in part without compliance with applicable federal and state securities laws by the transferor and the transferee (including, without limitation, the delivery of investment representation letters and legal opinions reasonably satisfactory to the Company, if reasonably requested by the Company). Subject to the provisions of this Section 8.2, title to this Warrant may be transferred in the same manner as a negotiable instrument transferable by endorsement and delivery. 9. Rights of the Holder. 5. The Warrantholder shall not, by virtue hereof, be entitled to any rights of a shareholder in the Company, either at law or equity, and the rights of the Warrantholder are limited to those expressed in this Warrant. Nothing contained in this Warrant shall be construed as conferring upon the Warrantholder hereof the right to vote or to consent or to receive notice as a shareholder of the Company on any matters or with respect to any rights whatsoever as a shareholder of the Company. No dividends or interest shall be payable or accrued in respect of this Warrant or the interest represented hereby or the Shares purchasable hereunder until, and only to the extent that, this Warrant shall have been exercised in accordance with its terms. 10. Miscellaneous. No fractional shares shall be issued in connection with any exercise hereunder, but in lieu of such fractional shares the Company shall make a cash payment therefor upon the basis of the Warrant Price then in effect. The terms and provisions of this Warrant shall inure to the benefit of, and be binding upon, the Company and the Warrantholder and their respective successors and assigns. This Warrant shall be governed by and construed under the laws of the State of California as applied to contracts entered into between residents of the State of California to be wholly performed in the State of California. The titles of the sections and subsections of this Warrant are for convenience only and are not to be considered in construing this Warrant. All pronouns used in the Warrant shall be deemed to include masculine, feminine and neuter forms. AVIRON, a California corporation By: ------------------------------- Name: ----------------------------- Title: ---------------------------- 6. APPENDIX A NOTICE OF EXERCISE TO: AVIRON 1. The undersigned hereby elects to purchase shares of the stock of Aviron, a California corporation, pursuant to terms of the attached Warrant, and tenders herewith payment of the purchase price of such shares in full, together with all applicable transfer taxes, if any. 2. Please issue a certificate or certificates representing said shares of the stock in the name of the undersigned or in such other name as is specified below. 3. The undersigned represents it is acquiring the shares of stock solely for its own account for investment and not as a nominee for any other party and not with a view toward the resale or distribution thereof within the meaning of the Securities Act of 1933, as amended. -------------------------------------- (Name) -------------------------------------- (Address) -------------------------------------- (Taxpayer Identification Number) - ---------------------------------------- (print name of Warrantholder) By: ------------------------------------- Title: ---------------------------------- Date: ----------------------------------- 7. EXHIBIT C AMENDED AND RESTATED INVESTORS RIGHTS AGREEMENT AVIRON Amended and Restated Investors Rights Agreement September 3, 1993 1. TABLE OF CONTENTS Page ---- 1. Certain Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . 2. 2. Transferability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3. 2.1 Restrictions on Transferability . . . . . . . . . . . . . . . . . 3. 2.2 Restrictive Legend. . . . . . . . . . . . . . . . . . . . . . . . 3. 2.3 Notice of Proposed Transfers. . . . . . . . . . . . . . . . . . . 3. 3. Registration Rights. . . . . . . . . . . . . . . . . . . . . . . . . . . 4. 3.1 Requested Registration. . . . . . . . . . . . . . . . . . . . . . 4. 3.2 Company Registration. . . . . . . . . . . . . . . . . . . . . . . 6. 3.3 Expenses of Registration. . . . . . . . . . . . . . . . . . . . . 7. 3.4 Registration Procedures . . . . . . . . . . . . . . . . . . . . . 8. 3.5 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . 9. 3.6 Information by Holder . . . . . . . . . . . . . . . . . . . . . .10. 3.7 Rule 144 Reporting. . . . . . . . . . . . . . . . . . . . . . . .10. 3.8 "Market Stand-off" Agreement. . . . . . . . . . . . . . . . . . .11. 3.9 Form S-3. . . . . . . . . . . . . . . . . . . . . . . . . . . . .11. 3.10 Transfer of Registration Rights . . . . . . . . . . . . . . . . .12. 3.11 Certain Limitations in Connection with Future Grants of Registration Rights . . . . . . . . . . . . . . . . . . . . . . .12. 3.12 Termination of Registration Rights. . . . . . . . . . . . . . . .13. 4. Right of First Refusal on Company Issuances. . . . . . . . . . . . . . .13. 4.1 Right of First Refusal. . . . . . . . . . . . . . . . . . . . .13. 5. Information Rights . . . . . . . . . . . . . . . . . . . . . . . . . . .15. 5.1 Financial Information . . . . . . . . . . . . . . . . . . . . . .15. 5.2 Inspection Rights . . . . . . . . . . . . . . . . . . . . . . . .15. 5.3 Assignment of Rights to Information . . . . . . . . . . . . . . .15. 5.4 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . .16. 6. Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16. 6.1 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . .16. 6.2 Successors and Assigns. . . . . . . . . . . . . . . . . . . . . .16. 6.3 Entire Agreement. . . . . . . . . . . . . . . . . . . . . . . . .16. 6.4 Notices, etc. . . . . . . . . . . . . . . . . . . . . . . . . . .16. 6.5 Delays or Omissions . . . . . . . . . . . . . . . . . . . . . . .17. 6.6 Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . .17. 6.7 Severability. . . . . . . . . . . . . . . . . . . . . . . . . . .17. 6.8 Amendments. . . . . . . . . . . . . . . . . . . . . . . . . . . .17. i. TABLE OF CONTENTS (continued) EXHIBITS A. Schedule of Investors B. Schedule of Series A Warrant Holders C. Schedule of Series B Warrant Holders ii. Aviron AMENDED AND RESTATED INVESTORS RIGHTS AGREEMENT This Amended and Restated Investors Rights Agreement (the "Agreement") is entered into as of September 3, 1993, by and among Aviron, a California corporation (the "Company"), the parties listed on Exhibit A hereto (the "Investors"), the parties listed on Exhibit B hereto (the "Series A Warrant Holders") and the parties listed on Exhibit C hereto (the "Series B Warrant Holders"). RECITALS A. The Investors are the purchasers of the Company's Series A Preferred Stock pursuant to that certain Series A Preferred Stock Purchase Agreement, dated as of June 19, 1992, by and among the Company and the purchasers named therein (the "Series A Agreement") and the purchasers of the Company's Series B Preferred Stock pursuant to that certain Series B Preferred Stock Purchase Agreement, dated as of the date hereof, by and among the Company and the Purchasers named therein (the "Series B Agreement"). B. The Series A Warrant Holders are the holders of either Series A Preferred Stock or Warrants to purchase Series A Preferred Stock of the Company, the Series B Warrant Holders are the holders of either Series B Preferred Stock or Warrants to purchase Series B Preferred Stock of the Company, and the Founders are Peter Palese, J. Leighton Read, Bernard Roizman and Richard J. Whitley, in connection with which the Company desires to extend certain rights herein, subject to the obligations provided for herein, in accordance with the terms of this Agreement. C. It is anticipated that future sales of securities of a similar nature may occur. D. In order to facilitate the grant by the Company of additional rights, the Company, the Investors, the Series A Warrant Holders and the Series B Warrant Holders desire to terminate the Investor Rights Agreement, dated as of June 19, 1992 as amended January 8, 1993, among the Company and the parties named therein (the "Original Investor Rights Agreement"), and set forth in a single agreement the registration and information rights and right of first refusal granted to the Investors, the Series A Warrant Holders, the Series B Warrant Holders and the Founders. AGREEMENT NOW, THEREFORE, in consideration of the mutual promises, representations, warranties, covenants, and conditions set forth in this Agreement and in the agreements pursuant to which the Investors acquired their securities in the Company, the parties mutually aggree as follows: 1. 1. CERTAIN DEFINITIONS. As used in this Agreement, the following terms shall have the following respective meanings: "Commission" shall mean the Securities and Exchange Commission or any other federal agency at the time administering the Securities Act. "Securities Act" shall mean the Securities Act of 1933, as amended, or any similar federal statute, and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time. "Restricted Securities" shall mean the securities of the Company required to bear the legend set forth in Section 2.2 hereof. "Shares" shall mean the securities of the Company held by the Investors and Founders as described on Exhibit A, the securities issuable upon exercise of the Warrants to purchase Series A Preferred Stock held by the Series A Warrant Holders as described on Exhibit B and the securities issuable upon exercise of the Warrants to purchase Series B Preferred Stock held by the Series B Warrant Holders as described on Exhibit C. "Registrable Securities" means (i) shares of Common Stock issued or issuable pursuant to the conversion or exercise of the Shares and (ii) shares of Common Stock issued as a dividend or other distribution with respect to, or in exchange or in replacement of, the Shares, excluding in all cases, however (including exclusion from the calculation of the number of outstanding Registrable Securities), any Registrable Securities sold by a person, (x) in a transaction pursuant to Rule 144, or (y) pursuant to a registration statement under this Agreement or (z) in a transaction in which his rights under this Agreement are not transferred, including a transaction pursuant to a registration statement under this Agreement. The terms "register," "registered" and "registration" refer to a registration effected by preparing and filing a registration statement in compliance with the Securities Act, and the declaration or ordering of the effectiveness of such registration statement by the Commission. "Registration Expenses" shall mean all expenses incurred by the Company in complying with Sections 3.1, 3.2 and 3.9 hereof, including, without limitation, all registration and filing fees, printing expenses, fees and disbursements of counsel for the Company, fees and disbursements of a single special counsel for the Holders not to exceed $10,000, blue sky fees and expenses, and the expense of any special audits incident to or required by any such registration (but excluding the compensation of regular employees of the Company which shall be paid in any event by the Company). "Selling Expenses" shall mean all underwriting discounts and selling commissions applicable to the sale. "Holder" shall mean any holder of outstanding Registrable Securities. 2. "Initiating Holders" shall mean any Holder or Holders of not less than 40% of the then outstanding Registrable Securities. "Common Stock" shall mean shares of the Company's Common Stock, no par value. "Preferred Stock" shall mean shares of the Company's Series A Preferred Stock and Series B Preferred Stock, no par value. 2. TRANSFERABILITY. 2.1 RESTRICTIONS ON TRANSFERABILITY. The Shares and any Preferred Stock or Common Stock into which the Shares may be convertible or exercisable, shall not be transferable except upon the conditions specified in this Agreement, which conditions are intended to insure compliance with the provisions of the Securities Act, or, in the case of Section 3.8 hereof, to assist in an orderly distribution. Each Investor will cause any proposed transferee of the Shares (or of the Preferred Stock or Common Stock into which the Shares may be convertible or exercisable) held by an Investor to agree to take and hold such securities subject to the provisions and upon the conditions specified in this Agreement. 2.2 RESTRICTIVE LEGEND. Each certificate representing (i) the Shares, or (ii) shares of the Company's Common Stock or Preferred Stock issued upon conversion or exercise of the Shares and (iii) any securities issued in respect of the Shares or such Common Stock or Preferred Stock, shall (unless otherwise permitted by the provisions of Section 2.3 below) be stamped or otherwise imprinted with a legend in substantially the following form (in addition to any legend required under applicable state securities laws): THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT UNDER AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OF 1933. SUCH SHARES MAY NOT BE OFFERED, SOLD OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER SAID ACT OR AN EXEMPTION THEREFROM OR IN CONTRAVENTION OF THE AGREEMENT COVERING THE PURCHASE OF THESE SHARES AND RESTRICTING THEIR TRANSFER. COPIES OF THE AGREEMENT MAY BE OBTAINED AT NO COST BY WRITTEN REQUEST MADE BY THE HOLDER OF RECORD OF THIS CERTIFICATE TO THE SECRETARY OF THE CORPORATION AT ITS PRINCIPAL OFFICE. 2.3 NOTICE OF PROPOSED TRANSFERS. The holder of each certificate representing Restricted Securities by acceptance thereof agrees to comply in all respects with the provisions of this Section 2.3. Prior to any proposed transfer of any Restricted Securities, unless there is in effect a registration statement under the Securities Act covering the proposed transfer, the holder thereof shall give written notice to the Company of such holder's intention to effect such transfer. Each such notice shall describe the manner and circumstances of the proposed transfer in sufficient detail, and shall be accompanied (except in the following cases, with respect to 3. which the requirements set forth in the balance of this sentence need not be complied with: transactions in compliance with Rule 144 or Rule 144A so long as the Company is furnished with evidence of compliance with such Rule; transactions involving the distribution of Restricted Securities by any Investor which is a general or limited partnership to any of its partners, or retired partners, or to the estate of any of its partners or retired partners; transactions involving the transfer of Restricted Securities by any holder who is an individual to his family members or to a trust for the benefit of such shareholder or his family members; or transfers not involving a change in beneficial ownership) by (i) a written opinion of legal counsel who shall be reasonably satisfactory to the Company addressed to the Company and reasonably satisfactory in form and substance to the Company's counsel, to the effect that the proposed transfer of the Restricted Securities may be effected without registration under the Securities Act, (ii) a "no action" letter from the Commission to the effect that the distribution of such securities without registration will not result in a recommendation by the staff of the Commission that action be taken with respect thereto, or (iii) such other showing that may be reasonably satisfactory to legal counsel to the Company, whereupon the holder of such Restricted Securities shall be entitled to transfer such Restricted Securities in accordance with the terms of the notice delivered by the holder to the Company. Each certificate evidencing the Restricted Securities transferred as above provided shall bear the appropriate restrictive legend set forth in Section 2.2 above, except that such certificate shall not bear such restrictive legend if in the opinion of counsel for the Company such legend is not required in order to establish compliance with any provisions of the Securities Act. All Restricted Securities transferred as above that continue to bear the restrictive legend set forth in Section 2.2 shall continue to be subject to the provisions of this Section 2.3 in the same manner as before such transfer. 3. REGISTRATION RIGHTS. 3.1 REQUESTED REGISTRATION. Prior to such time as the Company has effected two registrations pursuant to this Section 3.1 and such registrations have been declared or ordered effective, if the Company shall receive from Initiating Holders a written request that the Company effect any registration (other than a registration on Form S-3 or any comparable form of registration statement) with respect to Registrable Securities having an anticipated aggregate offering price to the public of at least $7,500,000 (before deduction of underwriter commissions and expenses), the Company will: (a) promptly give written notice of the proposed registration to all other Holders; and (b) as soon as practicable, use its diligent best efforts to effect such registration (including, without limitation, the execution of an undertaking to file post-effective amendments, appropriate qualification under applicable blue sky or other state securities laws and appropriate compliance with applicable regulations issued under the Securities Act) as may be so requested and as would permit or facilitate the sale and distribution of all or such portion of such Registrable Securities as are specified in such request, together with all or such portion of the Registrable Securities of any Holder or Holders joining in such request as are specified in a written request given within 15 days after receipt of such written notice from the Company; 4. provided that the Company shall not be obligated to take any action to effect any such registration, qualification or compliance pursuant to this Section 3.1: (i) In any particular jurisdiction in which the Company would be required to execute a general consent to service of process in effecting such registration, qualification or compliance unless the Company is already subject to service in such jurisdiction and except as may be required by the Securities Act; (ii) Prior to the earlier to occur of (x) six months following the effective date of the registration statement pertaining to the first underwritten public offering of securities of the Company for its own account and (y) August 31, 1997; or (iii) If at the time of the request to register Registrable Securities the Company gives notice within 30 days of such request that it is engaged or has fixed plans to engage within 90 days of the time of the request in an initial firmly underwritten registered public offering as to which the Holders may include Registrable Securities pursuant to Sections 3.1 or 3.2. Subject to the foregoing clauses (i) through (iii) and to Section 3.1(d), the Company shall file a registration statement covering the Registrable Securities so requested to be registered as soon as practicable after receipt of the request of the Initiatin Holders. (c) UNDERWRITING. If the Initiating Holders intend to distribute the Registrable Securities covered by their request by means of an underwriting, they shall so advise the Company as a part of their request made pursuant to Section 3.1 and the Company shall include such information in the written notice referred to in Section 3.l(a). The right of any Holder to registration pursuant to Section 3.1 shall be conditioned upon such Holder's participation in such underwriting and the inclusion of such Holder's Registrable Securities in the underwriting to the extent requested (unless otherwise mutually agreed by a majority in interest of the Holders and such Holder) to the extent provided herein. The Company shall (together with all Holders proposing to distribute their securities through such underwriting) enter into an underwriting agreement in customary form with the underwriter or underwriters selected for such underwriting by a majority in interest of the Initiating Holders with the approval of the Company, which approval shall not be unreasonably withheld. Notwithstanding any other provision of this Section 3.1, if the underwriter determines that marketing factors require a limitation of the number of shares to be underwritten and so advises the Initiating Holders in writing, then the Initiating Holders shall so advise all Holders (except those Holders who have indicated to the Company their decision not to distribute any of their Registrable Securities through such underwriting) and the number of shares of Registrable Securities that may be included in the registration and underwriting shall be allocated among all such Holders in proportion, as nearly as practicable, to the respective amounts of Registrable Securities owned by such Holders at the time of filing the registration statement. No Registrable Securities excluded from the underwriting by reason of the underwriter's marketing limitation shall be included in such registration. 5. If any Holder disapproves of the terms of the underwriting, such person may elect to withdraw therefrom by written notice to the Company, the underwriter and the Initiating Holders. The Registrable Securities and/or other securities so withdrawn from such underwriting shall also be withdrawn from such registration; provided, however, that, if by the withdrawal of such Registrable Securities a greater number of Registrable Securities held by other Holders may be included in such registration (up to the maximum of any limitation imposed by the underwriters), then the Company shall offer to all Holders who have included Registrable Securities in the registration the right to include additional Registrable Securities in the same proportion used above in determining the underwriter limitation; and, provided further that in the event that the withdrawal of a Holder, and the subsequent inclusion of additional Registrable Securities by other Holders, results in an anticipated aggregate offering price to the public of less than $1,000,000 the Company shall no longer be required to effect such registration pursuant to this Section 3.1. If the underwriter has not limited the number of Registrable Securities to be underwritten, the Company may include securities for its own account or the account of others in such registration if the underwriter so agrees and if the number of Registrable Securities which would otherwise have been included in such registration and underwriting will not thereby be limited. (d) DELAY OF REGISTRATION. If the Company shall furnish to the Initiating Holders a certificate signed by the Chief Executive Officer of the Company stating that, in the good faith judgment of the Board of Directors of the Company, it would be seriously detrimental to the Company and its shareholders for such registration statement to be filed on or before the date filing would be required and it is therefore essential to defer the filing of such registration statement, then the Company may direct that such request for registration be delayed for two periods not in excess of 90 days each in any one-year period. 3.2 COMPANY REGISTRATION. (a) If at any time or from time to time, the Company shall determine to register any of its Common Stock, for its own account or for the account of others (other than the Holders), other than a registration relating solely to employee benefit plans or a registration relating solely to a Commission Rule 145 transaction or a registration on any registration form which does not include substantially the same information as would be required to be included in a registration statement covering the sale of Registrable Securities, the Company will: (i) promptly give to each Holder written notice thereof (which shall include a list of the jurisdictions in which the Company intends to attempt to qualify such securities under the applicable blue sky or other state securities laws); and (ii) include in such registration (and any related qualification under blue sky laws or other compliance), and in any underwriting involved therein, all the Registrable Securities specified in a written request or requests, made within 20 days after receipt of such written notice from the Company, by any Holder or Holders. 6. (b) UNDERWRITING. If the registration of which the Company gives notice is for a registered public offering involving an underwriting, the Company shall so advise the Holders as a part of the written notice given pursuant to Section 3.2(a)(i). In such event the right of any Holder to registration pursuant to Section 3.2 shall be conditioned upon such Holder's participation in such underwriting and the inclusion of such Holder's Registrable Securities in the underwriting to the extent provided herein. All Holders proposing to distribute their securities through such underwriting shall (together with the Company and the other holders distributing their securities through such underwriting) enter into an underwriting agreement in customary form with the underwriter or underwriters selected for such underwriting by the Company with the approval of the Board of Directors. Notwithstanding any other provision of this Section 3.2, if the underwriter determines that marketing factors require a limitation of the number of shares to be underwritten, the underwriter may limit the number of Registrable Securities and shares of Common Stock to be included in the registration and underwriting. The Company shall so advise all Holders (except those Holders who have indicated to the Company their decision not to distribute any of their Registrable Securities or Common Stock through such underwriting), and the number of shares of Registrable Securities that may be included in the registration and underwriting, shall be allocated among all Holders in proportion, as nearly as practicable, to the respective amounts of Registrable Securities owned by the Holders at the time of filing the registration statement. No Registrable Securities excluded from the underwriting by reason of the underwriter's marketing limitation shall be included in such registration. If any Holder disapproves of the terms of any such underwriting, such person may elect to withdraw therefrom by written notice to the Company and the underwriter. The securities so withdrawn from such underwriting shall also be withdrawn from such registration; provided, however, that, if by the withdrawal of such securities a greater number of Registrable Securities held by other Holders may be included in such registration (up to the maximum of any limitation imposed by the underwriters), then the Company shall offer to all Holders who have included Registrable Securities in the registration the right to include additional Registrable Securities in the same proportion used above in determining the underwriter limitation. 3.3 EXPENSES OF REGISTRATION. All Registration Expenses incurred in connection with any registration, qualification or compliance pursuant to Section 3.1, Section 3.2 or Section 3.9 herein shall be borne by the Company. All Selling Expenses incurred in connection with any registrations hereunder shall be borne by the holders of the securities so registered pro rata on the basis of the number of shares so registered. The Company shall not, however, be required to pay for expenses of any registration proceeding, begun pursuant to Section 3.1, the request of which has been subsequently withdrawn by the Initiating Holders (unless the withdrawal is based upon material information concerning the Company of which the Initiating Holders were not aware at the time of such request or unless the Holders of a majority of Registrable Securities agrees to forfeit their right to one requested registration pursuant to Section 3.1 in which event such right shall be forfeited by all Holders), in which case such expenses shall be borne by the holders of securities (including Registrable Securities) requesting such registration in proportion to the number of shares for which registration was requested. 7. 3.4 REGISTRATION PROCEDURES. In the case of each registration, qualification or compliance effected by the Company pursuant to this Section 3, the Company will keep each participating Holder advised in writing as to the qualification and compliance and as to the completion thereof. At its expense the Company will: (a) Keep such registration, qualification or compliance effective for a period of 90 days or until the Holder or Holders have completed the distribution described in the registration statement relating thereto, whichever first occurs; (b) Furnish such number of prospectuses and other documents incident thereto in conformity with the requirements of the Act; (c) Prepare and file with the SEC such amendments and supplements to such registration statement and the prospectus used in connection with such registration statement as may be necessary to comply with the provisions of the Act with respect to the disposition of all securities covered by such registration statement; (d) Use its best efforts to register and qualify the securities covered by such registration statement under such other securities or Blue Sky laws of such jurisdictions as shall be reasonably requested by the Holders; provided that the Company shall not be required in connection therewith or as a condition thereto to qualify to do business or to file a general consent to service of process in any such states or jurisdictions, unless the Company is already subject to service in such jurisdiction and except as may be required by the Act; (e) In the event of any underwritten public offering, enter into and perform its obligations under an underwriting agreement, in usual and customary form, with the managing underwriter of such offering. Each Holder participating, in such underwriting, shall also enter into and perform its obligations under such an agreement; (f) Notify each Holder of Registrable Securities covered by such registration statement at any time when a prospectus relating thereto is required to be delivered under the Act or the happening of any event as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing; (g) Cause all such Registrable Securities registered pursuant hereunder to be listed on each securities exchange on which similar securities issued by the Company are then listed; (h) Provide a transfer agent and registrar for all Registrable Securities registered pursuant hereunder and a CUSIP number for all such Registrable Securities, in each case not later than the effective date of such registration; and (i) Use its best efforts to furnish, at the request of any Holder requesting registration of Registrable Securities pursuant to this Section, on the date that such Registrable 8. Securities are delivered to the underwriters for sale in connection with a registration pursuant to this Section if such securities are being sold through underwriters or, if such securities are not being sold through underwriters, on the date that the registration statement with respect to such securities becomes effective, (i) an opinion, dated such date, of the counsel representing the Company for the purposes of such registration, in form and substance as is customarily given to underwriters in an underwritten public offering, addressed to the underwriters, if any, and to the Holders requesting, registration of Registrable Securities and (ii) a letter dated such date, from the independent certified public accountants of the Company, in form and substance as is customarily given by independent certified public accountants to underwriters in an underwritten public offering, addressed to the underwriters, if any, and to the Holders requesting registration of Registrable Securities. 3.5 INDEMNIFICATION. (a) The Company will indemnify each Holder, each of its officers, directors, partners and legal counsel, and each person controlling such Holder, with respect to which registration, qualification or compliance has been effected pursuant to this Section 3, against all claims, losses, damages and liabilities (or actions in respect thereof) arising out of or based on (i) any untrue statement (or alleged untrue statement) of a material fact contained in any prospectus, offering circular or other similar document (including any related registration statement, notification or the like) incident to any such registration, qualification or compliance, or based on any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, in the light of the circumstances under which they were made, or (ii) any violation by the Company of any federal, state or common law rule or regulation applicable to the Company in connection with any such registration, qualification or compliance, and will reimburse each such Holder, each of its officers, directors, partners and legal counsel, and each person controlling such Holder, for any legal and any other expenses reasonably incurred in connection with investigating or defending any such claim, loss, damage, liability or action, as such expenses are incurred, provided that the Company will not be liable in any such case to the extent that any such claim, loss, damage, liability or expense arises out of or is based on any untrue statement or omission based upon written information furnished to the Company by an instrument duly executed by such Holder and stated to be specifically for use therein or furnished by the Holder to the Company in response to a request by the Company stating specifically that such information will be used by the Company therein. (b) Each Holder will, if Registrable Securities held by such Holder are included in the securities as to which such registration, qualification or compliance is being effected, indemnify the Company, each of its directors and officers, each legal counsel and independent accountant of the Company, each person who controls the Company within the meaning of the Securities Act, and each other such Holder, each of its officers, directors, and partners and each person controlling such Holder, against all claims, losses, damages and liabilities (or actions in respect thereof) arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any such registration statement, prospectus, offering circular or other similar document, or any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the 9. circumstances under which they were made, and will reimburse the Company, such Holders, such directors, officers, persons, or control persons for any legal or any other expenses reasonably incurred in connection with investigating or defending any such claim, loss, damage, liability or action, as incurred, in each case to the extent, but only to the extent, that such untrue statement (or alleged untrue statement) or omission (or alleged omission) is made in such registration statement, prospectus, offering circular or other document in reliance upon and in conformity with written information furnished to the Company by an instrument duly executed by such Holder and stated to be specifically for use therein; provided, however, that the obligations of such Holders hereunder shall be limited to an amount equal to the proceeds to each such Holder of Registrable Securities sold as contemplated herein. (c) Each party entitled to indemnification under this Section 3.5 (the "Indemnified Party") shall give notice to the party required to provide indemnification (the "Indemnifying Party") promptly after such Indemnified Party has received written notice of any claim as to which indemnity may be sought, and shall permit the Indemnifying Party to assume the defense of any such claim or any litigation resulting therefrom, provided that counsel for the Indemnifying Party, who shall conduct the defense of such claim or litigation, shall be approved by the Indemnified Party (whose approval shall not unreasonably be withheld). The Indemnified Party may participate in such defense at such party's expense; provided, however, that the Indemnifying Party shall bear the expense of such defense of the Indemnified Party if in the opinion of counsel to the Indemnified Party representation of both parties by the same counsel would be inappropriate due to actual or potential conflicts of interest. The failure of any Indemnified Party to give notice as provided herein shall relieve the Indemnifying Party of its obligations under this Section 3.5 only to the extent that such failure to give notice shall materially adversely prejudice the Indemnifying Party in the defense of any such claim or any such litigation. No Indemnifying Party, in the defense of any such claim or litigation, shall, except with the consent of each Indemnified Party, consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnified Party of a release from all liability in respect to such claim or litigation. 3.6 INFORMATION BY HOLDER. Each Holder including securities of the Company in any registration shall furnish to the Company such information regarding such Holder and the distribution proposed by such Holder as the Company may request in writing and as shall be required in connection with any registration, qualification or compliance referred to in this Section 3. 3.7 Rule 144 REPORTING. With a view to making available the benefits of certain rules and regulations of the Commission which may at any time permit the sale of the Restricted Securities to the public without registration, after such time as a public market exists for the Common Stock of the Company, the Company agrees to: (a) Use its best efforts to facilitate the sale of the Restricted Securities to the public, without registration under the Securities Act, pursuant to Rule 144 under the Securities Act, provided that this shall not require the Company to file reports under the Securities Act and 10. the Exchange Act at anytime prior to the Company's being otherwise required to file such reports. (b) Make and keep public information available, as those terms are understood and defined in Rule 144 under the Securities Act at all times after 90 days after the effective date of the first registration under the Securities Act filed by the Company for an offering of its securities to the general public; (c) Use its best efforts to then file with the Commission in a timely manner all reports and other documents required of the Company under the Securities Act and the Securities Exchange Act of 1934, as amended (the "Exchange Act") (at any time after it has become subject to such reporting requirements); (d) So long as a Holder owns any Restricted Securities to furnish to the Holder forthwith upon request a written statement by the Company as to its compliance with the reporting requirements of said Rule 144 (at any time after 90 days after the effective date of the first registration statement filed by the Company for an offering of its securities to the general public), and of the Securities Act and the Exchange Act (at any time after it has become subject to such reporting requirements), a copy of the most recent annual or quarterly report of the Company, and such other reports and documents so filed by the Company as such Holder may reasonably request in availing itself of any rule or regulation of the Commission allowing a Holder to sell any such securities without registration. 3.8 "MARKET STAND-OFF" AGREEMENT. Each Holder agrees not to sell or otherwise transfer or dispose of any Common Stock (or other securities) of the Company held by it for a period not to exceed 120 days following the effective date of a registration statement of the Company filed under the Securities Act if so requested by the Company and the underwriter of Common Stock (or other securities of the Company), provided that: (a) such agreement shall apply only to the first underwritten registered public offering of the Company; and (b) all officers and directors of the Company enter into similar agreements and the Company uses its best efforts to cause all other holders of at least 1% of the Company's voting securities enter into similar agreements. The Company may impose stop-transfer instructions with respect to the shares (or securities) subject to the foregoing restriction until the end of such period. 3.9 Form S-3. The Company shall use its best efforts to qualify for registration on Form S-3 and to that end the Company shall register (whether or not required by law to do so) its Common Stock under the Exchange Act within 12 months following the effective date of the first registration of any securities of the Company on Form S-1. After the Company has qualified for the use of Form S-3, in addition to the rights contained in the foregoing provisions of this Section 3, the Holders of Registrable Securities shall have the right to request registrations on Form S-3 thereafter under this Section 3.9 (such requests shall be in writing and shall state the number of shares of Registrable Securities to be disposed of and the intended 11. method of disposition of such shares by such Holder or Holders), provided that the Company shall not be required to effect a registration pursuant to this Section 3.9 unless the Holder or Holders requesting registration propose to dispose of shares of Registrable Securities which they reasonably anticipate will have an aggregate disposition price (before deduction of underwriting discounts and expenses of sale) of at least $1,000,000, and provided further that the Company shall not be required to effect more than two registrations pursuant to this Section 3.9 in any 12 month period. The Company shall give notice to all Holders of Registrable Securities of the receipt of a request for registration pursuant to this Section 3.9 and shall provide a reasonable opportunity for other Holders to participate in the registration. Subject to the foregoing, the Company will use its best efforts to effect promptly the registration of all shares of Registrable Securities on Form S-3, as the case may be, to the extent requested by the Holder or Holders thereof for purposes of disposition. 3.10 TRANSFER OF REGISTRATION RIGHTS (a) Except as otherwise provided herein, the rights contained in this Section 3 may be assigned or otherwise conveyed to a transferee or assignee of Registrable Securities held by the Investors, which transferee or assignee shall be considered a "Holder" for purposes of this Section 3, provided that (i) such transfer is effected in accordance with applicable federal and state securities laws, (ii) such transferee or assignee becomes a party to this Agreement or agrees in writing to be subject to the terms hereof to the same extent as if he were an original purchaser hereunder and (iii) such transferee or assignee (A) is a wholly owned subsidiary or constituent partner (including limited partners and retired partners) or affiliate of the transferring Holder if such Holder is a partnership, or (B) acquires a number of shares of Registrable Securities originally held by the transferring Holder equal to at least 1% of the then-outstanding capital stock of the Company, and, provided further, that the Company is given written notice by such Holder at the time of or within a reasonable time after said transfer, stating the name and address of said transferee or assignee and identifying the securities with respect to which such registration rights are being assigned. (b) Except as otherwise provided herein, the rights contained in Section 3, except for the rights contained in Section 3.1, may be assigned or otherwise conveyed to a transferee or assignee of Registrable Securities held by the Series A Warrant Holders, which transferee or assignee shall be considered a "Holder" for purposes of this Section 3, provided that (i) such transfer is effected in accordance with applicable federal and state securities laws, (ii) such transferee or assignee becomes a party to this Agreement or agrees in writing to be subject to the terms hereof to the same extent as if he were an original purchaser hereunder and, provided further, that the Company is given written notice by such Holder at the time of or within a reasonable time after said transfer, stating the name and address of said transferee or assignee and identifying the securities with respect to which such registration rights are being assigned. 3.11 CERTAIN LIMITATIONS IN CONNECTION WITH FUTURE GRANTS OF REGISTRATION RIGHTS. From and after the date of this Agreement, the Company shall not, without the prior written consent of the Holders of at least a majority of the outstanding Registrable Securities, enter into 12. any agreement with any person or persons providing for the granting to such holder of registration rights superior to those granted to Holders pursuant to this Section 3. 3.12 TERMINATION OF REGISTRATION RIGHTS. All rights and duties provided for with respect to any Holder in this Section 3 shall terminate on the later of (a) the date five (5) years from the date of a Qualified IPO (as defined below in Section 4.1(d)), and (b) on which such Holder owns less than 1% of the then-outstanding capital stock of the Company, except where such amount is held by a Series A Warrant Holder. 4. RIGHT OF FIRST REFUSAL ON COMPANY ISSUANCES. 4.1 RIGHT OF FIRST REFUSAL. The Company hereby grants to each Investor (and its affiliates) who holds not less than 1,000,000 shares of Preferred Stock (or Common Stock issued or issuable upon conversion of the Preferred Stock) the right of first refusal to purchase, pro rata, all (or any part) of New Securities (as defined in this Section 4.1) that the Company may, from time to time propose to sell and issue. In the case where the price per share at which the New Securities are being offered is indeterminable or is equal to or less than $1 (as adjusted for stock splits, reclassification or otherwise), such Investor's (and its affiliates') pro rata share, for purposes of this right of first refusal with respect to an offering at such a price, is the ratio, the numerator of which is the number of shares of Common Stock then owned by such Investor (and its affiliates) as a result of the conversion of any Preferred Stock of the Company and issuable upon conversion of the Preferred Stock of the Company then owned by such Investor (and its affiliates), and the denominator of which is the total number of shares of Common Stock then outstanding as a result of the conversion of any Preferred Stock of the Company or issuable upon conversion of the Preferred Stock of the Company then outstanding. In the case where the price per share at which the New Securities are being offered is greater than $1 (as adjusted for stock splits, reclassifications or otherwise), such Investor's (and its affiliates') pro rata share, for purposes of this right of first refusal with respect to an offering at such a price, is the ratio, the numerator of which is the number of shares of Common Stock then owned by such Investor (and its affiliates) as a result of the conversion of any Preferred Stock of the Company and issuable upon conversion of the Preferred Stock of the Company then owned by such Investor (and its affiliates), and the denominator of which is the total number of shares of Common Stock outstanding immediately prior to the issuance of the New Securities, assuming full conversion of all outstanding shares of Preferred Stock of the Company. This right of first refusal shall be subject to the following provisions: (a) "New Securities" shall mean any capital stock of the Company, whether now authorized or not, and rights, options, or warrants to purchase said capital stock, and securities of any type whatsoever that are, or may become, convertible into said capital stock; provided, however, that "New Securities" does not include (i) securities issued in any additional Closings (as defined in the Series B Agreement); (ii) securities issuable upon conversion of or with respect to Series A Preferred Stock or Series B Preferred Stock; (iii) securities issued pursuant to an acquisition by the Company by merger, purchase of substantially all of the assets, or other reorganization whereby the Company owns more than 50% of the voting power of such entity; (iv) shares of the Company's Common Stock (or related options) issued to employees, directors or consultants of the Company pursuant to any employee stock offering, plan, or arrangement 13. approved by the Board of Directors; (v) shares of the Company's Common Stock or Preferred Stock issued in connection with any stock split, stock dividend, or similar recapitalization by the Company; (vi) securities issued pursuant to equipment or debt financing or leases which are approved by the Company's Board of Directors; (vii) securities issued pursuant to any corporate partnering, strategic alliance, joint venture or licensing arrangement between the Company and a third party; or (viii) securities issued by the Company other than for cash or cash equivalents. (b) In the event that the Company proposes to undertake an issuance of New Securities, it shall give each Investor who together with its affiliates holds not less than 1,000,000 shares of Common Stock of the Company issued or issuable upon conversion of Preferred Stock, written notice of its intention, describing the type of New Securities, the price, and the general terms upon which the Company proposes to issue the same. Each Investor who together with its affiliates holds not less than 1,000,000 shares of Common Stock of the Company, issued or issuable upon conversion of Preferred Stock, shall have 20 days from the date of mailing of any such notice to agree to purchase up to its full pro rata share of such New Securities for the price and upon the general terms specified in the notice by giving written notice to the Company and stating therein the quantity of New Securities to be purchased. Each Investor who together with its affiliates holds not less than 1,000,000 shares of Common Stock of the Company, issued or issuable upon conversion of Preferred Stock, shall have a right of over allotment such that if any Investor fails to exercise its right hereunder to purchase its full pro rata portion of New Securities, the Company shall so notify the other Investors and such Investors (and their affiliates) who have agreed to purchase all or any part of their pro rata share of New Securities may purchase the nonpurchasing Investors' portions on a pro rata basis, within ten days from the date of such notice. (c) In the event that Investors (and their affiliates) fail to exercise in full the right of first refusal within said 20 day period (plus the ten day overallotment period, if applicable) the Company shall have 60 days thereafter to sell or enter into an agreement providing for the closing of the sale of the New Securities respecting which the Investors' (and their affiliates') rights were not exercised within 30 days of such agreement at a price and upon general terms no more favorable to the purchasers thereon than specified in the Company's notice. In the event the Company has not sold the New Securities within such 60 day period, the Company shall not thereafter issue or sell any New Securities, without first offering such securities to the Investors (and its affiliates) in the manner provided above. (d) The right of first refusal granted under this Agreement shall not apply to and shall expire upon the first closing of the first firmly underwritten public offering of Common Stock of the Company that is pursuant to a registration statement filed with, and declared effective by, the Commission under the Securities Act, covering the offer and sale of Common Stock to the public at a per share price (prior to underwriter commissions and expenses) of at least $2.50 (as adjusted for stock splits, dividends and similar events) and at an aggregate offering price (before deduction for underwriter commissions and expenses) of not less than $10,000,000 (a "Qualified IPO"). (e) This right of first refusal is assignable only to an affiliate of a Holder or in connection with a sale or transfer of a number of shares of Registrable Securities originally held 14. by the assigning Holder equal to at least 1% of the then-outstanding capital stock of the Company. 5. INFORMATION RIGHTS. 5.1 FINANCIAL INFORMATION. (a) The Company will furnish the following information to each Investor who holds together with its affiliates holds not less than 1,000,000 of Common Stock issued or issuable upon conversion of Preferred Stock: (i) As soon as practicable after the end of each fiscal year of the Company, and in any event within 120 days thereafter, a consolidated balance sheet of the Company and its subsidiaries, if any, as at the end of such fiscal year, and consolidated statements of income and consolidated statements of cash flows of the Company and its subsidiaries, if any, for such year, prepared in accordance with generally accepted accounting principles consistently applied and setting forth in each case in comparative form and figures for the previous fiscal year, all in reasonable detail and certified by independent public accountants of national standing selected by the Company. (ii) As soon as practicable after the end of each of the first three quarterly accounting periods in each fiscal year, and in any event within 45 days thereafter, a consolidated balance sheet of the Company and its subsidiaries, if any, as at the end of such quarter, and consolidated statements of income and consolidated statements of cash flows of the Company and its subsidiaries, if any, for each quarter and for the current fiscal year of the Company to date, prepared in accordance with generally accepted accounting principles consistently applied, except that such financial statements will not contain the notes normally required by generally accepted accounting principles. (iii) As soon as practicable after the adoption thereof, and in any event no later than 15 days prior to the commencement of its fiscal year, an annual operating plan for the forthcoming fiscal year, prepared on a consolidated basis, including projected statements of profit and loss, cash flow and balance sheets for each calendar quarter of such year, and, promptly after preparation thereof, any revisions to such annual operating plan and any other budgets. (b) The covenants provided in Sections 5.1 and 5.2 shall terminate upon the closing of a Qualified IPO. 5.2 INSPECTION RIGHTS. The Company shall permit each Investor who with its affiliates holds at least 1,000,000 shares of Preferred Stock of the Company, its attorney, or its other representative to visit and inspect the Company's properties, to examine the Company's books of account and other records, to make copies or extracts therefrom and to discuss the Company's affairs, finances and accounts with its officers, management employees and independent accountants, all at such reasonable times and as often as such Investor may reasonably request. 5.3 ASSIGNMENT OF RIGHTS TO INFORMATION. The rights granted pursuant to Sections 5.1 and 5.2 may not be assigned or otherwise conveyed by an investor or by any subsequent 15. transferee of any such rights without the written consent of the Company, which consent shall not be unreasonably withheld; provided that the Company may refuse such written consent if the proposed transferee is a competitor of the Company as determined by the Company's Board of Directors; and provided further, that no such written consent shall be required if the transfer is made to a party who is not a competitor of the Company and who is a parent, subsidiary, affiliate, partner or group member of any Investor. 5.4 CONFIDENTIAL. Each Investor agrees that it will keep confidential and will not disclose or divulge any confidential, proprietary or secret information which such Investor may obtain from the Company, and which the Company has prominently marked "confidential", "proprietary" or "secret" or has otherwise identified as being such, pursuant to financial statements, reports and other materials submitted by the Company as required hereunder, or pursuant to visitation or inspection rights granted hereunder unless such information is or becomes known to the Investor from a source other than the Company or is or becomes publicly known, or unless the Company gives its written consent to the Investor's release of such information, except that no such written consent shall be required (and the Investor shall be free to release such information to such recipient) if such information is to be provided to an Investor's counsel or accountant, or to an officer, director or partner of an Investor, provided that the Investor shall inform the recipient of the confidential nature of such information, and shall instruct the recipient to treat the information as confidential. 6. MISCELLANEOUS. 6.1 GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of California applicable to contracts between California residents entered into and to be performed entirely within the State of California. 6.2 SUCCESSORS AND ASSIGNS. Except as otherwise provided herein, the provisions hereof shall inure to the benefit of, and be binding upon, the successors, assigns, heirs, executors and administrators of the parties hereto. 6.3 ENTIRE AGREEMENT. This Agreement, the Series A Agreement and the Series B Agreement constitute the full and entire understanding and agreement among the parties with regard to the subjects hereof and thereof. This Agreement supersedes the Original Investors Rights Agreement which is hereby terminated, effective upon the initial Closing under the Series B Agreement. 6.4 NOTICES, ETC. All notices and other communications required or permitted hereunder shall be in writing and shall be effective five (5) days after deposited by first-class mail, postage prepaid, with the United States mail or delivery by hand or by messenger, if addressed (a) to an Investor, at such Investor's address set forth on the attached Exhibit A, or at such other address as such Investor shall have furnished to the Company in writing, or (b) to any other holder of Registrable Securities, at such address as such holder shall have furnished the Company in writing, or, until any such holder so furnishes an address to the Company, then to and at the address of the last holder of such Registrable Securities who has so furnished an address to the Company, or (c) to the Company, at the address set forth below the Company's 16. name on the signature page to this Agreement or such other address as the Company shall have furnished to each Investor and each such other holder in writing. Notwithstanding the above, any notice or communication to an address outside the United States shall be sent by telecopy and confirmed in writing sent by courier guaranteeing delivery in no more than two (2) business days. 6.5 DELAYS OR OMISSIONS. No delay or omission to exercise any right, power or remedy accruing to any party, upon any breach or default of any other party under this Agreement, shall impair any such right, power or remedy of such party nor shall it be construed to be a waiver of any such breach or default, or an acquiescence therein, or of or in any similar breach or default thereunder occurring; nor shall any waiver of any single breach or default be deemed a waiver of any other breach or default theretofore or thereafter occurring. Any waiver, permit, consent or approval of any kind or character on the part of any party of any breach or default under this Agreement, or any waiver on the part of any party of any provisions or conditions of this Agreement, must be in writing and shall be effective only to the extent specifically set forth in such writing. All remedies, either under this Agreement, or by law or otherwise afforded to any holder, shall be cumulative and not alternative. 6.6 COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which may be executed by less than all of the Investors, each of which shall be enforceable against the parties actually executing such counterparts, and all of which together shall constitute one instrument. 6.7 SEVERABILITY. In the case any provision of this Agreement shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. 6.8 AMENDMENTS. The provisions of this Agreement may be amended at any time and from time to time, and particular provisions of this Agreement may be waived, with and only with an agreement or consent in writing signed by the Company and by the holders of not less than a majority of the number of shares of Registrable Securities outstanding as of the date of such amendment or waiver. Each Investor and Series A Warrant Holder and Series B Warrant Holder acknowledges that by the operation of this Section 6.8 the holders of a majority of the outstanding Registrable Securities may have the right and power to diminish or eliminate all rights of such investor, Series A Warrant Holder or Series B Warrant Holder under this Agreement. Notwithstanding anything herein to the contrary, the parties agree that the Company may amend this Agreement at any time after the date hereof, without obtaining the consent of any Holder, to add as parties to this Agreement any purchasers of the Company's Series B Preferred Stock pursuant to Section 2 of that certain Series B Preferred Stock Purchase Agreement between the Company and certain persons dated on or about the date of this Agreement. Any persons added to this Agreement pursuant to this subparagraph shall become "Holders" and "Investors" under this Agreement, and shares of Common Stock issuable upon conversion of the Series B Preferred Stock held by such persons shall be "Registrable Securities" under this Agreement. 17. The foregoing Investors Rights Agreement is hereby executed as of the date first above written. COMPANY INSTITUTIONAL VENTURE PARTNERS V AVIRON by its General Partner Institutional Venture Management V By: /s/ L. Read By: /s/ Reid W. Dennis -------------------------------- ----------------------------------- J. Leighton Read, M.D. Reid W. Dennis Chief Executive Officer General Partner 1450 Rollins Road 3000 Sand Hill Road Burlingame, CA 94010 Building 2, Suite 290 Menlo Park, CA 94025 INSTITUTIONAL VENTURE MANAGEMENT V By: /s/ Reid W. Dennis ----------------------------------- Reid W. Dennis General Partner 3000 Sand Hill Road Building 2, Suite 290 Menlo Park, CA 94025 /s/ L. Read -------------------------------------- J. Leighton Read, M.D. c/o Aviron 1450 Rollins Road Burlingame, California 94010 /s/ Bernard Roizman -------------------------------------- Bernard Roizman 5555 S. Everett, Apt. 11A Chicago, Illinois 60637 /s/ Betty Roizman -------------------------------------- Betty Roizman 5555 S. Everett, Apt. 11A Chicago, Illinois 60637 18. ARCH Venture Fund Limited Partnership a Delaware Limited Partnership By: ARCH Development Corporation By: /s/ S. Lazarus ----------------------------------- Steven Lazarus, President c/o ARCH Development Corporation The University of Chicago 1101 East 58th Street Walker 213 Chicago, Illinois 60637 /s/ Albert L. Zesiger -------------------------------------- Albert L. Zesiger 75 Bluff Avenue Rowayton, Connecticut 06853 /s/ Peter Palese -------------------------------------- Peter Palese, Ph.D. 414 Highwood Avenue Leonia, New Jersey 07605 -------------------------------------- John P. Curran 230 Park Avenue Suite 1245 New York, New York 10169 -------------------------------------- Steven R. Frank c/o Bear Stearns & Co. 245 Park Avenue, 3rd Floor New York, NY 10169 -------------------------------------- David B. Musket One Boston Place, 35th Floor Boston, Massachusetts 02108 19. GC&H Investments By: /s/ John L. Cardoza --------------------------------- Name: John L. Cardoza --------------------------------- Executive Partner c/o Jeanne Meyer Cooley Godward Castro Huddleson & Tatum One Maritime Plaza, 20th Floor San Francisco, California 94111 /s/ Julian N. Stern -------------------------------------- Julian N. Stern 84 Selby Lane Atherton, California 94025 /s/ Richard Whitley -------------------------------------- Richard Whitley 216 Shades Crest Circle Birmingham, Alabama 35216 -------------------------------------- Sally B. Whitley 216 Shades Crest Circle Birmingham, Alabama 35216 /s/ Bruce A. Hironaka -------------------------------------- Bruce A. Hironaka 26 Lenox Road Kensington, California 94707 /s/ Valerie L. Hironaka -------------------------------------- Valerie Hironaka 26 Lenox Road Kensington, California 94707 20. THE MOUNT SINAI SCHOOL OF MEDICINE By: ----------------------------------- Frank R. Landsberger, Ph. D One Gustave L. Levy Plaza New York, NY 10029-6574 ACCEL IV L.P. By: Accel IV Associates L.P. Its: General Partner By: /s/ Illegible ----------------------------------- General Partner 1 Embarcadero Center Suite 3820 San Francisco, CA 94111 ACCEL JAPAN L.P. By: Accel Japan Associates L.P. Its: General Partner By: /s/ Illegible ----------------------------------- General Partner 1 Embarcadero Center Suite 3820 San Francisco, CA 94111 ABINGWORTH BIOVENTURES By: /s/ Allen Latta ----------------------------------- Allen J. Latta Attorney-in-Fact c/o Sanne & Cie Boite Postale 566 L-2015 Luxembourg 21. with a copy to: Dr. Stephen W. Bunting Abingworth Management Limited 26 St. James Street London SW1A 1HA England FERRIS F. HAMILTON FAMILY TRUST Bea Associates Attorney-in-Fact By: /s/ Albert L. Zesiger ----------------------------------- Name: Albert L. Zesiger --------------------------------- Title: Managing Director -------------------------------- MARY ANN HAMILTON TRUST FOR SELF Bea Associates Attorney-in-Fact By: /s/ Albert L. Zesiger ----------------------------------- Name: Albert L. Zesiger --------------------------------- Title: Managing Director -------------------------------- TAB PRODUCTS CO. PENSION PLAN Bea Associates Attorney-in-Fact By: /s/ Albert L. Zesiger ----------------------------------- Name: Albert L. Zesiger --------------------------------- Title: Managing Director -------------------------------- 22. THE JENIFER ALTMAN FOUNDATION Bea Associates Attorney-in-Fact By: /s/ Albert L. Zesiger ----------------------------------- Name: Albert L. Zesiger --------------------------------- Title: Managing Director -------------------------------- AMERICAN MEDICAL INT'L. PENSION PLAN Bea Associates Attorney-in-Fact By: /s/ Albert L. Zesiger ----------------------------------- Name: Albert L. Zesiger --------------------------------- Title: Managing Director -------------------------------- TEMPLE-INLAND MASTER TRUST Bea Associates Attorney-in-Fact By: /s/ Albert L. Zesiger ----------------------------------- Name: Albert L. Zesiger --------------------------------- Title: Managing Director -------------------------------- ARTHUR D. LITTLE EMPLOYEE INVES. PLAN Bea Associates Attorney-in-Fact By: /s/ Albert L. Zesiger ----------------------------------- Name: Albert L. Zesiger --------------------------------- Title: Managing Director -------------------------------- 23. THE DEAN WITTER FOUNDATION Bea Associates Attorney-in-Fact By: /s/ Albert L. Zesiger ----------------------------------- Name: Albert L. Zesiger --------------------------------- Title: Managing Director -------------------------------- ANDREW HEISKELL Bea Associates Attorney-in-Fact By: /s/ Albert L. Zesiger ----------------------------------- Name: Albert L. Zesiger --------------------------------- Title: Managing Director -------------------------------- ALFRED E. HELLER Bea Associates Attorney-in-Fact By: /s/ Albert L. Zesiger ----------------------------------- Name: Albert L. Zesiger --------------------------------- Title: Managing Director -------------------------------- ELIZABETH HELLER MANDELL TRUST Bea Associates Attorney-in-Fact By: /s/ Albert L. Zesiger ----------------------------------- Name: Albert L. Zesiger --------------------------------- Title: Managing Director -------------------------------- 24. DOMENIC MIZIO BEA ASSOCIATES ATTORNEY-IN-FACT By: /s/ Albert L. Zesiger ----------------------------------- Name: ALBERT L. ZESIGER --------------------------------- Title: MANAGING DIRECTOR -------------------------------- THE RAISER MARITAL TRUST BEA ASSOCIATES ATTORNEY-IN-FACT By: /s/ Albert L. Zesiger ----------------------------------- Name: ALBERT L. ZESIGER --------------------------------- Title: MANAGING DIRECTOR -------------------------------- MARY VAN SCHUYLER RAISER BEA ASSOCIATES ATTORNEY-IN-FACT By: /s/ Albert L. Zesiger ----------------------------------- Name: ALBERT L. ZESIGER --------------------------------- Title: MANAGING DIRECTOR -------------------------------- BARRIE RAMSAY ZESIGER BEA ASSOCIATES ATTORNEY-IN-FACT By: /s/ Albert L. Zesiger ----------------------------------- Name: ALBERT L. ZESIGER --------------------------------- Title: MANAGING DIRECTOR -------------------------------- 25. BEA ASSOCIATES PROFIT SHARING TRUST BEA ASSOCIATES ATTORNEY-IN-FACT By: /s/ Albert L. Zesiger ----------------------------------- Name: ALBERT L. ZESIGER --------------------------------- Title: MANAGING DIRECTOR -------------------------------- BRINSON PARTNERS, INC. By: ----------------------------------- Robert D. Blank Partner Brinson Partners, Inc. 209 South LaSalle Street Suite 114 Chicago, IL 60604-1295 /s/ Alejandro Zaffaroni -------------------------------------- Dr. Alejandro Zaffaroni, Ph.D. c/o Interhealth Limited 4005 Miranda Avenue, Suite 180 Palo Alto, CA 94304 ARCH VENTURE FUND II, L.P. a Delaware limited partnership By: ARCH Management Partners II, L.P. its general partner By: ARCH Venture Partners, L.P. its general partner By: Lifework, Inc. its general partner By: /s/ Robert Nelsen ---------------------- Robert Nelsen -----------------------, Managing Director 26. /s/ Eugene Garfield -------------------------------------- Eugene Garfield Institute of Scientific Information 3501 Market Street Philadelphia, PA 19104 /s/ H. R. Sheperd -------------------------------------- Dr. H. R. Shepherd Opportunities Unlimited c/o Armstrong Pharmaceuticals 71 Elm Street New Caanan, CT 06840 27. BRINSON VENTURE CAPITAL FUND III, L.P. By: Brinson Partners, Inc. its General Partner By: /s/ Robert D. Blank ----------------------------------- Robert D. Blank, Partner BRINSON TRUST COMPANY AS TRUSTEE OF THE BRINSON MAP VENTURE CAPITAL FUND III By: /s/ Robert D. Blank ----------------------------------- Robert D. Blank, Assistant Trust Officer 28. WELLS FAMMY TRUST S/P JOEL W. SCHRECK BEA ASSOCIATES ATTORNEY-IN-FACT By: /s/ Albert L. Zesiger ----------------------------------- Name: ALBERT L. ZESIGER --------------------------------- Title: MANAGING DIRECTOR --------------------------------- A. CAREY ZESIGER REVOCABLE TRUST BEA ASSOCIATES ATTORNEY-IN-FACT By: /s/ Albert L. Zesiger ----------------------------------- Name: ALBERT L. ZESIGER --------------------------------- Title: MANAGING DIRECTOR --------------------------------- NICOLA L. ZESIGER BEA ASSOCIATES ATTORNEY-IN-FACT By: /s/ Albert L. Zesiger ----------------------------------- Name: Albert L. Zesiger --------------------------------- Title: Managing Director --------------------------------- ALEXA L. ZESIGER BEA ASSOCIATES ATTORNEY-IN-FACT By: /s/ Albert L. Zesiger ----------------------------------- Name: ALBERT L. ZESIGER --------------------------------- Title: MANAGING DIRECTOR --------------------------------- 29. ALZA CORPORATION RETIREMENT PLAN Bea Associates Attorney-in-Fact By: /s/ Albert L. Zesiger ----------------------------------- Name: Albert L. Zesiger --------------------------------- Title: Managing Director -------------------------------- SHEANA BUTLER Bea Associates Attorney-in-Fact By: /s/ Albert L. Zesiger ----------------------------------- Name: Albert L. Zesiger --------------------------------- Title: Managing Director -------------------------------- 30. ROVENT Limited Partnership By: Advent International Limited Partnership, General Partner By: Advent International Corporation, General Partner By: /s/ Charles Hsu ----------------------------------- Charles Hsu, Vice President ADVENTACT Limited Partnership By: Advent International Limited Partnership, General Partner By: Advent International Corporation, General Partner By: /s/ Charles Hsu ----------------------------------- Charles Hsu, Vice President Golden Gate Development and Investment Limited Partnership By: Advent International Limited Partnership, General Partner By: Advent International Corporation, General Partner By: /s/ Charles Hsu ----------------------------------- Charles Hsu, Vice President 31. Advent International Investors II Limited Partnership By: Advent International Corporation, General Partner By: /s/ Charles Hsu ----------------------------------- Charles Hsu, Vice President 32. /s/ George Rupp -------------------------------------- George Rupp 202 Low Library Columbia University 60 Morningside Drive New York, New York 10027 33. EXHIBIT A SCHEDULE OF INVESTORS AS OF SEPTEMBER 3, 1993 Name and Address Shares - -------------------------------------------------------------------------------- Series A Preferred Stock: Institutional Venture Partners V . . . . . . . . . . . . . . . . 2,955,000 Institutional Venture Management V . . . . . . . . . . . . . . . 45,000 Building 2, Suite 290 3000 Sand Hill Road Menlo Park, California 94025 J. Leighton Read, M.D. . . . . . . . . . . . . . . . . . . . . . 500,000 c/o Interhealth 4009 Miranda Avenue, Suite 275 Palo Alto, California 94304 Bernard Roizman, Sc.D. and Betty Roizman . . . . . . . . . . . . 100,000 5555 S. Everett, Apt. 11A Chicago, Illinois 60637 Albert L. Zesiger. . . . . . . . . . . . . . . . . . . . . . . . 300,000 75 Bluff Avenue Rowayton, Connecticut 06853 Peter Palese, Ph.D. . . . . . . . . . . . . . . . . . . . . . . 100,000 Professor and Chairman Department of Microbiology Mount Sinai Medical Center New York, New York 10029 John P. Curran . . . . . . . . . . . . . . . . . . . . . . . . . 80,000 230 Park Avenue Suite 1245 New York, New York 10169 1. Name and Address Shares - -------------------------------------------------------------------------------- Steven R. Frank. . . . . . . . . . . . . . . . . . . . . . . . . 50,000 c/o Bear Stearns & Co. 245 Park Avenue, 3rd Floor New York, NY 10169 David B. Musket. . . . . . . . . . . . . . . . . . . . . . . . . 50,000 One Boston Place, 35th Floor Boston, Massachusetts 02108 GC&H Investments . . . . . . . . . . . . . . . . . . . . . . . . 50,000 c/o Jeanne Meyer Cooley Godward Castro Huddleson & Tatum One Maritime Plaza, 20th Floor San Francisco, California 94111 Julian N. Stem . . . . . . . . . . . . . . . . . . . . . . . . . 50,000 84 Selby Lane Atherton, California 94025 Richard Whitley. . . . . . . . . . . . . . . . . . . . . . . . . 10,000 Sally B. Whitley 216 Shades Crest Circle Birmingham, Alabama 35216 Bruce A. Hironaka. . . . . . . . . . . . . . . . . . . . . . . . 10,000 Valerie Hironaka 26 Lenox Road Kensington, California 94707 ARCH VENTURE FUND. . . . . . . . . . . . . . . . . . . . . . . . 700,000 Limited Partnership c/o ARCH Development Corporation The University of Chicago 1101 East 58th Street Walker 213 Chicago Illinois 60637 2. Name and Address Shares - -------------------------------------------------------------------------------- SERIES B PREFERRED STOCK: Accel IV L.P.. . . . . . . . . . . . . . . . . . . . . . . . . . 2,811,111 Accel Japan L.P. . . . . . . . . . . . . . . . . . . . . . . . . 244,444 One Embarcadero Center Suite 3820 San Francisco, CA 94111 Abingworth Bioventures . . . . . . . . . . . . . . . . . . . . . 2,777,778 c/o Sanne & Cie Boite Postale 566 L-2015 Luxembourg, Attn: Karl U. Sanne Telecopier: (352) 43 54 10 With a copy to: Dr. Stephen W. Bunting Abingworth Management Limited 26 St. James's Street London SW1A 1HA England Telecopier: (44)(71) 930-1891 and to: Allen J. Latta, Esq. Buchalter, Nerner, Fields & Younger 601 S. Figueroa Street, 25th Floor Los Angeles, CA 90017 Telecopier: (213) 896-0400 Brinson Venture Capital Fund III, L.P. . . . . . . . . . . . . . 1,910,624 Brinson Trust Company as Trustee of the. . . . . . . . . . . . . 311,598 :Brinson MAP Venture Capital Fund III c/o Brinson Partners, Inc. 209 South LaSalle Street Suite 114 Chicago IL 60604-1295 3. Name and Address Shares - -------------------------------------------------------------------------------- Institutional Venture Partners V . . . . . . . . . . . . . . . . 2,695,500 Institutional Venture Management V . . . . . . . . . . . . . . . 61,100 Building 2, Suite 290 3000 Sand Hill Road Menlo Park, California 94025 ARCH VENTURE FUND II, L.P. . . . . . . . . . . . . . . . . . . . 277,778 c/o ARCH Development Corporation The University of Chicago 1101 East 58th Street Walker 213 Chicago, Illinois 60637 Ferris F. Hamilton Family Trust. . . . . . . . . . . . . . . . . 49,500 Mary Ann Hamilton Trust for Self . . . . . . . . . . . . . . . . 76,500 The Jenifer Altman Foundation. . . . . . . . . . . . . . . . . . 49,500 American Medical Int'l. Pension Plan . . . . . . . . . . . . . . 450,000 Temple-Inland Master Trust . . . . . . . . . . . . . . . . . . . 495,000 Arthur D. Little Employee Inves. Plan. . . . . . . . . . . . . . 405,000 The Dean Witter Foundation . . . . . . . . . . . . . . . . . . . 72,000 Andrew Heiskell. . . . . . . . . . . . . . . . . . . . . . . . . 76,500 Alfred E. Heller . . . . . . . . . . . . . . . . . . . . . . . . 49,500 Elizabeth Heller Mandell Trust . . . . . . . . . . . . . . . . . 49,500 Domenic Mizio. . . . . . . . . . . . . . . . . . . . . . . . . . 76,500 The Raiser Marital Trust . . . . . . . . . . . . . . . . . . . . 99,000 Mary Van Schuyler Raiser . . . . . . . . . . . . . . . . . . . . 27,000 Barrie Ramsay Zesiger. . . . . . . . . . . . . . . . . . . . . . 99,000 BEA Associates Profit Sharing Trust. . . . . . . . . . . . . . . 99,000 Wells Family Trust S/P Joel W. Schreck . . . . . . . . . . . . . 99,000 A. Carey Zesiger Revocable Trust . . . . . . . . . . . . . . . . 36,000 Nicola L. Zesiger. . . . . . . . . . . . . . . . . . . . . . . . 36,000 Alexa L. Zesiger . . . . . . . . . . . . . . . . . . . . . . . . 31,500 Alza Corporation Retirement Plan . . . . . . . . . . . . . . . . 49,500 Sheana Butler: . . . . . . . . . . . . . . . . . . . . . . . . . 27,000 c/o BEA Associates 153 E. 53rd Street, 58th Floor New York, NY 10022 Dr. H.R. Shepherd. . . . . . . . . . . . . . . . . . . . . . . . 166,667 Opportunities Unlimited c/o Armstrong Pharmaceuticals 71 Elm Street New Caanan, CT 06840 4. Name and Address Shares - -------------------------------------------------------------------------------- Dr. Alejandro Zaffaroni. . . . . . . . . . . . . . . . . . . . . 277,778 Attention: Gonzalo Silviera c/o Interhealth Limited 4005 Miranda Avenue, Suite 180 Palo Alto, CA 94304 Eugene Garfield. . . . . . . . . . . . . . . . . . . . . . . . . 277,778 Institute of Scientific Information 3501 Market Street Philadelphia, PA 19104 Peter Palese, Ph.D . . . . . . . . . . . . . . . . . . . . . . . 55,556 414 Highwood Avenue Leonia, New Jersey 07605 GC&H Investments . . . . . . . . . . . . . . . . . . . . . . . . 40,000 c/o Jeanne Meyer Cooley Godward Castro Huddleson & Tatum One Maritime Plaza, 20th Floor San Francisco, California 94111 Common Stock: Peter Palese, Ph.D . . . . . . . . . . . . . . . . . . . . . . . 750,000 414 Highwood Avenue Leonia, New Jersey 07605 J. Leighton Read, M.D. . . . . . . . . . . . . . . . . . . . . . 750,000 c/o Aviron 1450 Rollins Road Burlingame, CA 94010 Bernard Roizman, Sc.D. . . . . . . . . . . . . . . . . . . . . . 750,000 5555 S. Everett, Apt. 11A Chicago IL 60637 Richard J. Whitley . . . . . . . . . . . . . . . . . . . . . . . 750,000 216 Shades Crest Circle Vestavia, AL 35216 5. EXHIBIT B SCHEDULE OF SERIES A WARRANT HOLDERS Name and Address No. of Shares Purchasable - -------------------------------------------------------------------------------- Mount Sinai Medical Center . . . . . . . . . . . . . 225,000 One Gustave L. Levy Plaza New York, New York 10029-6574 6. EXHIBIT C SCHEDULE OF SERIES B WARRANT HOLDERS Name and Address No. of Shares Purchasable - -------------------------------------------------------------------------------- Institutional Venture Management V . . . . . . . . . 8,000 Building 2, Suite 290 3000 Sand Hill Road Menlo Park, California 94025 Institutional Venture Partners V . . . . . . . . . . 392,000 Building 2, Suite 290 3000 Sand Hill Road Menlo Park, California 94025 7. EXHIBIT D CAPITALIZATION SCHEDULE Pursuant to the 1992 Stock Option Plan (the "Option Plan"), the Company has reserved 3,860,000 shares of Common Stock for issuance upon exercise of options granted under the Option Plan. As of September 3, 1993, options to purchase 1,912,034 shares (net of cancellations) have been granted to employees and consultants of which 69,270 shares have been exercised. On February 9, 1993, the Company entered into a Technology Transfer Agreement with The Mount Sinai School of Medicine ("Mount Sinai") pursuant to which the Company acquired certain technologies. In exchange, Aviron issued 175,000 shares of Common Stock and Warrants to purchase, in the aggregate, 225,000 shares of Series A Preferred Stock (the "Series A Warrants"). The Series A Warrants become exercisable at various times upon the occurrence of certain milestones. On June 1, 1993, the Company entered into agreements with Institutional Venture Partners ("IVP") and Institutional Venture Management ("IVM") to provide a bridge loan to the Company. In consideration for the loan, IVP and IVM received warrants to purchase a total of 400,000 shares of Series B Preferred Stock (the "Series B Warrants"). The Series B Warrants expire at the earlier of (i) the closing of an initial public offering of Common Stock pursuant to a registration statement under the Securities Act of 1933, as amended or (ii) June 1, 1995. On March 30, 1994, the Company issued to Lease Management Services, Inc. a warrant to purchase 116,667 shares of Series B Preferred Stock in connection with an equipment lease. EXHIBIT B TO MATERIALS TRANSFER AND INTELLECTUAL PROPERTY AGREEMENT BETWEEN AVIRON AND THE REGENTS OF THE UNIVERSITY OF MICHIGAN, EFFECTIVE AS OF February 24, 1995 LIST OF KNOWN RECIPIENTS OF MASTER STRAINS 38 CONFIDENTIAL TREATMENT REQUESTED LIST OF KNOWN RECIPIENTS OF MASTER STRAINS [ ] Transfers to recipients noted on the following memo and the following letter: CONFIDENTIAL TREATMENT REQUESTED [The University of Michigan School of Public Health Letterhead] November 7, 1994 J. Leighton Reed, M.D. Chairman and C.E.O. Aviron 1450 Rollins Road Burlingame, California 94010 Dear Dr. Reed: As requested, I am furnishing you with the names of the organizations that furnished the two "Master" strains [ ] 1. [ ] 2. [ ] 3. [ ] 4. [ ] 5. [ ] Sincerely, [ ] [ ] CONFIDENTIAL TREATMENT REQUESTED [The University of Michigan School of Public Health Letterhead] 2/14/95 To: Mike Kope-J.D.-Attorney-TMO From: [ ] Re: Distribution of the Master-Strain [ ] EX-10.4 14 STOCK TRANSFER AGREEMENT WITH UNIV. OF MICHIGAN STOCK TRANSFER AGREEMENT THIS AGREEMENT is made as of February 24, 1995, by and among AVIRON, a California corporation (the "Company") and THE REGENTS OF THE UNIVERSITY OF MICHIGAN, a Michigan constitutional corporation ("Michigan"). WHEREAS, the Company and Michigan have entered into a Materials Transfer and Intellectual Property Agreement (the "Technology Agreement") dated as of February 24, 1995 (the "Execution Date"). WHEREAS, in connection with the granting to Aviron by Michigan of certain rights under the Technology Agreement, the Company has agreed to issue to Michigan shares of its Series B Preferred Stock and, under certain circumstances, a Warrant to purchase certain shares of the Company's capital stock, as more fully described below; NOW, THEREFORE, in consideration of the mutual promises, covenants and conditions hereinafter set forth, the parties hereto mutually agree as follows: SECTION 1 ISSUANCE OF THE SHARES; AUTHORIZATION OF THE SHARES AND WARRANT 1.1 ISSUANCE OF THE SHARES. In reliance upon the representations and agreements of Michigan contained herein, within thirty (30) days of the Execution Date (the "Issue Date"), in partial consideration of the Technology Agreement, the Company shall issue to Michigan 1,323,734 shares of its Series B Preferred Stock (the "Shares"), having the rights, restrictions, privileges and preferences set forth in the Amended and Restated Articles of Incorporation of the Company, as amended by the Certificate of Amendment, both attached hereto as Exhibit A (the "Articles"). 1.2 AUTHORIZATION OF SHARES AND WARRANT. On or before the Issue Date, the Company shall have (a) authorized the issuance of the Shares; (b) adopted and filed the Articles with the Secretary of State of the State of California; and (c) authorized, under the circumstances set forth in this Agreement, a warrant to purchase shares of its common stock ("Common Stock") in the form attached hereto as Exhibit B (the "Warrant"). Failure by the Company to meet its obligations under this Section 1.2 by the Issue Date shall be a material breach of this Agreement and the Technology Agreement. In addition to all other legal rights which Michigan may have by reason of such breach, Michigan shall have the right upon such breach to immediately terminate this Agreement and the Technology Agreement, and to require specific performance by the Company of its obligations upon termination of the Technology Agreement, including those set forth in Sections 4.5 and 15.5 thereof. Upon the Issue Date the Company shall deliver to Michigan copies of all requisite board and shareholder consents and a file-stamped copy of the 1. Articles, accompanied by a certificate signed by an officer of the Company certifying that the Company's obligations under this Section 1.2 have been fulfilled. SECTION 2 REPRESENTATIONS AND WARRANTIES OF THE COMPANY The Company hereby represents and warrants to Michigan as follows: 2.1 ORGANIZATION AND STANDING. The Company is a corporation duly organized, validly existing, and in good standing under the laws of the State of California. The Company has all requisite corporate power to own and operate its properties and assets, and to carry on its business as presently and as proposed to be conducted. The Company is qualified to do business as a foreign corporation in each jurisdiction in which such qualification is required and where the failure to be so qualified would have a material adverse effect on the Company's business. The Company has no subsidiaries. 2.2 CORPORATE POWER. The Company has all requisite legal and corporate power to execute and deliver this Agreement and any other agreement contemplated hereby, to transfer and issue the Shares and to issue the Warrant, and to carry out and perform its obligations under the terms of this Agreement. 2.3 ARTICLES. Upon the Issue Date, the Articles, in the form attached hereto as Exhibit A, will be the true, correct and complete Articles of Incorporation of the Company. 2.4 CAPITALIZATION. (a) The authorized capital stock of the Company consists, or will consist upon the Issue Date, of 35,000,000 shares of Common Stock, of which 3,484,270 shares are issued and outstanding, and 25,000,000 shares of Preferred Stock; 5,225,000 shares of which have been designated Series A Preferred Stock, of which 5,000,000 are issued and outstanding; 18,650,000 shares of which have been designated Series B Preferred Stock, of which 16,666,667 are issued and outstanding. All such issued and outstanding shares have been duly authorized and validly issued, and are fully paid and nonassessable. The rights, restrictions, privileges and preferences of the Series A Preferred Stock and Series B Preferred Stock are as stated in the Articles. As of the Execution Date, and taking into account the Shares to be issued under this Agreement, the Shares represent five percent (5%) of the issued and outstanding shares of capital stock of the Company. (b) Excepting that certain Amended and Restated Investors Rights Agreement, dated as of September 3, 1993, among the Company and the other parties named therein, as amended to date (the "Rights Agreement" a copy of which is attached hereto as Exhibit C), and except as set forth herein or on the schedule attached hereto as Exhibit D or in the Articles, as of 2. the Execution Date there are no outstanding rights of first refusal, preemptive rights or other rights, options, warrants, conversion rights, or other agreements either directly or indirectly for the purchase or acquisition from the Company of any shares of its capital stock. 2.5 AUTHORIZATION. All corporate action on the part of the Company, its directors and shareholders necessary for the sale and issuance of the Shares, and the Common Stock issuable upon conversion of the Shares (the "Underlying Stock") and the performance of the Company's obligations hereunder and under each of the other agreements contemplated hereby and the reservation of the Underlying Stock has been taken or will be taken prior to the Issue Date. The Shares (and the Underlying Stock), when issued in compliance with the provisions of this Agreement, will be validly issued and will be fully paid and nonassessable, and will be free of any liens or encumbrances; provided, however, that the Shares (and the Underlying Stock) may be subject to restrictions on transfer under state and/or federal securities laws as set forth herein. 2.6 LITIGATION. Neither the Company nor any of its property is subject to any claim, action, suit, proceeding, arbitration or any investigation before any court or other authority having jurisdiction and, to the best of the Company's knowledge, none of the same is, or has been, threatened against the Company or any of its property. The Company is not a party or subject to the provision of any order, writ, injunction, judgment or decree of any court or governmental agency or instrumentality. There is no action, suit or proceeding by the Company currently pending or that the Company presently intends to initiate. 2.7 OTHER AGREEMENTS. The execution and delivery of this Agreement by the Company and the consummation of the transactions contemplated under the Technology Agreement and this Agreement do not and will not, with either the passage of time or the giving of notice, conflict with or result in the breach of any condition or provision of, or constitute a default under, any contract, mortgage, lien, lease, agreement, indenture or instrument to which the Company is a party or any judgment to which it is subject. 2.8 GOVERNMENTAL CONSENTS. All consents, approvals, orders or authorizations of, or registrations, qualifications, designations, declarations or filings with, any governmental authority required on the part of the Company in connection with the valid execution and delivery of this Agreement, the offer, transfer, sale or issuance of the Shares and the Underlying Stock, and the consummation of all other transactions contemplated by this Agreement shall have been obtained and will be effective on the Issue Date, except for notices required or permitted to be filed with certain state and federal securities commissions after such date, which notices the Company shall file on a timely basis. 2.9 OFFERING. Assuming the accuracy of the representations and warranties of the Purchaser contained in Section 3 hereof, the offer, issue and sale of the Shares is exempt from registration under the Securities Act of 1933, as amended ("Securities Act"), and under the Uniform Securities Act of Michigan. 3. 2.10 ABSENCE OF MATERIAL ADVERSE LIABILITIES. The Company has no liabilities, current or contingent, nor are its properties subject to any claim or lien, that currently materially and adversely affect the ability of the Company to conduct its business as presently conducted. 2.11 OPERATING RIGHTS. The Company has all material operating authority, licenses, franchises, permits, certificates, consents, rights and privileges as are necessary to the operation of its business as now conducted. SECTION 3 REPRESENTATIONS AND WARRANTIES OF MICHIGAN Michigan hereby represents and warrants only to the Company with respect to the issuance of the Shares as follows: 3.1 AUTHORIZATION. Michigan has all the requisite power and is duly authorized to execute and deliver this Agreement and each other agreement contemplated hereby and has taken all necessary action to consummate the transactions contemplated hereby and thereby. This Agreement, the Technology Agreement, and each other agreement contemplated hereby have been duly executed and delivered by Michigan and constitute valid and binding obligations of Michigan, enforceable in accordance with their respective terms subject to laws of general application relating to bankruptcy, insolvency and the relief of debtors. 3.2 ACCREDITED INVESTOR. Michigan is an accredited investor within the meaning of Regulation D, as promulgated under the Securities Act. 3.3 EXPERIENCE. Michigan, alone or together with its advisors, is experienced in evaluating and investing in start-up biomedical research companies such as the Company. 3.4 INVESTMENT. Michigan is acquiring the Shares for investment, for its own account and not with a view to, or for resale in connection with, any distribution thereof, and it has no present intention of selling or distributing the Shares or the Underlying Stock. Michigan understands that the Shares and the Underlying Stock have not been registered under the Securities Act by reason of a specific exemption from the registration provisions of the Securities Act which depends upon, among other things, the bona fide nature of the investment intent as expressed herein. 3.5 RULE 144 AND RULE 144A. Michigan acknowledges that, because they have not been registered under the Securities Act, the Shares and the Underlying Stock must be held indefinitely unless subsequently registered under the Securities Act or an exemption from such registration is available. Michigan is aware of the provisions of Rule 144 and Rule 144A promulgated under the Securities Act, which rules permit limited resale of securities purchased in a private placement subject to the satisfaction of certain conditions. 4. 3.6 NO PUBLIC MARKET. Michigan understands that no public market now exists for any of the securities issued by the Company and that it is uncertain whether a public market will ever exist for the Shares or the Underlying Stock. 3.7 ACCESS TO DATA. Michigan has received and reviewed such information that it deemed necessary to make an informed decision concerning its receipt of the Shares and has had an opportunity to discuss the Company's business, management and financial affairs with its management. 3.8 RESTRICTIONS ON TRANSFER. Michigan further agrees not to make any disposition of all or any part of the Shares in any event unless and until: (a) There is then in effect a registration statement under the Securities Act covering such proposed disposition and such disposition is made in accordance with said registration statement; or (b) Michigan shall have (i) notified the Company of the proposed disposition, (ii) furnished the Company with a detailed statement of the circumstances surrounding the proposed disposition, and (iii) furnished the Company with an opinion of counsel for Michigan to the effect that such disposition will not require registration of such shares under the Act, and such opinion of counsel for Michigan shall have been concurred in by the Company's counsel and the Company shall have advised Michigan of such concurrence. 3.9 LEGENDS. Michigan understands and agrees that all certificates evidencing the Shares shall bear the following legend: "THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE OFFERED FOR SALE, SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR PURSUANT TO RULE 144 OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY AND ITS COUNSEL THAT SUCH REGISTRATION IS NOT REQUIRED." SECTION 4 INVESTOR RIGHTS 4.1 RIGHT OF FIRST REFUSAL ON COMPANY ISSUANCES. The Company hereby grants to Michigan, for so long as it holds not less than 1,000,000 shares of the Company's Series B Preferred Stock (or Common Stock issued or issuable upon conversion of the Series B Preferred Stock) the right of first refusal to purchase, pro rata, all (or any part) of New Securities (as 5. defined in this Section 4.1) that the Company may, from time to time propose to sell and issue. In the case where the price per share at which the New Securities are being offered is indeterminable or is equal to or less than One Dollar ($1.00) (as adjusted for stock splits, reclassification or otherwise), Michigan's pro rata share, for purposes of this right of first refusal with respect to an offering at such a price, is the ratio, the numerator of which is the number of shares of Common Stock then owned by Michigan as a result of the conversion of any Series B Preferred Stock of the Company and issuable upon conversion of the Series B Preferred Stock of the Company then owned by Michigan, and the denominator of which is the total number of shares of Common Stock then outstanding as a result of the conversion of any Series A and Series B Preferred Stock of the Company or issuable upon conversion of the Series A and Series B Preferred Stock of the Company then outstanding. In the case where the price per share at which the New Securities are being offered is greater than One Dollar ($1.00) (as adjusted for stock splits, reclassifications or otherwise), Michigan's pro rata share, for purposes of this right of first refusal with respect to an offering at such a price, is the ratio, the numerator of which is the number of shares of Common Stock then owned by Michigan as a result of the conversion of any Series B Preferred Stock of the Company and issuable upon conversion of the Series B Preferred Stock of the Company then owned by Michigan, and the denominator of which is the total number of shares of Common Stock outstanding immediately prior to the issuance of the New Securities, assuming full conversion of all outstanding shares of Series A and Series B Preferred Stock of the Company. This right of first refusal shall be subject to the following provisions: (a) "New Securities" shall mean any capital stock of the Company, whether now authorized or not, and rights, options, or warrants to purchase said capital stock, and securities of any type whatsoever that are, or may become, convertible into said capital stock; provided, however, that "New Securities" does not include (i) securities issuable upon conversion of or with respect to Series A Preferred Stock or Series B Preferred Stock; (ii) the Warrant Shares (as defined in Section 5.2 hereof) issuable under Section 5 of this Agreement; (iii) securities issued pursuant to an acquisition by the Company by merger, purchase of substantially all of the assets, or other reorganization whereby the Company owns more than fifty percent (50%) of the voting power of such entity; (iv) shares of the Company's Common Stock (or related options) issued to employees, directors or consultants of the Company pursuant to any employee stock offering, plan, or arrangement approved by the Board of Directors; (v) shares of the Company's Common Stock or Series A or Series B Preferred Stock issued in connection with any stock split, stock dividend, or similar recapitalization by the Company; (vi) securities issued pursuant to equipment or debt financing or leases which are approved by the Company's Board of Directors; (vii) securities issued pursuant to any corporate partnering, strategic alliance, joint venture or licensing arrangement between the Company and a third party; or (viii) securities issued by the Company other than for cash or cash equivalents. The Company agrees that it shall give Michigan notice of the issuance of any of its securities under the circumstances described in the foregoing clauses (vi), (vii) and (viii) not more than thirty (30) days after the date of such issuance, which notice shall describe the securities issued and the consideration received therefor. (b) In the event that the Company proposes to undertake an issuance of New Securities, it shall give Michigan, so long as it holds not less than 1,000,000 shares of Common 6. Stock of the Company issued or issuable upon conversion of the Series B Preferred Stock, written notice of its intention, describing the type of New Securities, the price, and the general terms upon which the Company proposes to issue the same. Michigan, as well as each Investor (as defined under the Rights Agreement) who together with its affiliates holds not less than 1,000,000 shares of Common Stock of the Company issued or issuable upon conversion of the Series A or Series B Preferred Stock, shall have twenty (20) days from the date of mailing of any such notice to agree to purchase up to its full pro rata share of such New Securities for the price and upon the general terms specified in the notice by giving written notice to the Company and stating therein the quantity of New Securities to be purchased. Michigan, so long as it holds not less than 1,000,000 shares of Common Stock of the Company issued or issuable upon conversion of the Series B Preferred Stock, and each Investor who together with its affiliates holds not less than 1,000,000 shares of Common Stock of the Company issued or issuable upon conversion of the Series A or Series B Preferred Stock, shall have a right of over allotment such that if Michigan or any Investor fails to exercise its right to purchase its full pro rata portion of New Securities, the Company shall so notify Michigan and the other Investors and Michigan and such Investors (and their affiliates) who have agreed to purchase all or any part of their pro rata share of New Securities may purchase Michigan's or the nonpurchasing Investors' portions on a pro rata basis, within ten days from the date of such notice. (c) In the event that Michigan and the Investors (and their affiliates) fail to exercise in full the right of first refusal within said twenty (20) day period (plus the ten day overallotment period, if applicable) the Company shall have sixty (60) days thereafter to sell or enter into an agreement providing for the closing of the sale of the New Securities respecting which Michigan's and the Investors' (and their affiliates') rights were not exercised within thirty (30) days of such agreement at a price and upon general terms no more favorable to the purchasers thereon than specified in the Company's notice. In the event the Company has not sold the New Securities within such sixty (60) day period, the Company shall not thereafter issue or sell any New Securities, without first offering such securities to the Investors (and its affiliates) in the manner provided above. (d) The right of first refusal granted under this Agreement shall not apply to and shall expire upon the first closing of the first firmly underwritten public offering of Common Stock of the Company that is pursuant to a registration statement filed with, and declared effective by, the United States Securities and Exchange Commission under the Securities Act. (e) This right of first refusal is not assignable by Michigan. 4.2 INFORMATION RIGHTS. The Company will furnish the following information to Michigan, for so long as it holds not less than 1,000,000 shares of Common Stock issued or issuable upon conversion of the Series B Preferred Stock: (i) As soon as practicable after the end of each fiscal year of the Company, and in any event within one hundred and twenty (120) days thereafter, a consolidated balance sheet of the Company and its subsidiaries, if any, as at the end of such fiscal year, and consolidated 7. statements of income and consolidated statements of cash flows of the Company and its subsidiaries, if any, for such year, prepared in accordance with generally accepted accounting principles consistently applied and setting forth in each case in comparative form and figures for the previous fiscal year, all in reasonable detail and certified by independent public accountants of national standing selected by the Company. (ii) As soon as practicable after the end of each of the first three quarterly accounting periods in each fiscal year, and in any event within forty- five (45) days thereafter, a consolidated balance sheet of the Company and its subsidiaries, if any, as at the end of such quarter, and consolidated statements of income and consolidated statements of cash flows of the Company and its subsidiaries, if any, for each quarter and for the current fiscal year of the Company to date, prepared in accordance with generally accepted accounting principles consistently applied, except that such financial statements will not contain the notes normally required by generally accepted accounting principles. The Company agrees and acknowledges that information furnished to it under this Section 4.2 may be subject to disclosure by law, including the Michigan Freedom of Information Act ("FOIA"). Subject to such disclosure requirements, Michigan agrees to make reasonable efforts not to disclose such information to any third party. Michigan shall be under no obligation to seek exemptions or exclusions of such information from the requirements of FOIA. 4.3 REGISTRATION RIGHTS. The Company hereby grants to Michigan the identical rights with respect to the registration of the Shares, the Underlying Stock and the Warrant Shares (as defined in Section 5.2 hereof) as are granted under Section 3.2 through 3.12 of the Rights Agreement to each Holder (as defined under the Rights Agreement), as though (i) Michigan were a "Holder," (ii) the Shares and the Warrant Shares, collectively, were "Shares," and (iii) the Warrant Shares were included within the definition of "Registrable Securities," under the Rights Agreement. Michigan understands and agrees that its rights under this Section 4.3 shall be on parity with, and not superior to, the rights granted to the parties to the Rights Agreement under Sections 3.2 through 3.12 of the Rights Agreement, as though Michigan were a party thereto. In addition, Michigan agrees that it shall be subject to any amendment or waiver of Sections 3.2 through 3.12 of the Rights Agreement pursuant to the vote of a majority of the holders of the outstanding Registrable Securities (as defined under the Rights Agreement) under Section 6.8 of the Rights Agreement, provided such amendment or waiver applies equally to both the holders of the majority and the holders of the minority of such outstanding Registrable Securities. 8. SECTION 5 OBLIGATION TO ISSUE WARRANT 5.1 CONDITIONS OF ISSUANCE. In partial consideration of the Technology Agreement and subject to the remaining provisions of this Section 5, the Company shall be obligated, upon the First Commercial Sale of any Product (as such capitalized terms are defined under Sections 2.2 and 2.11 of the Technology Agreement) (the "Warrant Issue Date"), to issue to Michigan a warrant, in the form attached hereto as Exhibit B (the "Warrant"), on the terms set forth below. The Company's obligations under this Section 5 shall terminate immediately upon any termination of the Technology Agreement. 5.2 SHARES ISSUABLE UPON EXERCISE OF WARRANT. Subject to the provisions of Section 5.4 below, the Warrant shall be exercisable for a number of shares of the Company Common Stock (the "Warrant Shares") equal to one and twenty-five one-hundredths percent (1.25%) of the total number of issued and outstanding shares of the Company Common Stock on the Issue Date (including, on an as-converted basis, outstanding shares of Preferred Stock of the Company); PROVIDED, HOWEVER, that for purposes of calculating this percentage, "issued and outstanding shares of the Company Common Stock" shall NOT include shares of the Company Common Stock, or securities convertible into the Company Common Stock: (i) issued in connection with an acquisition by the Company of another entity by merger, purchase of substantially all of its assets, or other reorganization whereby the Company acquires, directly or indirectly, more than 50% of the voting power of such entity; (ii) issued in connection with any corporate partnering, strategic alliance, joint venture or licensing arrangement between the Company and a third party not involving or relating to the Technology or a Product (as such capitalized terms are defined under Sections 2.2. and 2.11 of the Technology Agreement); (iii) issued by the Company other than for cash or cash equivalents in transactions not involving or relating to the Technology or a Product (as such capitalized terms are defined under Sections 2.2 and 2.11 of the Technology Agreement); or (iv) issued to employees, directors or consultants which are subject to a right to repurchase at cost (i.e. "unvested" shares). Notwithstanding the foregoing, if as of the Warrant Issue Date there shall not have been an Initial Public Offering (as defined in 5.3 below), then the Company may elect to make the Warrant exercisable for shares of the Company's Preferred Stock convertible into the number of shares of the Company Common Stock determined above, with rights and preferences substantially the same as the rights and privileges of the most recent series of Preferred Stock issued by the Company to outside investors (such Preferred Stock shall also constitute "Warrant Shares," notwithstanding the definition of such term set forth above). The rights granted 9. Michigan under Section 4.3 hereof shall apply to the Warrant Shares regardless of whether they consist of Common Stock or Preferred Stock of the Company. 5.3 WARRANT EXERCISE PRICE. The initial per share exercise price for the Warrant (the "Exercise Price") shall be equal to one hundred twenty-five percent (125%) of the price at which shares of the Company Common Stock are first sold to the public pursuant to a firm commitment underwritten public offering registered under the Securities Act, other than a registration relating solely to a transaction under Rule 145 of the Securities Act (or any successor thereto) or to an employee benefit plan of the Company (the "Initial Public Offering"); or, if as of the Warrant Issue Date, there shall not have been an Initial Public Offering, the Exercise Price shall be equal to one hundred twenty-five percent (125%) of the per share price of the securities issued to outside investors in the Company's most recent equity financing transaction prior to the Warrant Issue Date in which it raised at least $2 million. 5.4 ACQUISITION OF THE COMPANY PRIOR TO WARRANT ISSUE DATE. (a) Notwithstanding anything to the contrary in this Section 5, in the event that prior to the Warrant Issue Date there is any consolidation of the Company with, or merger of the Company into, any other corporation or other entity or person, or any other corporate reorganization in which the Company shall not be the continuing or surviving entity of such consolidation, merger or reorganization, or any transaction or series of transactions by the Company (other than financing transactions in which equity securities are issued to multiple purchasers solely for cash) in which in excess of fifty percent (50%) of the Company's voting power is transferred, or any sale or conveyance of all or substantially all of the assets of the Company (any of the foregoing events being hereafter referred to as an "Acquisition") the Company may, at its sole option, by giving written notice of such election to Michigan prior to the effective date of the Acquisition (the "Acquisition Date"), elect to cancel its obligation to issue the Warrant under this Section 5, in which event the royalties payable by the Company under Paragraphs 5.3(i) and (ii) of the Technology Agreement shall each be doubled, without any need to amend such agreement; PROVIDED, HOWEVER, that in the event such doubled royalty rate is or becomes thereafter unduly economically burdensome to the Company, due to, for example but without limitation, the markets in which the Company intends to market Products or the obligations of the Company to pay to any third party royalties for additional rights or technology necessary for the commercialization of the Products, then Michigan agrees to consider, in good faith, an alternative consideration in lieu of such doubled royalty rate under this Agreement, upon request of the Company. (b) If the Company does not elect to cancel the Warrant under Section 5.4(a) above, then following the Acquisition, the Company or its successor shall remain obligated under this Section 5 to issue the Warrant on the Warrant Issue Date. When and if issued after such an Acquisition, the Warrant shall be exercisable for the amount and type of securities or other consideration that would have been issuable in the Acquisition to a holder of the number of shares of the Company's capital stock for which the Warrant would have been exercisable under Section 5.2 above on the Acquisition Date, as if the Acquisition Date were the same as the Warrant Issue 10. Date. The Exercise Price of the Warrant if issued after such an Acquisition shall be equal to one hundred twenty-five percent (125%) of the Acquisition Price. SECTION 6 MISCELLANEOUS 6.1 GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of California applicable to contracts between California residents entered into and to be performed entirely within the State of California. 6.2 SUCCESSORS AND ASSIGNS. Except as otherwise provided herein, the provisions hereof shall inure to the benefit of, and be binding upon, the successors, assigns, heirs, executors and administrators of the parties hereto. 6.3 ENTIRE AGREEMENT; AMENDMENT. This Agreement and the other documents delivered pursuant hereto constitute the final, complete and exclusive understanding and agreement between the parties with regard to the subjects hereof and thereof. Any term of this Agreement may be amended and the observance of any term of this Agreement may be waived, with the written consent of Michigan and the Company. 6.4 NOTICES. All notices or other communications pursuant to this Agreement shall be in writing and deemed given if delivered personally, telecopied, sent by nationally-recognized, overnight courier or mailed by registered or certified mail (return receipt requested) postage prepaid to the parties at the following addresses (or at such other address for a party as shall be specified by like notice) to the other party hereunder: To the Company: 1450 Rollins Road Burlingame, CA 94010 Attention: J. Leighton Read, M.D., Chairman and Chief Executive Officer Telephone: (415) 696-9116 Fax: (415) 347-6274 11. with a copy to: Cooley Godward Castro Huddleson & Tatum Five Palo Alto Square Palo Alto, CA 94306 Attention: Robert J. Brigham, Esq. Telephone: (415) 843-5000 Fax: (415) 857-0663 To Michigan: University of Michigan Treasurer's Office 5024 Fleming Administration Building Ann Arbor, MI 48109-1340 Telephone: (313) 763-1299 Fax: (313) 747-1483 with a copy to: University of Michigan Technology Management Office 3003 S. State Street Wolverine Tower, Room 2071 Ann Arbor, MI 48109-1280 Attention: Robert L. Robb, Director Telephone: (313) 763-0614 Fax: (313) 936-1330 Notwithstanding the foregoing, any payment of funds required hereunder may be made by wire transfer in accordance with written instructions given by the receiver to the sender. 6.5 CALIFORNIA CORPORATE SECURITIES LAW. THE SALE OF THE SECURITIES WHICH ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF SUCH SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR PRIOR TO SUCH QUALIFICATION IS UNLAWFUL UNLESS THE SALE OF SECURITIES IS EXEMPT FROM THE QUALIFICATION BY SECTION 25100, 25102 OR 25105 OF THE CALIFORNIA CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO EXEMPT. 12. 6.6 COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, and all of which shall constitute one and the same instrument. The foregoing Stock Transfer Agreement is hereby executed as of the date first above written. AVIRON THE REGENTS OF THE UNIVERSITY OF MICHIGAN By: By: ---------------------------- --------------------------------- J. Leighton Read, M.D. Name: ------------------------------- Chief Executive Officer Title: ------------------------------ 13. EXHIBIT A ARTICLES OF INCORPORATION AND CERTIFICATE OF AMENDMENT EXHIBIT B FORM OF WARRANT EXHIBIT B TO STOCK TRANSFER AGREEMENT THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE OFFERED FOR SALE, SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR PURSUANT TO RULE 144 OR AN OPINION OF COUNSEL, REASONABLY SATISFACTORY TO THE COMPANY AND ITS COUNSEL, THAT SUCH REGISTRATION IS NOT REQUIRED. WARRANT TO PURCHASE SHARES OF --------------- COMPANY: AVIRON, a California corporation (the "Company"), and any corporation that shall succeed to the obligations of the Company under this Warrant. NUMBER OF SHARES: ---------- CLASS OF STOCK: ---------- INITIAL EXERCISE PRICE: ---------- DATE OF GRANT: ---------- THIS CERTIFIES THAT, for value received, The Regents of the University of Michigan ("Michigan") or any permitted transferee of its rights hereunder is entitled to purchase the above number (as adjusted pursuant to Section 5 hereof) of fully paid and nonassessable shares of the above Class of Stock of the Company at the Initial Exercise Price above (as adjusted pursuant to Section 5 hereof), subject to the provisions and upon the terms and conditions set forth herein. The Expiration Date of this Warrant shall be five years from the Date of Grant. 1. DEFINITIONS. In addition to the terms defined above, the following capitalized terms shall have the following meanings, unless the context otherwise requires: (a) "Act" shall mean the Securities Act of 1933, as amended, or any similar federal statute, and the rules and regulations thereunder, as shall be in effect at the time. (b) "Common Stock" shall mean shares of the authorized common stock of the Company and any stock into which such common stock may hereafter be exchanged. (c) "Warrantholder" shall mean any person who shall at the time be the holder of this Warrant. 1. (d) "Shares" shall mean the shares of the Class of Stock that the Warrantholder is entitled to purchase upon exercise of this Warrant, as adjusted pursuant to Section 5 hereof. (e) "Warrant Price" shall mean the Initial Exercise Price at which this Warrant may be exercised, as adjusted pursuant to Section 5 hereof. 2. TERM. The purchase right represented by this Warrant is exercisable, in whole or in part, at any time on or before the Expiration Date. 3. METHOD OF EXERCISE; PAYMENT; ISSUANCE OF NEW WARRANT. Subject to Section 2 hereof, the purchase right represented by this Warrant may be exercised by the Warrantholder, in whole or in part, by the surrender of this Warrant (with the notice of exercise form attached hereto as Appendix A duly executed) at the principal office of the Company and by the payment to the Company, by check made payable to the Company drawn on a United States bank and for United States funds of an amount equal to the then applicable Warrant Price per share multiplied by the number of Shares then being purchased. In the event of any exercise of the purchase right represented by this Section 3, certificates for the Shares so purchased shall be delivered to the Warrantholder within thirty (30) days of receipt of such payment and, unless this Warrant has been fully exercised or expired, a new Warrant representing the portion of the Shares, if any, with respect to which this Warrant shall not then have been exercised shall also be issued to the Warrantholder within such thirty (30) day period. 4. EXERCISE PRICE. The Warrant Price at which this Warrant may be exercised shall be the Initial Exercise Price, as adjusted from time to time pursuant to Section 5 hereof. 5. ADJUSTMENT OF NUMBER AND KIND OF SHARES AND ADJUSTMENT OF WARRANT PRICE. 5.1 CERTAIN DEFINITIONS. As used in this Section 5 the following terms shall have the following respective meanings: (a) "Options" shall mean rights, options or warrants to subscribe for, purchase or otherwise acquire either shares of Common Stock or Convertible Securities; 2. (b) "Convertible Securities" shall mean any evidences of indebtedness, shares of stock or other securities directly or indirectly convertible into or exchangeable for Common Stock. 5.2 ADJUSTMENTS. The number and kind of securities purchasable upon the exercise of this Warrant and the Warrant Price shall be subject to adjustment from time to time upon the occurrence of certain events, as follows: (a) Reclassification, Reorganization, Consolidation or Merger. In the case of any reclassification of the Class of Stock that the Warrantholder is entitled to purchase upon exercise of this Warrant, or any reorganization, consolidation or merger of the Company with or into another corporation (other than a merger or reorganization with respect to which the Company is the surviving corporation and which does not result in any reclassification of such Class of Stock), the Company, or such successor corporation, as the case may be, shall execute a new warrant, providing that the Warrantholder shall have the right to exercise such new warrant and upon such exercise to receive, in lieu of each share of the Class of Stock theretofore issuable upon exercise of this Warrant, the kind of securities receivable upon such reclassification, reorganization, consolidation or merger by a holder of shares of the same Class of Stock of the Company. The Warrant Price and the number of shares of such new securities to be received by the Warrantholder upon exercise of the Warrant shall be adjusted so that the Warrantholder shall receive upon exercise of the Warrant and payment of the same aggregate consideration the number of shares of new securities which the Warrantholder would have owned immediately following such reclassification, reorganization, consolidation or merger if the Warrantholder had exercised the Warrant immediately prior to such reclassifications, reorganization, consolidation or merger. The provisions of this subsection (a) shall similarly apply to successive reclassification, reorganizations, consolidations or mergers. (b) Split, Subdivision or Combination of Shares. If the Company at any time while this Warrant remains outstanding and unexpired shall split, subdivide or combine the Class of Stock for which this Warrant is then exercisable, the Warrant Price shall be proportionately decreased in the case of a split or subdivision or proportionately increased in the case of a combination. Any adjustment under this subsection (b) shall become effective when the split, subdivision or combination becomes effective. (c) Stock Dividends. If the Company at any time while this Warrant remains outstanding and unexpired shall pay a dividend with respect to the Class of Stock for which this Warrant is then exercisable, payable in shares of that Class of Stock, Options or Convertible Securities, the Warrant Price shall be adjusted, from and after the date of determination of the stockholders entitled to receive such dividend or distributions, to that price determined by multiplying the Warrant Price in effect immediately prior to such date of determination by a fraction (i) the numerator of which shall be the total number of shares of that Class of Stock outstanding immediately prior to such dividend or distribution, and (ii) the denominator of which shall be the total number of shares of the same Class of Stock outstanding immediately after such dividend or distribution (including shares of that Class of Stock issuable upon exercise, conversion or exchange of any Options or Convertible Securities issued as such dividend or 3. distribution). If the Options or Convertible Securities issued as such dividend or distribution by their terms provide, with the passage of time or otherwise, for any decrease in the consideration payable to the Company, or any increase in the number of shares issuable upon exercise, conversion or exchange thereof (by change of rate or otherwise), the Warrant Price shall, upon any such decrease or increase becoming effective, be reduced to reflect such decrease or increase as if such decrease or increase became effective immediately prior to the issuance of the Options or Convertible Securities as the dividend or distribution. Any adjustment under this subsection (c) shall become effective on the record date set for such dividend or distribution. (d) Adjustment Of Number of Shares. Upon each adjustment in the Warrant Price pursuant to Section 5(b) or 5(c) above, the number of Shares issuable upon exercise of this Warrant shall be adjusted to the product obtained by multiplying the number of Shares issuable immediately prior to such adjustment in the Warrant Price by a fraction (i) the numerator of which shall be the Warrant Price immediately prior to such adjustment, and (ii) the denominator of which shall be the Warrant Price immediately after such adjustment. 6. NOTICE OF ADJUSTMENTS. So long as this Warrant remains outstanding and unexpired, whenever the Warrant Price shall be adjusted pursuant to Section 5 hereof, the Company shall issue a certificate signed by its chief financial officer setting forth, in reasonable detail, the event requiring the adjustment, the amount of the adjustment, the method by which such adjustment was calculated and the Warrant Price after giving effect to such adjustment, and shall cause a copy of such certificate to be mailed (by first class mail, postage prepaid) to the Warrantholder. 7. RIGHT TO CONVERT WARRANT INTO STOCK. 7.1 RIGHT TO CONVERT. In addition to the rights granted under Section 3 of this Warrant, the Warrantholder shall have the right to require the Company to convert this Warrant (the "Conversion Right") into shares of the Class of Stock for which the Warrant is then exercisable, as provided in this Section 7. Upon exercise of the Conversion Right, the Company shall deliver to the Warrantholder (without payment by the Warrantholder of any Warrant Price) that number of shares of stock equal to the quotient obtained by dividing (x) the value of this Warrant at the time the Conversion Right is exercised (determined by subtracting the aggregate Warrant Price immediately prior to the exercise of the Conversion Right from the aggregate fair market value of the Shares issuable upon exercise of this Warrant immediately prior to the exercise of the Conversion Right, as determined pursuant to Section 7.3 below) by (y) the fair market value (as determined pursuant to Section 7.3 below) of one share of that Class of Stock immediately prior to the exercise of the Conversion Right. 7.2 METHOD OF EXERCISE. So long as the Warrant remains outstanding and unexpired, the Conversion Right may be exercised at any time by the Warrantholder by the surrender of this Warrant at the principal office of the Company together with a written statement specifying that the Warrantholder thereby intends to exercise the Conversion Right. Certificates of the shares of stock issuable upon exercise of the Conversion Right shall be delivered to the 4. Warrantholder within thirty (30) days following the Company's receipt of this Warrant together with the aforesaid written statement. 7.3 VALUATION OF STOCK. For purposes of this Section 7, the fair market value of one share of the Class of Stock issuable upon exercise of this Warrant shall mean: (a) The product of (i) the average of the closing price or, if no closing price is reported, the closing bid and asked prices of the Common Stock, quoted in the Over-The-Counter Market Summary or the closing price quoted on any exchange on which the Common Stock is listed, whichever is applicable, as published in the Western Edition of The Wall Street Journal for the ten (10) trading days prior to the date of determination of fair market value, and (ii) the number of shares of Common Stock into which each share of the Class of Stock is then convertible, if applicable; (b) If the Common Stock is not traded Over-The-Counter or on an exchange, the fair market value of the Class of Stock per share shall be as determined in good faith by the Company's Board of Directors; provided, however, that if the Warrantholder disputes in writing the fair market value determined by the Board of Directors within thirty (30) days of being informed of such fair market value, the fair market value shall be determined by an independent appraiser, appointed in good faith by the Company's Board of Directors. 8. COMPLIANCE WITH ACT; TRANSFERABILITY OF WARRANT; DISPOSITION OF SHARES. 8.1 LEGENDS. This Warrant and the Shares issued upon exercise thereof shall be imprinted with a legend in substantially the following form: "THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE OFFERED FOR SALE, SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR PURSUANT TO RULE 144 OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY AND ITS COUNSEL THAT SUCH REGISTRATION IS NOT REQUIRED." 8.2 TRANSFERABILITY OF WARRANT AND SHARES. This Warrant and the Shares issued upon exercise thereof shall not be sold, transferred or assigned in whole or in part without compliance with applicable federal and state securities laws by the transferor and the transferee (including, without limitation, the delivery of investment representation letters and legal opinions reasonably satisfactory to the Company, if reasonably requested by the Company). Subject to the provisions of this Section 8.2, title to this Warrant may be transferred in the same manner as a negotiable instrument transferable by endorsement and delivery. 9. RIGHTS OF THE HOLDER. 5. The Warrantholder shall not, by virtue hereof, be entitled to any rights of a shareholder in the Company, either at law or equity, and the rights of the Warrantholder are limited to those expressed in this Warrant. Nothing contained in this Warrant shall be construed as conferring upon the Warrantholder hereof the right to vote or to consent or to receive notice as a shareholder of the Company on any matters or with respect to any rights whatsoever as a shareholder of the Company. No dividends or interest shall be payable or accrued in respect of this Warrant or the interest represented hereby or the Shares purchasable hereunder until, and only to the extent that, this Warrant shall have been exercised in accordance with its terms. 10. MISCELLANEOUS. No fractional shares shall be issued in connection with any exercise hereunder, but in lieu of such fractional shares the Company shall make a cash payment therefor upon the basis of the Warrant Price then in effect. The terms and provisions of this Warrant shall inure to the benefit of, and be binding upon, the Company and the Warrantholder and their respective successors and assigns. This Warrant shall be governed by and construed under the laws of the State of California as applied to contracts entered into between residents of the State of California to be wholly performed in the State of California. The titles of the sections and subsections of this Warrant are for convenience only and are not to be considered in construing this Warrant. All pronouns used in the Warrant shall be deemed to include masculine, feminine and neuter forms. AVIRON, A CALIFORNIA CORPORATION By: ------------------------------------------ Name: ---------------------------------------- Title: --------------------------------------- 6. APPENDIX A NOTICE OF EXERCISE TO: AVIRON 1. The undersigned hereby elects to purchase shares of the stock of Aviron, a California corporation, pursuant to terms of the attached Warrant, and tenders herewith payment of the purchase price of such shares in full, together with all applicable transfer taxes, if any. 2. Please issue a certificate or certificates representing said shares of the stock in the name of the undersigned or in such other name as is specified below. 3. The undersigned represents it is acquiring the shares of stock solely for its own account for investment and not as a nominee for any other party and not with a view toward the resale or distribution thereof within the meaning of the Securities Act of 1933, as amended. ---------------------------------------- (Name) ---------------------------------------- (Address) ---------------------------------------- (Taxpayer Identification Number) - ----------------------------------- (print name of Warrantholder) By: -------------------------------- Title: ----------------------------- Date: ------------------------------ 7. EXHIBIT C AMENDED AND RESTATED INVESTORS RIGHTS AGREEMENT EXHIBIT D CAPITALIZATION SCHEDULE Pursuant to the 1992 Stock Option Plan (the "Option Plan"), the Company has reserved 3,860,000 shares of Common Stock for issuance upon exercise of options granted under the Option Plan. As of September 3, 1993, options to purchase 1,912,034 shares (net of cancellations) have been granted to employees and consultants of which 69,270 shares have been exercised. On February 9, 1993, the Company entered into a Technology Transfer Agreement with The Mount Sinai School of Medicine ("Mount Sinai") pursuant to which the Company acquired certain technologies. In exchange, Aviron issued 175,000 shares of Common Stock and Warrants to purchase, in the aggregate, 225,000 shares of Series A Preferred Stock (the "Series A Warrants"). The Series A Warrants become exercisable at various times upon the occurrence of certain milestones. On June 1, 1993, the Company entered into agreements with Institutional Venture Partners ("IVP") and Institutional Venture Management ("IVM") to provide a bridge loan to the Company. In consideration for the loan, IVP and IVM received warrants to purchase a total of 400,000 shares of Series B Preferred Stock (the "Series B Warrants"). The Series B Warrants expire at the earlier of (i) the closing of an initial public offering of Common Stock pursuant to a registration statement under the Securities Act of 1933, as amended or (ii) June 1, 1995. On March 30, 1994, the Company issued to Lease Management Services, Inc. a warrant to purchase 116,667 shares of Series B Preferred Stock in connection with an equipment lease. EX-10.5 15 DEVELOPMENT AND LICENSE AGREEMENT / SANG-A PHARM EXHIBIT 10.5 CONFIDENTIAL TREATMENT REQUESTED CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT HAS BEEN DELETED AS MARKED BY BRACKETS, AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. DEVELOPMENT AND LICENSE AGREEMENT THIS DEVELOPMENT AND LICENSE AGREEMENT (the "AGREEMENT") is made as of the 3rd day of May, 1995 by and between AVIRON, a California corporation with its principal place of business at 1450 Rollins Road, Burlingame, California, 94010, U.S.A. ("AVIRON"), and SANG-A PHARM. Co., LTD., a Korean corporation with its principal place of business at 640-9 Dueng Chon Dong, Kangseo-Ku, Seoul, South Korea ("SANG-A"). RECITALS WHEREAS, Aviron is a biopharmaceutical company engaged in the business of developing vaccines for the prevention of various diseases in humans; and WHEREAS, Sang-A is a Korean company interested in establishing vaccine development and manufacturing capabilities; and WHEREAS, the parties desire to collaborate in the clinical development, manufacture, distribution, marketing and sale of certain vaccine and other human therapeutic products, on a product-by-product basis; NOW, THEREFORE, in consideration of the promises and covenants set forth below, the parties hereby agree as follows: AGREEMENT ARTICLE I DEFINITIONS The capitalized terms used herein but not separately defined shall have the meanings set forth in Exhibit A hereto. ARTICLE 2 DEVELOPMENT PROGRAM 2.1 COMMENCEMENT OF DEVELOPMENT PROGRAM. Following [ ] for a particular Partner Product, such Product will be deemed available for development in South and North Korea by Sang-A and Sang-A shall commence a program of clinical development for such Partner Product, as further set forth herein (the "DEVELOPMENT PROGRAM"). 1. CONFIDENTIAL TREATMENT REQUESTED 2.2 DEVELOPMENT OBLIGATIONS OF SANG-A. 2.2.1 SANG-A COMMITMENT. Sang-A hereby agrees to conduct at its own expense all clinical development work necessary to obtain all Government Approvals for the commercialization of each Partner Product in South and North Korea. 2.2.2 DEVELOPMENT EFFORT. [ ] Sang-A shall work diligently, consistent with accepted business practices and legal requirements, to develop each Partner Product, devoting the same degree of attention and diligence to such development efforts as similar companies devote to development activities for products of comparable market potential. Sang-A agrees to provide scientific, technical, clinical and regulatory personnel, equipment, time and resources to the development of each Partner Product sufficient to meet its obligations hereunder. 2.2.3 DEVELOPMENT REPORTS; NOTICES. Sang-A will deliver to Aviron, in English, a summary of any annual development plan prepared by or on behalf of Sang-A for any Partner Product in a Development Program, and any other reports or information reasonably requested by Aviron to enable it to comply with any obligations to its licensors, as described in Section 3.3. Aviron will provide Sang-A with an annual development plan and quarterly progress reports, in English, upon the request of Sang-A. 2.2.4 VISIT OF FACILITIES. Representatives of either party may, upon reasonable request and prior notice and at mutually agreed upon times and intervals, (i) visit such party's facilities where the development of Partner Products is being conducted, and (ii) consult informally with personnel of such party conducting the Development Program during such visits, by telephone, facsimile transmission or other manner as the parties shall agree. Aviron may also visit any of Sang-A's sublicensees' facilities in which such development activities are being conducted. 2.3 DEVELOPMENT OBLIGATIONS OF AVIRON. 2.3.1 ACCESS TO AVIRON DATA. Subject to the terms of this Agreement, Sang-A shall be entitled access to Aviron Data for each Partner Product, as such Data become available, for use in the Development Program. Sang-A shall be permitted to use and reference all Aviron Data in any regulatory filings necessary for Government Approval in South and North Korea. Notwithstanding the foregoing, Sang-A agrees that it shall treat all Aviron Data as Confidential Information, subject to the terms of Article 10 hereof. 2.3.2 ACCESS COSTS; POTENTIAL CORPORATE PARTNERS. Provided Aviron and/or its Affiliates [ ] Sang-A's access to the Aviron Data shall be [ ] Sang-A expressly acknowledges and agrees, however, that Aviron may enter into an arrangement with one or more corporate partners for the development 2. CONFIDENTIAL TREATMENT REQUESTED of certain or all Partner Products in countries outside South and North Korea, [ ] In the event Aviron enters into such an agreement, and Aviron is unable, [ ]Aviron will pay an amount not to exceed [ ] for such right on behalf of Sang-A, and Sang-A shall be responsible for the balance of any amount required from such partner for access to Aviron Data. 2.3.3 SUPPLY OF CLINICAL MATERIALS. Aviron shall use [ ] to supply, or cause to be supplied, such amounts of Clinical Materials necessary to obtain Government Approval for Partner Products and necessary for Sang-A's activities pursuant to the Development Program. Sang-A agrees that it shall use such Clinical Materials only for purposes of pursuing IND allowance of the relevant Partner Product and conducting the Development Program, and that it shall not transfer any Clinical Materials to a third party without the prior written approval of Aviron. As the need for a continuous supply of Clinical Materials arises the parties shall negotiate agreements, on a Product-by-Product basis, containing the terms upon which such Clinical Materials will be supplied (the "Clinical Supply Agreements"). With respect to the Cold Adapted Influenza Product, [ ] 2.3.4 TECHNICAL ASSISTANCE. Aviron shall provide technical assistance to Sang-A, as provided in Article 6 hereof. 2.3.5 AVIRON CLINICAL DEVELOPMENT. Notwithstanding the above, nothing in this Agreement shall be construed to impose an obligation on Aviron to conduct clinical or pre-clinical development for any given Partner Product. 2.4 COORDINATION OF THE DEVELOPMENT PROGRAM, To facilitate and coordinate the relationship of Aviron and Sang-A with regard to the Development Program for each Partner Product, Sang-A and Aviron shall establish a plan covering the mechanisms for the exchange of technical, business and regulatory information under this Agreement, including the appointment by each party of a "Project Coordinator." [ ] 3. 2.5 REGULATORY MATTERS. 2.5.1 COMPLIANCE WITH REGULATIONS. Sang-A shall conduct its efforts hereunder in compliance with all applicable regulatory requirements, including without limitation, any equivalents in South and North Korea to the U.S. FDA Good Clinical Practice, Good Laboratory Practice and Good Manufacturing Practice regulations. 2.5.2 REGULATORY FILINGS. Sang-A shall, at its own expense, prepare, file and shall be the owner and party of record sponsoring all filings with the regulatory authorities with respect to the Partner Products in South and North Korea (the "REGULATORY FILINGS"), and Sang-A shall be responsible for causing such applications to progress through the approval process. Aviron shall have rights of consultation with Sang-A personnel responsible for Regulatory Filings with respect to the preparation and submission of such Regulatory Filings, and Aviron shall cooperate with Sang-A in such manner as Sang-A may reasonably request to assist in obtaining regulatory approval for such Partner Products or Improvements. Sang-A shall promptly deliver to Aviron summaries, in English, of all such Regulatory Filings and correspondence, at Sang-A's expense. Sang-A shall deliver English language translations of all Regulatory Filings and correspondence at Aviron's request. 2.5.3 MAINTENANCE OF RECORDS. Sang-A shall maintain records with respect to activities conducted under the Development Program in sufficient detail and in good scientific manner appropriate for Government Approval purposes in South and North Korea and as will reflect all studies conducted, results achieved and data obtained by Sang-A in the course of the Development Program. 2.5.4 ADVERSE EVENT REPORTING. Each party agrees to report to the other, immediately upon receipt of the information, any serious adverse event which is reported to occur as a result of use of a Partner Product. Such events must be reported in as much detail as possible, whether or not there is proof of a causal connection between the events and use of a Partner Product. A serious adverse event includes any experience relating to a Partner Product which is reasonably regarded to be medically significant. Each party also agrees to provide to the other copies of all reports that are made to governmental health authorities concerning material safety, efficacy or quality matters with respect to any Partner Product. ARTICLE 3 GRANT OF RIGHTS 3.1 LICENSE. Subject to the terms of this Agreement, Aviron hereby grants to Sang-A, and Sang-A hereby accepts, an exclusive (even as to Aviron) right and license and/or sublicense, as the case may be (i) to practice and use the Aviron Technology in South and North Korea for the purpose of conducting clinical development of, manufacturing and marketing Partner Products for use in the Licensed Field, and (ii) to make, use, sell, offer for sale and distribute such Partner Products in South and North Korea. 4. CONFIDENTIAL TREATMENT REQUESTED 3.2 SANG-A RIGHT TO SUBLICENSE. Except for the right to manufacture Partner Products, Sang-A shall have the right, in South and North Korea, to sublicense the rights granted pursuant to Section 3.1 (but with no further right to sublicense) to one or more third parties: PROVIDED, HOWEVER, [ ] 3.3 LICENSE GRANT LIMITATIONS. Sang-A acknowledges and understands that certain aspects of the Aviron Technology as well as certain of the Clinical Materials related to one or more of the Partner Products are or may be licensed or assigned to Aviron pursuant to agreements with one or more third parties, which such agreements existing as of the Effective Date are set forth on Schedule 2 (the "Prior License Agreements"). Sang-A further acknowledges that its rights granted hereunder are subject to the terms and conditions of such Prior License Agreements including, without limitation, those terms and conditions contained in the Cold Adapted Influenza Agreement as further discussed in Section 3.4 below. Sang-A further understands and agrees that in no event shall the rights contained in this Agreement with respect to the Aviron Technology be construed as conferring upon Sang-A any greater rights than are conferred upon Aviron by such third party licensors under their respective agreements with Aviron. Sang-A further understands and agrees that in no way shall ARCH Development Corporation, as Aviron's licensor, be responsible for Aviron's performance under this Agreement. 3.4 COLD ADAPTED INFLUENZA PRODUCT. 3.4.1 Sang-A understands and acknowledges that, with respect to the Cold Adapted Influenza Product, the license granted under Section 3.1 is a sublicense of rights received by Aviron from the University of Michigan and the National Institutes of Health ("NIH"), and is subject to the terms and conditions of the Cold Adapted Influenza Agreement attached hereto as Exhibit B and the Cooperative Research and Development Agreement referred to in Schedule 2. For convenience only, attached hereto as Exhibit C hereto is a list of the major terms and conditions contained in the Cold Adapted Influenza Agreement that affect Sang-A's rights and obligations hereunder as a sublicensee of Aviron's rights to the Cold Adapted Influenza Product, including in particular, restrictions regarding the handling and use of the Master Seeds. Sang-A explicitly acknowledges and understands that these terms and conditions, as more fully reflected in the Cold Adapted Influenza Agreement itself, are incorporated into this Agreement and have the same force and effect as if such terms were included in the main text of this Agreement. 3.4.2 Any material breach by Sang-A of the applicable terms of the Cold Adapted Influenza Agreement shall be deemed a breach hereunder, and shall subject Sang-A to possible termination of this Agreement with respect to the Cold Adapted Influenza Product. 5. CONFIDENTIAL TREATMENT REQUESTED 3.4.3 In the event the Cold Adapted Influenza Agreement is terminated for any reason, [ ] ARTICLE 4 TECHNOLOGY ACCESS PAYMENTS; ROYALTIES 4.1 TECHNOLOGY ACCESS PAYMENTS. In consideration for access to the Aviron Technology hereunder, Sang-A agrees that within forty-five (45) days after the occurrence of the following milestone events for each Partner Product, Sang-A shall pay to Aviron the nonrefundable milestone payments listed below in U.S. dollars: 4.1.1 [ ]and 4.1.2 [ ] 4.2 ROYALTIES. 4.2.1 Except as provided in Section 4.2.2 below Sang-A shall pay to Aviron, on a Product-by-Product basis, a royalty equal to [ ] of Net Sales for each Partner Product sold by Sang-A, its Affiliates or permitted sublicensees. 4.2.2 With respect to the Cold Adapted Influenza Product, Sang-A shall pay to Aviron a royalty equal to [ ] of Net Sales for each such Partner Product sold by Sang-A, its Affiliates or permitted sublicensees. 4.2.3 Sang-A shall pay royalties under Sections 4.2.l and 4.2.2 for each Partner Product for a term of [ ] such Partner Product in South or North Korea. ARTICLE 5 PAYMENT PROCEDURES; RECORDS; AUDITS 5.1 PAYMENT PERIOD; REPORTS. Sang-A shall pay to Aviron royalties as set forth in Article 4 as follows: (i) within sixty (60) days after the end of each calendar quarter if (a) Aviron has completed an initial public offering under the Securities Act of 1933, (b) Aviron is a reporting company under the Securities and Exchange Act of 1934, or (c) if Aviron has been acquired or merged with a third party; or (ii) within one hundred and twenty (120) days after each calendar year if none of the facts set forth in (a), (b) or (c) of clause (i) apply. Each respective payment period will be referred to in this Agreement as a "PAYMENT PERIOD". Such 6. CONFIDENTIAL TREATMENT REQUESTED payment shall be accompanied by a report identifying Net Sales of each Partner Product, and the computation of the royalties payable to Aviron, and any other additional information regarding the marketing and sales of Partner Products as is necessary to allow Aviron to comply with its obligations under the Prior License Agreements. 5.2 CURRENCY. Payments shall be in United States Dollars, remitted to Aviron at its address specified herein. Any conversion from Korean currency shall be made at the exchange rate utilized by the Exchange Bank of Korea prevailing at the close of the last business day of that Payment Period. 5.3 RECORDS. During the term of this Agreement, Sang-A shall keep full and accurate books and records setting forth, for each Partner Product on which royalties are due, gross sales, all deductions allowed in arriving at Net Sales and any other information sufficient in detail to allow the calculation of royalties to be paid by Sang-A. During the term of this Agreement and for a period of three (3) years thereafter, Sang-A shall permit Aviron, at Aviron's expense, by independent certified public accountants employed by Aviron and reasonably acceptable to Sang-A, to examine relevant books and records at any reasonable time, within five (5) years of the payment of such royalties. If it is determined that there was an underpayment of royalties due Aviron of five percent (5%) or more, without prejudice to any other rights Aviron may have, Sang-A shall promptly pay to Aviron the balance of the royalties due. Sang-A shall also reimburse Aviron for the cost of such verification examination. Where required, Sang-A shall also permit Aviron's licensors to examine its books and records, at such licensors' expense, on terms consistent with Aviron's rights to do the same. 5.4 WITHHOLDINGS. Payments to Aviron under Section 4.2 shall be made without deduction other than such amount (if any) as Sang-A is required by law to deduct or withhold in South or North Korea. Sang-A shall obtain a receipt from the relevant taxing authorities for all withholding taxes paid and forward such receipts to Aviron to enable Aviron to claim any and all tax credits for which it may be eligible. Sang-A shall reasonably assist Aviron in claiming exemption from such deductions or withholdings under any double taxation or similar agreement or treaty from time to time in force. All payments made to Aviron under Section 4.1 shall be made [ ] ARTICLE 6 DEVELOPMENT AND MANUFACTURING TECHNICAL ASSISTANCE Aviron agrees to provide Sang-A with technical assistance in the establishment of Sang-A's vaccine clinical development and manufacturing capabilities in South and North Korea so as to enable it to perform its obligations under this Agreement. Upon the reasonable request of Sang-A, Aviron will do one or more of the following, as it deems appropriate under the circumstances: 7. CONFIDENTIAL TREATMENT REQUESTED (a) Hire outside consultants, such as GMP consultants, contract research organizations or clinical trial consultants, to work on Sang-A's behalf in South and North Korea and/or in the U.S., all at Sang-A's expense; (b) [ ] (c) [ ] ARTICLE 7 PROMOTION AND MARKETING OBLIGATIONS 7.1 MARKETING EFFORTS. Sang-A agrees to use [ ] to promote the sale, marketing and distribution of the Partner Products in South and North Korea [ ] 7.2 COMMERCIAL MANUFACTURING. Sang-A agrees that, at a minimum, it will manufacture sufficient amounts of each Partner Product to satisfy demand for such Partner Product in South and North Korea. Sang-A shall manufacture all such Product in accordance with all applicable laws in South and North Korea. 7.3 SALES AND ADVERTISING ACTIVITIES. Sang-A will be responsible for packaging the Partner Products for sale under this Agreement, including, without limitation, designing and producing all packaging materials and product inserts, all in forms to be approved in writing by Aviron prior to first use by Sang-A, such approval not to be unreasonably withheld and to be provided within [ ] after submission of materials to Aviron. 7.4 MARKETING PLANS. Sang-A will provide Aviron with English summaries of any marketing and/or strategic plans it develops for its internal use with respect to any Partner Product. 8. CONFIDENTIAL TREATMENT REQUESTED 7.5 SALES REPORTS. Throughout the Royalty Term and the Aviron Licensor Payment Term for each Partner Product, Sang-A shall submit to Aviron quarterly sales reports detailing Sang-A's sales of the Partner Product in the preceding quarter, which reports shall be submitted to Aviron within sixty (60) days after the end of each quarter. In addition, during the Royalty Term, Sang-A shall furnish Aviron with copies of any market research reports relating to Partner Product sales and Partner Product competition which Sang-A commissions or otherwise obtains, which reports shall be submitted to Aviron promptly after receipt thereof by Sang-A. 7.6 EXPENSES. All expenses incurred by Sang-A in connection with its obligations hereunder will be borne solely by Sang-A. Sang-A will be responsible for appointing its own employees, agents and representatives, who will be compensated by Sang-A. 7.7 TRADEMARKS. Sang-A agrees to consult with Aviron on the use of trademarks for Partner Products and, where possible, to use trademarks now owned by Aviron or acquired by Aviron during the term of this Agreement. Sang-A may propose an alternate trademark for use in South and North Korea, which, if approved by Aviron, shall be jointly owned by the parties. ARTICLE 8 [ ] During the term of this Agreement and upon Sang-A's written request, Aviron will conduct, in collaboration with Sang-A, further research and development with respect to Aviron's [ ] on terms and conditions to be agreed upon by the parties, for Sang-A's use in South and North Korea. ARTICLE 9 MANUFACTURING AGREEMENTS 9.1 RIGHT OF FIRST REFUSAL. Provided Sang-A satisfies the prerequisites set forth in Section 9.2 below and subject to Sang-A's obligation in Section 9.3 below, Aviron grants a right of first refusal to supply up to [ ] of Aviron's (and its Affiliates' and sublicensees') requirements for each Partner Product, except the Epstein Barr Virus Vaccine, in each of the countries listed in Schedule 3 hereto (the "MANUFACTURING TERRITORY"). Aviron shall promptly notify Sang-A upon the allowance of the first IND for each Partner Product in the Manufacturing Territory. Sang-A shall have until the earlier of (a) [ ] or (b) [ ] to deliver written notice to Aviron that it intends to exercise its right of first refusal to commercially manufacture such Product. At that time, Sang-A shall specify which countries of the Manufacturing Territory, and the market percentages of each such country (up to the maximum of [ ] it intends to supply, and at what price. The parties shall then proceed to negotiate, in-good faith, a commercial supply agreement containing the terms upon which such 9. CONFIDENTIAL TREATMENT REQUESTED Partner Product will be supplied by Sang-A to Aviron or Aviron's Affiliates or sublicensees; PROVIDED, HOWEVER, that if Sang-A cannot manufacture the product at a price and within a timeline that is competitive with other commercial suppliers, Aviron shall be free to refuse to enter into a supply arrangement with Sang-A. The "competitive" price and timeline referred to in the foregoing sentence shall be determined as follows: [ ] 9.2 PREREQUISITES. Aviron may refuse to allow Sang-A to exercise its right of first refusal with respect to the manufacture of any given Partner Product in the event Sang-A cannot prove that it has satisfied, or will satisfy within a timeframe acceptable to Aviron, the following prerequisites: 9.2.1 [ ] 9.2.2 [ ] 9.2.3 [ ] and 9.2.4 [ ] 9.3 AVIRON CORPORATE PARTNERS. Sang-A acknowledges and understands that Aviron intends to enter into transactions with one or more corporate partners in which such corporate partners will acquire marketing rights to some or all of the Partner Products in some or all of the countries in the Manufacturing Territory. In the event Sang-A has exercised its right of first refusal pursuant to Section 9.1 above with respect to certain Partner Products in the Manufacturing Territory, and any of Aviron's corporate partners so desires, Sang-A agrees that, upon Aviron's request, [ 10. CONFIDENTIAL TREATMENT REQUESTED ARTICLE 10 CONFIDENTIALITY 10.1 CONFIDENTIALITY. During the term of this Agreement, and for [ ] thereafter, each party hereto will maintain in confidence all Confidential Information disclosed by the other party hereto, including without limitation Confidential Information disclosed to Sang-A pursuant to Sang-A's information rights under Article 15 of this Agreement. Neither party will use, disclose, transfer or grant use of such Confidential Information except as expressly authorized by this Agreement. To the extent that disclosure is authorized by this Agreement, the disclosing party will obtain prior written agreement from its employees, agents, consultants or clinical investigators to whom disclosure is to be made to hold in confidence and not make use of such information for any purpose other than those permitted by this Agreement. Each party will use at least the same standard of care as it uses to protect its own trade secrets, proprietary information or materials to ensure that such employees, agents, consultants and clinical investigators do not disclose or make any unauthorized use of such Confidential Information. Each party will promptly notify the other upon discovery of any unauthorized use or disclosure of the Confidential Information. 10.2 EXCEPTIONS. Confidential Information shall not include any information which: 10.2.1 was already known to the receiving party, other than under an obligation of confidentiality, at the time of disclosure by the other party as evidenced by written records; 10.2.2 was generally available to the public or otherwise part of the public domain at the time of its disclosure to the other party; 10.2.3 became generally available to the public or otherwise part of the public domain after its disclosure and other than through any act or omission of the receiving party in breach of this Agreement; 10.2.4 was disclosed to the receiving party, other than under an obligation of confidentiality, by a Third Party who had no obligation to the other party not to disclose such information to others as evidenced by written records; 10.2.5 is required to be disclosed in a judicial or administrative proceeding after all reasonable legal remedies for maintaining such information in confidence have been exhausted; or 11. CONFIDENTIAL TREATMENT REQUESTED 10.2.6 is subsequently and independently developed by employees, consultants or agents of the disclosing party without reference to any Confidential Information, as evidenced by written record. 10.3 AUTHORIZED DISCLOSURE. Each party may disclose the Confidential Information to the extent such disclosure is reasonably necessary in filing or prosecuting patent applications, prosecuting or defending litigation or complying with applicable governmental regulations, provided that if such party is required to make any such disclosure of the Confidential Information it will to the extent practicable give reasonable advance notice to the other party of such disclosure requirement and, except to the extent inappropriate in the case of patent applications, will use its best efforts to secure confidential treatment of such information required to be disclosed. Sang-A may disclose (subject to the confidentiality restrictions contained herein) Confidential Information to third party contractors, investigators and regulatory authorities, to the extent necessary to perform its obligations under this Agreement, provided such third parties execute confidentiality agreements containing terms no less strict than those contained herein. 10.4 AGREEMENT CONFIDENTIAL. The parties agree that the contents of this Agreement shall constitute Confidential Information, and as such, will not be disclosed by either party without the written consent of the other, except as required by law or prior contractual obligation. 10.5 NON-USE OF AVIRON'S LICENSORS' NAMES. Sang-A agrees to refrain from using the names of Mount Sinai School of Medicine, the University of Michigan or ARCH Development Corporation in any publicity or advertising without the written consent of Aviron and such entity. ARTICLE 11 INTELLECTUAL PROPERTY; PATENT EXPENSES 11.1 OWNERSHIP OF INTELLECTUAL PROPERTY. Aviron shall retain all of its rights, title and interest in and to all Aviron Technology, Aviron Data, Clinical Materials, copyrights, trade name, and all other industrial and intellectual property embodied in or covering the Partner Products. Except as otherwise expressly provided in this Agreement, Sang-A has no right, title or interest in any industrial or intellectual property relating to the Aviron Technology, the Clinical Materials or the Aviron Data. 11.2 PROSECUTION AND MAINTENANCE OF LICENSED PATENTS. 11.2.1 PROSECUTION AND MAINTENANCE. [ ] In the event Sang-A elects not to pursue prosecution of any National Application under this Section 11.2, 12. CONFIDENTIAL TREATMENT REQUESTED Sang-A shall give Aviron not less than two (2) months' notice before any relevant deadline and Aviron shall pursue, at its expense, prosecution of such patent application. In such event Sang-A's license under Section 3.1 to practice the inventions claimed in such application or patent will terminate. Sang-A will have the option to reactivate such license within six (6) months following such termination, in the event Aviron pursues such patent application at its own expense, by delivery to Aviron of the following: (i) reimbursement for all patent costs incurred by Aviron in the Prosecution of such patent application, (ii) payment of interest on such patent costs at a rate of [ ] per annum and (iii) a late fee of [ ] 11.2.2 CREDITS. Sang-A shall have the right to credit against any royalties owed pursuant to Section 4.2 [ ] provided, that in no event shall Aviron be paid less than [ ] of such owed royalties in any given Payment Period. 11.3 INVENTIONS. Each party acknowledges and agrees that any and all Inventions that are made or discovered pursuant to this Agreement solely by its employees or agents shall be owned solely by it (the "AVIRON INVENTIONS" or the "SANG-A INVENTIONS" as the case may be), and that all Inventions made jointly by employees or agents of each pursuant to this Agreement shall be jointly owned ("JOINT INVENTIONS"), all as determined in accordance with U.S. laws of inventorship. Sang-A shall have the exclusive right to practice and use Joint Inventions within South and North Korea pursuant to Section 3.1, and shall have the right to file and control any patent applications on Joint Inventions in South and North Korea. Aviron shall have the exclusive right, and Sang-A hereby grants to Aviron such right, to practice and use all Joint Inventions outside South and North Korea, and shall have the right to file and control any patent applications on such Joint Inventions outside South and North Korea. With the exception of Aviron Inventions that constitute Licensed Patents subject to Section 11.2 above, each party shall bear the costs of prosecuting and maintaining any patents on its own Inventions. 11.4 LICENSE TO SANG-A INVENTIONS. Sang-A agrees promptly to disclose to Aviron in writing all Sang-A Inventions in sufficient detail to allow Aviron to evaluate such Invention. Subject to the terms of this Agreement, Sang-A hereby grants to Aviron a non-exclusive, royalty-free, perpetual license to practice and use the Sang-A Inventions outside South and North Korea, with the right to sublicense to Aviron's corporate partners (but with no further right to sublicense) and to the University of Michigan, pursuant to the Cold Adapted Influenza Agreement. In addition, Sang-A hereby grants to Aviron a first right of negotiation for an exclusive, royalty-bearing license to commercially use any Sang-A Inventions outside South and North Korea exercisable for a period of [ ] from the date Sang-A discloses such Invention in writing to Aviron. Any inventions made by Sang-A that are unrelated to either (i) Aviron Technology or (ii) processes, methods, techniques and the like useful for the manufacture of Partner Products shall not be covered by the license and option granted in this Section 11.4. 13. CONFIDENTIAL TREATMENT REQUESTED 11.5 THIRD PARTY PATENT INFRINGEMENT. In the event either Aviron or Sang-A learns of any third party patents which may cover the manufacture, use or sale of any Partner Product in South or North Korea, such party will notify the other. The parties agree to confer in good faith regarding such potential infringement risk and to explore reasonable alternatives for avoiding such risk. If the parties cannot agree on the existence or extent of the risk, or on a course of action for avoiding the agreed upon risk, and Sang-A continues to believe in good faith that sale of the Partner Product would create an unjustified risk of infringement liability, Sang-A may negotiate and enter into a license for such third party patent, in which event Sang-A shall [ ] and Sang-A may offset [ ] of the cost of such royalties against royalties owed to Aviron under Section 4.2 for such Partner Product(s): PROVIDED, HOWEVER, that [ ] 11.6 INFRINGEMENT OF AVIRON TECHNOLOGY. In the event Sang-A or Aviron becomes aware of any actual or threatened infringement of any Aviron Technology in South or North Korea, that party shall promptly notify the other. Aviron shall have the first right to bring, at its own expense, any infringement action against any person or entity infringing the Aviron Technology directly or contributorily. Sang-A shall cooperate with Aviron as reasonably requested, at Aviron's expense. If Sang-A so desires, it may join such infringement action at its own expense. Any and all amounts recovered with respect to such an infringement action shall be applied first to reimburse the parties for their out-of-pocket expenses (including reasonable attorneys' fees) in prosecuting such infringement. The remainder shall be shared [ ] Aviron and [ ] Sang-A. In the event Aviron is unable or unwilling to commence an action against the alleged infringer within one-hundred twenty (120) days of the date of Aviron's becoming aware of such infringement, Sang-A may, but shall not be required to, prosecute the alleged infringement or threatened infringement. In such event Sang-A shall act in its own name and at its own expense. Aviron shall cooperate with Sang-A as reasonably requested, at Sang- A's expense. If Aviron so desires, it may join such action at a later date, at its own expense. Any amounts recovered with respect to such an action shall be applied first to reimburse the parties for their out-of-pocket expenses (including reasonable attorneys' fees) in prosecution of such infringement. [ ] ARTICLE 12 TERM AND TERMINATION 12.1 TERM. Except as otherwise provided herein, the term of this Agreement shall commence on the Effective Date and shall extend, on a Partner Product-by-Partner Product basis, until ten (10) years from the date of First Commercial Sale of such Partner Product. 12.2 EXTENSION TO TERM. Aviron hereby grants Sang-A an option to extend this Agreement, and the licenses granted to Sang-A under Article 3, on a Partner Product-by-Partner Product basis, for the longer of (i) an additional ten (10) year period or (ii) the expiration of the Licensed Patent covering such Partner Product on the same terms and conditions as are set forth 14. CONFIDENTIAL TREATMENT REQUESTED in this Agreement; EXCEPT THAT, with respect to the [ ] the royalties owed with respect to such Partner Products will be[ ] and with respect to all other Partner Products, no royalties shall be owed. Sang-A shall exercise its option granted under this Section 12.2 by notifying Aviron in writing of such exercise at least six (6) months prior to the expiration of the term of this Agreement. 12.3 MATERIAL BREACH BY SANG-A. 12.3.1 BREACH OF DEVELOPMENT EFFORTS. Sang-A shall be deemed in breach of Section 2.2.2 with respect to a specific Partner Product under the following circumstances: (a) If, within [ ] following the date a Partner Product receives [ ] or (b) If, within [ ] following the date Aviron, its Affiliate and/or sublicensee [ ] 12.3.2 BREACH OF MARKETING EFFORTS. If, within [ ] of a Partner Product in South or North Korea, [ ] 12.3.3 PRODUCT-BY-PRODUCT TERMINATION. Following a material breach by Sang-A of any provision of this Agreement with respect to any Partner Product, including without limitation, Section 3.4.2 (Cold Adapted Influenza Agreement), Section 4.1 (milestone payments), Section 4.2 or 4.3 (royalty payments), Section 12.3.1 (development diligence) or Section 12.3.2 (marketing diligence), Aviron shall have the right to terminate all rights and licenses granted to Sang-A under this Agreement relating to such Partner Product if Sang- A fails to cure such breach within thirty (30) days written notice thereof. For purposes of a breach of Section 12.3.1 or Section 12.3.2, Sang-A may cure such breach by either remedying the breach within the thirty (30) day period or by delivering to Aviron a comprehensive plan to cure such breach, which plan is reasonably acceptable to Aviron. Both parties acknowledge and agree that any failure by Sang-A to comply with the terms of future commercial supply agreements for any Partner Product shall in no way constitute a breach hereunder, but shall be governed solely by such other agreements. 15. 12.3.4 TERMINATION IN ENTIRETY. Notwithstanding any of the above, in the event Sang-A breaches any provision of Article 10 (Confidentiality), its obligations with respect to the use of Clinical Materials in Section 2.3.3, or its obligations under Section 15.3.4 (purchase obligation) Aviron shall have the right to terminate this Agreement in its entirety immediately upon written notice. 12.4 EFFECT OF TERMINATION. (a) Upon partial termination of this Agreement pursuant to Section 12.3.3: (i) all rights and licenses granted to Sang-A with respect to such Partner Product, and all sublicenses granted by Sang-A pursuant to Section 3.2 with respect to such Partner Product, shall terminate; and (ii) Sang-A shall promptly (a) assign to Aviron all right, title and interest in and to any Regulatory Filings in South and North Korea pertaining to such Partner Product and (b) return to Aviron, or at Aviron's request destroy, all Aviron Data, Clinical Materials and Confidential Information relating to such Partner Product. (b) Upon termination of this Agreement in its entirety pursuant to Sections 12.3.4: (i) all rights and licenses granted to Sang-A with respect to all Partner Products, and all sublicenses granted by Sang-A pursuant to Section 3.2 with respect to all Partner Products, shall terminate; and (ii) Sang-A shall promptly (a) assign to Aviron all right, title and interest in and to all Regulatory Filings in South and North Korea pertaining to all Partner Products and (b) return to Aviron, or at Aviron's request destroy, all Aviron Data, Clinical Materials and Confidential Information relating to any Partner Products. (c) Notwithstanding any early termination or expiration of this Agreement, the rights and obligations of the parties under Articles 10, 11 and 14 and Sang-A's surviving obligations under any of the Prior License Agreements will survive such termination or expiration. ARTICLE 13 REPRESENTATIONS AND WARRANTIES 13.1 MUTUAL REPRESENTATIONS AND WARRANTIES. Each party hereby represents and warrants: 16. 13.1.1 CORPORATE POWER. Such party is duly organized and validly existing under the laws of the state or country of its incorporation and has full corporate power and authority to enter into this Agreement and to carry out the provisions hereof. 13.1.2 DUE AUTHORIZATION. Such party is duly authorized to execute and deliver this Agreement and to perform its obligations hereunder. 13.1.3 BINDING AGREEMENT. This Agreement is a legal and valid obligation binding upon it and enforceable in accordance with its terms. The execution, delivery and performance of this Agreement by such party does not conflict with any agreement, instrument or understanding, oral or written, to which it is a party or by which it may be bound, nor violate any law or regulation of any court, governmental body or administrative or other agency having jurisdiction over it. ARTICLE 14 INDEMNIFICATION 14.1 INDEMNIFICATION BY SANG-A. Sang-A expressly and unequivocally agrees to and hereby does indemnify, defend and hold Aviron harmless from and against all claims, damages, losses, costs and expenses, including attorneys' fees, arising in favor of any person, firm or corporation resulting from or arising out of liability in any way relating to the Partner Products ("Claims"), including without limitation, the development, manufacture, packaging, use, sale or other distribution of Partner Products by Sang-A, the use by Sang-A of any Aviron Data or the Aviron Technology, or any representation made or warranty given by Sang-A with respect to any Partner Product, provided that Aviron (i) gives Sang-A notice of such Claim, (ii) cooperates with Sang-A, at Sang-A's expense, in the defense of such Claim, and (iii) gives Sang-A the right to control the defense and settlement of any such Claim, except that Sang-A shall not enter into any settlement that affects Aviron's rights or interest without Aviron's prior written approval; PROVIDED, HOWEVER, that Sang-A shall not so indemnify and hold Aviron harmless for any Claims arising from defects in any Partner Product raw materials supplied by Aviron which are present at the time of acceptance of such materials by Sang-A. Aviron shall have no authority to settle any claim on behalf of Sang-A. ARTICLE 15 INVESTMENT OBLIGATIONS AND INFORMATION RIGHTS 15.1 INVESTMENT LETTER. Sang-A agrees to sign the form of Investment Letter appended hereto as Exhibit D simultaneously upon execution of this Agreement. 15.2 INITIAL INVESTMENT. Within thirty (30) days of the execution of this Agreement, but in no event prior to the date Aviron's amended articles of incorporation, in 17. substantially the form attached as Exhibit E, have been approved by the State of California, Sang-A hereby agrees to pay Aviron the amount of $3,971,515, in exchange for 2,941,863 shares of Series C Preferred Stock of the Company. The parties intend that the amended articles of incorporation will be filed within two (2) weeks of the Effective Date. 15.3 FUTURE INVESTMENT. During the period set forth in Section 15.3.5, Sang-A hereby agrees to purchase ten percent (10%) of any offering of New Securities (as defined in this Section 15.3) that Aviron may, from time to time, propose to sell and issue, at the offering price for such offering of New Securities offered to all other offering participants. This purchase obligation shall be subject to the following provisions: 15.3.1 "NEW SECURITIES" shall mean any capital stock of Aviron, whether now authorized or not, and rights, options, or warrants to purchase said capital stock, and securities of any type whatsoever that are, or may become, convertible into said capital stock, whether publicly or privately offered; PROVIDED, HOWEVER, THAT "NEW SECURITIES" DOES NOT INCLUDE (i) securities issuable upon conversion of or with respect to Preferred Stock; (ii) the Warrant Shares issuable under and defined in the Stock Transfer Agreement between Aviron and the Regents of the University of Michigan dated February 24, 1995; (iii) securities issued pursuant to an acquisition of an entity by Aviron by merger, purchase of substantially all of the assets, or other reorganization whereby Aviron owns more than fifty percent (50%) of the voting power of such entity; (iii) shares of Aviron's Common Stock (or related options) issued to employees, directors or consultants of Aviron pursuant to any employee stock offering, plan, or arrangement approved by the Board of Directors; (iv) shares of Aviron's Common Stock or Preferred Stock issued in connection with any stock split, stock dividend, or similar recapitalization by Aviron; (v) securities issued pursuant to equipment or debt financing or leases which are approved by Aviron's Board of Directors; (vi) securities issued pursuant to any corporate partnering, strategic alliance, joint venture or licensing arrangement between Aviron and a third party; or (vii) securities issued by Aviron other than for cash or cash equivalents. 15.3.2 In the event that Aviron proposes to undertake an issuance of New Securities, Aviron shall, at its option, give Sang-A written notice of its intention, describing the type of New Securities to be issued, the price, and the general terms upon which Aviron proposes to issue the New Securities. If Aviron does not provide Sang-A with such notice with respect to a particular offering of New Securities, Sang-A will have no purchase obligation with regard to such offering. 15.3.3 Once Aviron has given notice to Sang-A pursuant to the preceding Section 15.3.2, Sang-A shall deliver payment for such New Securities on the closing date of such offering of New Securities, provided that the date of receipt of Aviron's notice is more than thirty (30) days prior to such closing date. If Aviron fails to notify Sang-A within the periods specified in this Section 15.3.3, Sang-A shall nonetheless be required to deliver such payment, prior to lapse of such thirty (30) day period. 18. CONFIDENTIAL TREATMENT REQUESTED 15.3.4 In the event that Sang-A fails to meet its purchase obligation under this Section 15.3, Aviron shall have the right to terminate Sang-A's rights under this Agreement pursuant to Section 12.2.4. 15.3.5 Sang-A's purchase obligation shall expire on the earlier of (a) [ ] following the payment date of Sang-A's initial investment, pursuant to Section 15.2 of this Agreement, or (b) following the closing of the first firmly underwritten public offering of Common Stock of Aviron pursuant to a registration statement filed with, and declared effective by, the United States Securities and Exchange Commission. 15.3.6 Sang-A's investment obligations under this Section 15.3 are not assignable by Sang-A. 15.4 FINANCIAL INFORMATION. 15.4.1 Aviron will furnish the following information to Sang-A so long as Sang-A, together with its Affiliates, holds at least 1,000,000 shares of Aviron Common Stock issued or issuable upon conversion of any Aviron Preferred Stock held by Sang-A: (a) As soon as practicable after the end of each fiscal year of Aviron, and in any event within 120 days thereafter, a consolidated balance sheet of Aviron and its subsidiaries, if any, as at the end of such fiscal year, and consolidated statements of income and consolidated statements of cash flows of Aviron and its subsidiaries, if any, for such year, prepared in accordance with generally accepted accounting principles consistently applied and setting forth in each case in comparative form and figures for the previous fiscal year, all in reasonable detail and certified by independent public accountants of national standing selected by the company. (b) As soon as practicable after the end of each of the first three quarterly accounting periods in each fiscal year, and in any event within 45 days thereafter, a consolidated balance sheet of Aviron and its subsidiaries, if any, as at the end of such quarter, and consolidated statements of income and consolidated statements of cash flows of Aviron and its subsidiaries, if any, for each quarter and for the current fiscal year of Aviron to date, prepared in accordance with generally accepted accounting principles consistently applied, except that such financial statement will not contain the notes normally required by generally accepted accounting principles. (c) As soon as practicable after the adoption thereof, and in any event no later than 15 days prior to the commencement of its fiscal year, an annual operating plan for the forthcoming fiscal year, prepared on a consolidated basis, including projected statements of profit and loss, cash flow and balance sheets for each calendar quarter of such year, and, promptly after preparation thereof, any revisions to such annual operating plan and any other budgets. 19. 15.4.2 The covenants provided in Sections 15.4.1(a) and (b) shall terminate at the first firmly underwritten public offering of Common Stock of Aviron pursuant to a registration statement filed with, and declared effective by, the United States Securities and Exchange Commission. 15.5 INSPECTION RIGHTS. Aviron shall permit Sang-A, so long as Sang-A, together with its affiliates, holds at least 1,000,000 shares of Preferred Stock of Aviron, its attorney, or its other representative, to visit and inspect Aviron's properties, to examine Aviron's books of account and other records, to make copies or extracts therefrom and to discuss Aviron's affairs, finances and accounts with its officers, management employees and independent accountants, all at such reasonable times and as often as Sang-A may reasonably request. 15.6 ASSIGNMENT OF RIGHTS TO INFORMATION. The rights granted pursuant to Sections 15.4 and 15.5 may not be assigned or otherwise conveyed by Sang-A or by any subsequent transferee of Sang-A without the written consent of Aviron, which consent shall not be unreasonably withheld, provided that Aviron may refuse such written consent if the proposed transferee is a competitor of Aviron as determined by Aviron's Board of Directors, and provided further that no such written consent shall be required if the transfer is made to a party who is not a competitor of Aviron and who is an affiliate of Sang-A. ARTICLE 16 MISCELLANEOUS 16.1 ENTIRE AGREEMENT; AMENDMENTS. This Agreement sets forth the entire agreement and understanding between the parties and supersedes all previous agreements, promises, representations, understandings and negotiations, whether written or oral, between the parties with respect to the subject matter hereof. None of the terms of this Agreement shall be amended or modified except in writing signed by the parties hereto. 16.2 AGREEMENT REGISTRATION. Sang-A shall pay all costs and legal fees in connection with registration of this Agreement with the appropriate Korean authorities, including without limitation all filings necessary to qualify this agreement as a Technology Inducement Agreement under the Foreign Capital Inducement Act (FCIA) of 1960. Prior to the Effective Date, Sang-A shall also take all necessary steps, as expeditiously as possible, to secure the approval of this Agreement by the Korean government. 16.3 ASSIGNMENT. Neither party may assign any right or obligation hereunder without the prior written consent of the other party, except if such assignment arises under a transaction in which the assigning party is selling its entire business or a line of business to which this Agreement relates or that party is being acquired by or merging with a third party. This Agreement shall be binding upon and inure to the benefit of the parties' respective successors and assigns. Any attempted assignment in violation of this provision shall be void and of no effect. 20. 16.4 SEVERABILITY. If, and solely to the extent that, any provision of this Agreement shall be invalid or unenforceable, or shall render this entire Agreement to be unenforceable or invalid, such offending provision shall be of no effect and shall not affect the validity of the remainder of this Agreement or any of its provisions; PROVIDED, HOWEVER, the parties shall use their respective reasonable efforts to renegotiate the offending provisions to best accomplish the original intentions of the parties. 16.5 WAIVERS. A waiver by either party of any term or condition of this Agreement in any one instance shall not be deemed or construed to be a waiver of such term or condition for any similar instance in the future or of any subsequent breach hereof. All rights, remedies, undertakings, obligations and agreements contained in this Agreement shall be cumulative and none of them shall be a limitation of any other remedy, right, undertaking, obligation or agreement. 16.6 FURTHER DOCUMENTS. Each party hereto agrees to execute such further documents and take such further steps as the other party reasonably determines may be necessary or desirable to effectuate the purposes of this Agreement. 16.7 COMPLIANCE WITH LAW. Each party hereto shall comply with all applicable laws, rules, ordinances, guidelines, consent decrees and regulations of any federal, state or other governmental authority. 16.8 FORCE MAJEURE. No party shall be liable for failure to perform or delay in performing obligations set forth in this Agreement, and no party shall be deemed in breach or default of its obligations, if, to the extent and for so long as, such failure, delay, breach or default is due to natural disasters or any similar causes reasonably beyond the control of such party. The parties agree that blocked currency shall not qualify as a Force Majeure. Any party desiring to invoke the protection of Force Majeure shall promptly notify the other party of such desire and shall use reasonable efforts to resume performance of its obligations. In the event a delay covered by this Section exceeds one (1) year, this Agreement shall be terminable upon written notice by the aggrieved party. 16.9 DISPUTE RESOLUTION. In the event a dispute arises between the parties relating to the validity, construction, enforceability or performance of this Agreement or any alleged breach or the grounds for the termination thereof (a "DISPUTE"), the aggrieved party shall notify the other party in writing of such Dispute, and the parties shall attempt to resolve such dispute in good faith. If, within thirty (30) days of such written notice, the parties have not succeeded in resolving the Dispute, the matter shall be referred by the aggrieved party for review and resolution by the Chief Executive Officers ("CEOS") of Aviron and Sang-A. The CEOs shall attempt in good faith to resolve the Dispute for a period of thirty (30) days. If no successful resolution of the Dispute has been mutually agreed to at the end of this period, either party shall be free to seek legal or equitable relief under Section 16.10. 16.10 GOVERNING LAW; JURISDICTION. This Agreement is deemed to have been entered into in the State of California, United States of America, and its interpretation, 21. construction, and the remedies for its enforcement or breach are to be applied pursuant to and in accordance with the laws of the State of California. In any legal action relating to this Agreement, each party agrees (a) to the exercise of jurisdiction over it by a state or federal court in California, and (b) that if such party brings an action it shall be instituted in one of the courts specified in clause (a) above. Each party acknowledges and agrees that any judgment rendered in any such legal action may be enforced against it through the courts or other relevant authorities in any country or jurisdiction in which it now or may in the future maintain a principal place of business, and each party hereby irrevocably consents to all processes in connection with any such enforcement. 16.11 OFFICIAL LANGUAGE. The official text of this Agreement and any appendices, exhibits and schedules hereto, or any notice given or accounts or statements required by this Agreement shall be in English. In the event of any dispute concerning the construction or meaning of this Agreement, reference shall be made only to this Agreement as written in English and not to any other translation into any other language. 16.12 NOTICES. Any notice, consent or approval permitted or required under this Agreement shall be in writing sent by registered or certified airmail, postage pre-paid, or by overnight courier or by facsimile (confirmed by mail) and addressed as follows: If to Sang-A: SANG-A PHARM. CO., LTD. 640-9 Deung Chon Dong Kangseo-Ku Seoul South Korea Attention: Research and Development Department with a copy to: HANBO GROUP 316, Daechi-Dong Kangnam-Gu C.P.O. Box 6226 Seoul South Korea Attention: International Legal Department If to Aviron: AVIRON 1450 Rollins Road Burlingame, California 94010 Attention: J. Leighton Read with a copy to: COOLEY GODWARD CASTRO HUDDLESON & TATUM Five Palo Alto Square, 4th Floor Palo Alto, CA 94306 Attention: Barbara A. Kosacz, Esq. 22. All notices shall be deemed to be effective on the date of mailing. In case any party changes its address at which notices are to be received, written notice of such change shall be given as soon as practicable to the other party. 16.13 HEADINGS. Headings in this Agreement are included for ease of reference only and shall have no legal effect. 16.14 RELATIONSHIP OF THE PARTIES. Nothing hereunder shall be deemed to authorize either party to act for, represent or bind the other except as expressly provided in this Agreement. 16.15 PUBLICITY. Neither party shall issue any press release or other publicity materials, or make any presentation with respect to the existence of this Agreement or the terms and conditions hereof without the prior written consent of the other party, which consent shall not be unreasonably withheld. This restriction shall not apply to disclosures required by law or regulation, including as may be required in connection with any filings made with the Securities and Exchange Commission or by the disclosure policies of a major Stock Exchange. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the date first written above by their duly authorized officers. AVIRON SANG-A PHARM. CO., LTD. By: /s/ L. Read By: /s/ W. K Chung -------------------------- -------------------------- J. Leighton Read Won Keun Chung Title: Chairman of the Board Title: Vice Chairman and Chief Executive Officer 23 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- STATE 0F CALIFORNIA ) CAPACITY CLAIMED BY SIGNER COUNTY OF SANTA CLARA ) Though statute does not require the Notary to fill in the data below, doing so may prove invaluable to persons relying on the document. On May 3, 1995 before me, C. Cassandrea Miller / / Individual personally appeared Won Keun Chung /X/ Corporate Officer(s) Vice Chairman / / personally known to me / / Partner(s) / / Limited -or- / / General /X/ proved to me on the basis of / / Attorney-in-Fact satisfactory evidence to be the person(s) whose name(s) / / Trustee(s) is/are subscribed to the within / / Guardian/Conservator instrument and acknowledged to me / / Other: that he/she/they executed the ----------------- same in his/her/their authorized ----------------------- capacity(ies), and that by his/ her/their signature(s) on the instrument the person(s) or the entity upon behalf of which the person(s) acted, executed the instrument. - -------------------------- OFFICIAL SEAL SIGNER IS REPRESENTING: C. CASSANDREA MILLER Name of person(s) or Notary Public - California entity(ies) SANTA CLARA COUNTY Witness my hand and My Commission Expires official seal. ----------------------- July 10, 1995 - -------------------------- ----------------------- /s/ C. Cassandrea Miller ------------------------ Signature of the Notary - -------------------------------------------------------------------------------- This certificate must be Title or Type of Document: License Agreement attached to the document Number of Pages: 83 Data of Document: 5/3/95 described at right: Signer(s) other than named above: --------------- *1993 National Notary Assocation. Canoga Park, CA - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- STATE 0F CALIFORNIA ) CAPACITY CLAIMED BY SIGNER COUNTY OF SANTA CLARA ) Though statute does not require the Notary to fill in the data below, doing so may prove invaluable to persons relying on the document. On May 3, 1995 before me, C. Cassandrea Miller / / Individual personally appeared J. Leighton Read /X/ Corporate Officer(s) Chairman & CEO / / personally known to me / / Partner(s) / / Limited -or- / / General /X/ proved to me on the basis of / / Attorney-in-Fact satisfactory evidence to be the person(s) whose name(s) / / Trustee(s) is/are subscribed to the within / / Guardian/Conservator instrument and acknowledged to me / / Other: that he/she/they executed the ----------------- same in his/her/their authorized ----------------------- capacity(ies), and that by his/ her/their signature(s) on the instrument the person(s) or the entity upon behalf of which the person(s) acted, executed the instrument. - -------------------------- OFFICIAL SEAL SIGNER IS REPRESENTING: C. CASSANDREA MILLER Name of person(s) or Notary Public - California entity(ies) SANTA CLARA COUNTY Witness my hand and My Commission Expires official seal. ----------------------- July 10, 1995 - -------------------------- ----------------------- /s/ C. Cassandrea Miller ------------------------ Signature of the Notary - -------------------------------------------------------------------------------- This certificate must be Title or Type of Document: License Agreement attached to the document Number of Pages: 83 Data of Document: 5/3/95 described at right: Signer(s) other than named above: --------------- *1993 National Notary Assocation. Canoga Park, CA - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- CONFIDENTIAL TREATMENT REQUESTED Exhibit A DEFINITIONS "AFFILIATE" shall mean any entity that directly or indirectly Owns, is Owned by or is under common Ownership with, a party to this Agreement, where "Own" or "Ownership" means direct or indirect possession of at least [ ] of the outstanding voting securities of a corporation or a comparable equity interest in any other type of entity. "ARCH AGREEMENT" shall mean License Agreement between ARCH Development Corporation (University of Chicago) and Aviron dated as of July 1, 1992 "AVIRON DATA" shall mean all data arising out of all [ ] all to the extent Aviron has the right to disclose and/or license the use of such information to Sang-A. "AVIRON TECHNOLOGY" shall mean Licensed Patents and Technical Information. "CLINICAL MATERIALS" shall mean, with respect to each Partner Product, any materials, including without limitation, [ ] In specific, with respect to the Cold Adapted Influenza Product, Clinical Materials shall be comprised of [ ] "COLD ADAPTED INFLUENZA AGREEMENT"" shall mean that certain Materials Transfer and Intellectual Property Agreement entered into by and between Aviron and the University of Michigan, effective as of February 24, 1995, appended hereto as Exhibit B. "COLD ADAPTED INFLUENZA PRODUCT" means any vaccine product which (i) is covered by a valid claim of a Patent, as defined in Section 2.8 of the Cold Adapted Influenza Agreement or (ii) incorporates, or the manufacture, use or sale of which utilizes, Master Strains or Know-How, as defined in Sections 2.6 and 2.5, respectively, of the Cold Adapted Influenza Agreement. "CONFIDENTIAL INFORMATION" shall mean any confidential information, data, and any other information relating to (i) any Aviron Technology, research project, work in process, future development, scientific engineering, manufacturing, marketing, business plan, financial or personnel matter relating to either party, its present or future products, sales, suppliers, customers, employees, investors or business, whether in oral, written, graphic or electronic A-1 CONFIDENTIAL TREATMENT REQUESTED form, or (ii) any of Aviron's licensors' technology, know-how, improvements, patents or biological materials. Confidential Information shall also include any Clinical Materials transferred from Aviron to Sang-A during this Agreement for use hereunder. "EFFECTIVE DATE" shall mean the date this Agreement is deemed approved by the Korean government, if such approval is necessary. Otherwise, the Effective Date shall be the date this Agreement is signed. "FIRST COMMERCIAL SALE" shall mean the first sale for use or consumption by the general public of a Partner Product in South or North Korea, as the case may be, after all required Government Approvals have been granted. "GMP" shall mean the Good Manufacturing Practice regulations promulgated by the U.S. Food and Drug Administration or its equivalent in another country. "GOVERNMENT APPROVAL" shall mean any approvals, licenses, registrations or authorizations of any federal, state or local regulatory agency, ministry, department, bureau or other government entity necessary for the development, use, marketing, sale or distribution of any Partner Products. "IND" (OR, "INVESTIGATIONAL NEW DRUG APPLICATION") shall mean an application to the U.S. Food and Drug Administration ("FDA") to commence human clinical testing of a drug, or its equivalent in another country. "INVENTIONS" shall mean any and all ideas, inventions or discoveries relating to (i) the Aviron Technology, including without limitation any new uses thereof, or (ii) processes, techniques, methods, or the like useful for the manufacture of any Partner Product, which are made, created, conceived or reduced to practice by or on behalf of Sang-A or by Aviron or acquired by Aviron, during the term of this Agreement, and any and all patents, patent applications and patent rights, and any substitutions, divisionals, provisionals, continuations, continuations-in-part, renewals, reissues, confirmations or registrations, and extensions thereof which are appurtenant to such inventions or discoveries. "LICENSED FIELD" means [ ] "LICENSED PATENTS" shall mean all patent applications (including substitutions, continuations, continuations-in-part, divisionals and provisionals) and patents (including renewals, reissues, confirmations or registrations, and extensions thereof) in South and North Korea now owned or licensed (with right to sublicense) or hereafter acquired or licensed during the term of this Agreement (with right to sublicense), by or on behalf of Aviron or any of its Affiliates, claiming inventions necessary or useful to the development, manufacture, use or sale of a Partner Product. A-2 CONFIDENTIAL TREATMENT REQUESTED "MANUFACTURING APPROVALS" shall mean all necessary regulatory approvals related to the manufacture of a Partner Product for use in a given country. "MASTER SEEDS" means [ ] "MASTER STRAIN" means [ ] licensed to Aviron pursuant to the Cold Adapted Influenza Agreement. "NDA" (OR "NEW DRUG APPLICATION") shall mean an application to FDA to commence commercial sale of a drug, or its equivalent in another country. "NET SALES" shall mean the actual gross invoice price of each Partner Product sold by Sang-A, its Affiliates or sublicensees to third parties less, to the extent included therein, the total of (i) ordinary and customary trade discounts, (ii) sales and excise taxes, and other similar taxes, customs, duty and compulsory payments to governmental authorities (other than income taxes) actually paid or deducted and related to the sale, and (iii) credits given to customers for rejects or returns of the Partner Product, all as determined in accordance with generally accepted accounting principles ("GAAP"), consistently applied. For purposes of this definition, sales by Sang-A to an Affiliate do not constitute third party sales and are not included in Net Sales. "PARTNER PRODUCTS" shall mean each of the products listed on Schedule 1, as amended from time to time, and any improvements thereto, all as and to the extent developed by or on behalf of Aviron outside South and North Korea [ ] "TECHNICAL INFORMATION" shall mean all know-how, trade secrets, inventions, data, technology and other information now owned or licensed (with right to sublicense) by Aviron, or hereafter acquired or licensed (with right to sublicense) by Aviron during the term of this Agreement which are necessary or useful to the formulation, development, manufacture or sale of Partner Products including, but not limited to, [ ] A-3 EXHIBIT B (See Exhibit 10.3 to the Registration Statement on Form S-1 filed on behalf of Aviron with the SEC.) CONFIDENTIAL TREATMENT REQUESTED EXHIBIT C PRIMARY RESTRICTIONS REGARDING COLD-ADAPTED INFLUENZA All references to Section and Article numbers in this Exhibit are to the Cold Adapted Influenza Agreement, appended to this Agreement as Exhibit B. a. SECTION 4.3. All Master Seeds, including all derivatives made by Sang- A, shall be the property of Michigan. b. SECTIONS 4.4 AND 4.6. Sang-A shall not provide any Master Seeds or derivatives thereof to any third party. Sang-A shall limit access to such materials to those employees reasonably requiring such access [ ] which employees are further obligated in writing to treat those materials in a confidential manner and not to provide same to any third party. c. SECTION 4.6, Article 16. Sang-A must keep confidential, and not use except as provided in the Cold Adapted Influenza Agreement, the Master Seeds, and any know-how or technical data related thereto, for a period of [ ] after termination of the Cold Adapted Influenza Agreement. This undertaking is subject to the usual exceptions (publication, disclosure by a third party, legally required to be disclosed, etc.). d. SECTION 4.7. Sang-A will use its best efforts to manufacture and store the Master Seeds and Cold Adapted Influenza Products in accordance with all applicable government laws and regulations. e. SECTION 4.8. Michigan shall have the right to request from Sang-A, at reasonable intervals and quantities, such batch samples of vaccine products as it may desire for non-human research purposes only. f. SECTION 6.2-6.4. Sang-A shall consistently employ a system of specific nomenclature and type designations for Cold Adapted Influenza Products so that various types can be identified in reports owed to Aviron (and by Aviron to Michigan) under Section 7.5 of this Agreement. g. ARTICLE 9. At least once every (6) months Sang-A will report to Aviron relating to any "Technological Data" (as defined in Section 2.14) and "Improvements" (as defined in Section 2.3) generated by Sang-A during such reporting period. This report will be forwarded to Michigan. Michigan retains an irrevocable, royalty-free license to all Technological Data and Improvements to use in the manufacture, use or sale of Cold Adapted Influenza Products. h. ARTICLES 13 AND 14. Michigan makes no representations or warranties regarding the Master Strains. In addition, Sang-A agrees not to make any statements, representations or warranties inconsistent with such disclaimer. Sang-A must defend, indemnify and hold harmless Michigan, its fellows, officers, employees and agents for and against any and all claims, C-1 CONFIDENTIAL TREATMENT REQUESTED damages, losses, and expenses of any nature resulting from, but not limited to, death, personal injury, illness, property damage, economic loss or products liability arising from or in connection with (i) any manufacture, use or other disposition by Sang-A of the Master Seeds or vaccine products, (ii) the direct or indirect use by any person of Master Seeds or vaccine products made or used by Sang-A, (iii) the use, handling, storage or disposal of Master Seeds, any derivatives or products by Sang-A, and (iv) the use bv Sang-A of anv know-how or technical data sublicensed from Michigan. Finally, [ ] in accordance with Section 14.3. i. ARTICLE 15. SECTION 4.5. The sublicense to Sang-A of the Cold Adapted Influenza Product must terminate upon termination of the Cold Adapted Influenza Agreement. In such event, at Michigan's option, Sang-A must destroy or return to Michigan (or to Aviron, for return to Michigan) [ ] Further, in such event Sang-A must also provide to Michigan any technical data or information relating to the manufacture of the Cold Adapted Influenza Product generated by Sang-A, which Michigan shall have an irrevocable, royalty-free right to use in the manufacture, use or sale of such Products. j. ARTICLE 20. Sang-A must comply with all applicable laws regarding the testing, production, transportation, export, packaging, labeling, sale or use of Cold Adapted Influenza Products. k. ARTICLE 22. Sang-A must refrain from using the name of Michigan in publicity or advertising without the prior written consent of Michigan. C-2 EXHIBIT D FORM OF INVESTMENT LETTER May__, 1995 J. Leighton Read, M.D. Chief Executive Officer Aviron 1450 Rollins Road Burlingame, CA 94010 Dear Dr. Read: The undersigned ("Purchaser") hereby makes the following certifications and representations with respect to the two million nine hundred forty-one thousand eight hundred sixty-three (2,941,863) shares (the "Shares") of Series C Preferred, Stock of Aviron, a California corporation (the "Company"), which are being acquired by the undersigned for a cash consideration of $3,971,515. 1. AUTHORIZATION. Purchaser has all the requisite power and is duly authorized to execute and deliver the License and Development Agreement and each other agreement contemplated thereby and has taken all necessary action to consummate the transactions contemplated thereby. The License and Development Agreement and each other agreement contemplated thereby have been duly executed and delivered by Purchaser and constitute valid and binding obligations of Purchaser, enforceable in accordance with their respective terms subject to laws of general application relating to bankruptcy, insolvency and the relief of debtors. 2. ACCREDITED INVESTOR. Purchaser is an accredited investor within the meaning of Regulation D under the Securities Act of 1933, as amended (the "Securities Act"). 3. EXPERIENCE. Purchaser, alone or together with its advisors, is experienced in evaluating and investing in start-up biomedical research companies such as the Company. 4. INVESTMENT. Purchaser is acquiring the Shares for investment for its own account and not with a view to, or for resale in connection with, any distribution thereof, and it has no present intention of selling or distributing the Shares or the Common Stock issuable upon conversion of the Shares (the "Underlying Stock"). Purchaser understands that the Shares (and the Underlying Stock) to be purchased by it have not been registered under the Securities Act by reason of a specific exemption from the registration provisions of the Securities Act which depends upon, among other things, the bona fide nature of the investment intent as expressed herein. D-1 5. RULE 144 AND RULE 144A. Purchaser acknowledges that, because they have not been registered under the Securities Act, the Shares (and the Underlying Stock) it is purchasing must be held indefinitely unless subsequently registered under the Securities Act or an exemption from such registration is available. Purchaser is aware of the provisions of Rule 144 and Rule 144A promulgated under the Securities Act, which rules permit limited resale of securities purchased in a private placement subject to the satisfaction of certain conditions. 6. NO PUBLIC MARKET. Purchaser understands that no public market now exists for any of the securities issued by the Company and that it is uncertain whether a public market will ever exist for the Shares or the Underlying Stock. 7. ACCESS TO DATA. Purchaser has received and reviewed such information that such Purchaser deemed necessary to make an informed decision concerning the purchase of the Shares and has had an opportunity to discuss the Company's business, management and financial affairs with its management. The Purchaser further agrees not to make any disposition of all or any part of the Shares in any event unless and until: a. The Company shall have received a letter secured by the Purchaser from the Securities and Exchange Commission stating that no action will be recommended to the Commission with respect to the proposed disposition; or b. There is then in effect a registration statement under the Securities Act covering such proposed disposition and such disposition is made in accordance with said registration statement; or c. (i) The Purchaser shall have notified the Company of the proposed disposition and shall have furnished the Company with a detailed statement of the circumstances surrounding the proposed disposition, (ii) the Purchaser shall have furnished the Company with an opinion of counsel for the Purchaser to the effect that such disposition will not require registration of such shares under the Act, and (iii) such opinion of counsel for the Purchaser shall have been concurred in by the Company's counsel and the Company shall have advised the Purchaser of such concurrence. D-2 The Purchaser understands and agrees that all certificates evidencing the shares to be issued to the Purchaser may bear the following legend: "THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE OFFERED FOR SALE, SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR PURSUANT TO RULE 144 OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY AND ITS COUNSEL THAT SUCH REGISTRATION IS NOT REQUIRED." SANG-A PHARM. CO., LTD. By --------------------------------- Won Keun Chung Vice Chairman D-3 EXHIBIT E AMENDED AND RESTATED ARTICLES OF INCORPORATION OF AVIRON J. Leighton Read and Alan C. Mendelson certify that: 1. They are the Chief Executive Officer and Secretary, respectively, of Aviron, a California corporation (the "Corporation"). 2. The Articles of Incorporation of this Corporation are amended and restated as follows: "I. The name of this corporation is Aviron. II. The purpose of this corporation is to engage in any lawful act or activity for which a corporation may be organized under the General Corporation Law of California other than the banking business, the trust company business or the practice of a profession permitted to be incorporated by the California Corporations Code. III. A. This corporation is authorized to issue two classes of stock to be designated, respectively, "Common Stock" and "Preferred Stock." The total number of shares which the corporation is authorized to issue is Ninety-Six Million (96,000,000) shares. Fifty-Three Million (53,000,000) shares shall be Common Stock. Forty-Three Million (43,000,000) shares shall be Preferred Stock. The Preferred Stock may be issued from time to time in one or more series. Subject to the protective provisions set forth in Section 5 below, the Board of Directors is hereby authorized to fix or alter the dividend rights, dividend rate, conversion rights, voting rights, rights and terms of redemption (including sinking fund provisions), redemption price or prices, and the liquidation preferences of any wholly unissued series of Preferred Stock, and the number E-1 of shares constituting any such series and the designation thereof, or any of them; and to increase or decrease the number of shares of any series subsequent to the issuance of shares of that series, but not below the number of shares of such series then outstanding. In case the number of shares of any series shall be so decreased, the shares constituting such decrease shall resume the status that they had prior to the adoption of the resolution originally fixing the number of shares of such series. B. Five million two hundred twenty-five thousand (5,225,000) of the authorized shares of Preferred Stock are hereby designated "Series A Preferred Stock." Eighteen million six hundred fifty thousand (18,650,000) of the authorized shares of Preferred Stock are hereby designated "Series B Preferred Stock," and eighteen million (18,000,000) of the authorized shares of Preferred Stock are hereby designated "Series C Preferred Stock." The Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock are collectively referred to as the "Preferred Stock." C. The respective rights, preferences, privileges, restrictions and other matters relating to the Preferred Stock are as follows: 1. DIVIDENDS. The holders of the Preferred Stock shall be entitled to receive, payable in preference and priority to the holders of Common Stock, when and as declared by the Board of Directors, out of any assets at the time legally available therefor, dividends at the rate of: (a) with respect to the Series A Preferred Stock, $.05 per share per annum (as appropriately adjusted for any combination, consolidation, stock distribution, stock dividend, stock split or similar event with respect to such shares (a "Recapitalization")); (b) with respect to the Series B Preferred Stock, $.09 per share per annum (as adjusted for any Recapitalization); and (c) with respect to the Series C Preferred Stock, $.135 per share per annum (as adjusted for any Recapitalization). Such dividends shall not be cumulative and no right to such dividends shall accrue to holders of Preferred Stock unless declared by the Board of Directors. No dividends shall be declared or paid with respect to the Common Stock (other than a dividend payable solely in Common Stock of the Corporation) unless a dividend of equal or greater amount per share (on an as-if-converted to Common Stock basis) is first declared and paid with respect to the Preferred Stock. Each share of Preferred Stock shall rank on parity with every other share of Preferred Stock, irrespective of series, with regard to dividends, and no dividends shall be paid, declared or set apart for payment on the shares of any series of Preferred Stock unless at the same time a E-2 dividend for the same percentage of the respective dividend rates shall also be paid, declared or set apart for payment, as the case may be, on the shares of Preferred Stock or each other series then outstanding. So long as any shares of Preferred Stock shall be outstanding, no dividend, whether in cash or property, shall be paid or declared, nor shall any other distribution be made, on any Common Stock, nor shall any shares of the Common Stock of the Corporation be purchased, redeemed, or otherwise acquired for value by the Corporation (except for acquisitions of Common Stock by the Corporation from the founders, directors, employees or consultants of the Corporation pursuant to agreements which permit the Corporation to repurchase such shares upon termination of an employment or consulting relationship or in exercise of the Corporation's right of first refusal upon a proposed transfer) until all accrued but unpaid dividends on the Preferred Stock shall have been paid or declared and set apart. In the event dividends are paid on any share of Common Stock, an additional dividend shall be paid with respect to all outstanding shares of Preferred Stock in an amount for each such share of Preferred Stock equal to the aggregate amount of such dividends for all shares of Common Stock into which each such share of Preferred Stock could then be converted. The provisions of this Section l(b) shall not, however, apply to (i) a dividend payable in Common Stock, (ii) the acquisition of shares of any Common Stock in exchange for shares of any other Common Stock, or (iii) any repurchase of any outstanding securities of the Corporation that is approved by the Corporation's Board of Directors. 2. LIQUIDATION PREFERENCE. (a) In the event of any liquidation, dissolution or winding up of the Corporation, either voluntary or involuntary, the holders of the Series A Preferred Stock, Series B Preferred Stock, and Series C Preferred Stock shall be entitled to receive, prior and in preference to any distribution of any of the assets or surplus funds of the Corporation to the holders of Common Stock by reason of their ownership thereof, the amount of S.50, $.90, and $1.35 per share, respectively (appropriately adjusted for any Recapitalization), plus all declared but unpaid dividends on such share for each share of Series A Preferred Stock, Series B Preferred Stock, or Series C Preferred Stock then held by them. If upon the occurrence of such event, the assets and funds thus distributed among the holders of the Preferred Stock shall be insufficient to permit the payment to such holders of the full aforesaid preferential amount, then the entire assets and funds of the Corporation legally available for distribution shall be distributed among the holders of the Preferred Stock in proportion to the full amounts to which they would otherwise be entitled and in proportion to the number of shares of Preferred Stock then held by them. (b) After payment to the holders of Preferred Stock of the amount set forth in subparagraph (a) above, the entire remaining assets and funds of the Corporation legally E-3 available for distribution, if any, shall be distributed among the holders of the Preferred Stock and Common Stock pro rata based on the number of shares of Common Stock held by them (assuming conversion of all Preferred Stock). (c) A consolidation or merger of the Corporation with or into any other corporation or corporations, or a sale of all or substantially all of the assets of the Corporation, other transaction or series of related transactions resulting in a change of voting control shall be deemed a liquidation, dissolution or winding up within the meaning of this Section 2 if (a) more than 50% of the outstanding securities of each class of the surviving entity, or (b) an interest in equity securities representing at least 50% of the voting power or at least 50% of the equity interest in the surviving entity, is not owned by persons who were holders of capital stock or securities convertible into capital stock of the Corporation immediately prior to such merger, consolidation or sale; provided, however, that the sale of Preferred Stock to private investors pursuant to a Preferred Stock Purchase Agreement shall not constitute a liquidation, dissolution or winding up within the meaning of this section. 3. VOTING RIGHTS. Except as otherwise expressly provided herein or as required by law, the holder of each share of Preferred Stock shall be entitled to the number of votes equal to the number of shares of Common Stock into which such share of Preferred Stock could be converted on the record date for the vote or the date of the solicitation of any written consent of shareholders and shall have voting rights and powers equal to the voting rights and powers of the Common Stock (except as otherwise expressly provided herein or as required by law, voting together with the Common Stock as a single class) and shall be entitled to notice of any stockholders' meeting in accordance with the Bylaws of the Corporation. Fractional votes shall not, however, be permitted and any fractional voting rights resulting from the above formula (after aggregating all shares into which shares of Preferred Stock held by each holder could be converted) shall be rounded to the nearest whole number (with one-half being rounded upward). 4. CONVERSION. The holders of Preferred Stock shall have conversion rights as follows (the "Conversion Rights"): (a) RIGHT TO CONVERT. Each share of Preferred Stock shall be convertible, at the option of the holder thereof, at any time after the date of issuance of such share, at the office of the Corporation or any transfer agent for such stock. The number of fully paid and nonassessable shares of Common Stock to which a holder of Series A Preferred Stock shall be entitled upon conversion shall be the product obtained by multiplying the "Series A Conversion Rate" then in effect (determined as provided in Section 4(b)) by the number of shares of Series A Preferred Stock being converted. The number of fully paid and nonassessable shares of Common Stock to which a holder of Series B Preferred Stock shall be entitled upon conversion shall be the product obtained by multiplying the "Series B Conversion Rate" then in effect (determined as provided in Section 4(c)) by the number of shares of Series B Preferred E-4 being converted. The number of fully paid and nonassessable shares of Common Stock to which a holder of Series C Preferred Stock shall be entitled upon conversion shall be the product obtained by multiplying the "Series C Conversion Rate" then in effect (determined as provided in Section 4(d)) by the number of shares of Series C Preferred being converted. (b) SERIES A CONVERSION RATE. The conversion rate in effect at any time for conversion of the Series A Preferred Stock (the "Series A Conversion Rate") shall be the quotient obtained by dividing $.50 by the "Series A Conversion Price," calculated as provided in Section 4(e). (c) SERIES B CONVERSION RATE. The conversion rate in effect at any time for conversion of the Series B Preferred Stock (the "Series B Conversion Rate") shall be the quotient obtained by dividing $.90 by the "Series B Conversion Price," calculated as provided in Section 4(e). (d) SERIES C CONVERSION RATE. The conversion rate in effect at any time for conversion of the Series C Preferred Stock (the "Series C Conversion Rate") shall be the quotient obtained by dividing $1.35 by the "Series C Conversion Price," calculated as provided in Section 4(e). (e) CONVERSION PRICE. The conversion price for the Series A Preferred Stock shall initially be $.50 (the "Series A Conversion Price"). The conversion price of the Series B Preferred Stock shall initially be S.90 (the "Series B Conversion Price"). The conversion price of the Series C Preferred Stock shall initially be $1.35 (the "Series C Conversion Price"). Such initial Series A Conversion Price, Series B Conversion Price and Series C Conversion Price (the "Conversion Prices") shall be adjusted from time to time in accordance with this Section 4. All references to the Conversion Prices herein shall mean the Conversion Prices as so adjusted. (f) AUTOMATIC CONVERSION. Each share of Preferred Stock shall automatically be converted into shares of Common Stock at the then effective Conversion Price immediately upon (i) the closing of the sale of the Corporation's Common Stock in a firm commitment, underwritten public offering registered under the Securities Act of 1933, as amended (other than a registration relating solely to a transaction under Rule 145 under such Act (or any successor thereto) or to an employee benefit plan of the Company), at a public offering price equal to or exceeding $2.50 per share of Common Stock (appropriately adjusted for any Recapitalization) and the aggregate net proceeds to the Corporation (before deduction for underwriter commissions and expenses relating to the issuance, including without limitation fees of the Corporation's counsel) of which equal or exceed $10,000,000 or (ii) upon receipt by the Corporation of the affirmative vote at a duly noticed shareholders meeting or pursuant to a duly E-5 solicited written consent of approval of the holders of at least a majority of the then outstanding shares of the Series A Preferred Stock, the Series B Preferred Stock, and the Series C Preferred Stock, voting together as a single class in favor of the conversion of all of the shares of Preferred Stock into Common Stock. (g) MECHANICS OF CONVERSION. Before any holder of Preferred Stock shall be entitled to convert the same into shares of Common Stock, the holder shall surrender the certificate or certificates thereof, duly endorsed, at the office of the Corporation or of any transfer agent for such stock, and shall give written notice to the Corporation at such office that he elects to convert the same and shall state therein the name or names in which he wishes the certificate or certificates for shares of Common Stock to be issued. The Corporation shall, as soon as practicable thereafter, issue and deliver at such office to such holder of Preferred Stock, a certificate or certificates for the number of shares of Common Stock to which he shall be entitled as aforesaid. Such conversion shall be deemed to have been made immediately prior to the close of business on the date of surrender of the shares of Preferred Stock to be converted, except that in the case of an automatic conversion pursuant to Section 4(f) hereof, such conversion shall be deemed to have been made (i) immediately prior to the closing of the offering referred to in Section 4(f)(i) or (ii) immediately upon the approval by vote or written consent referred to in Section 4(f)(ii) above, and the person or persons entitled to receive the shares of Common Stock issuable upon such conversion shall be treated for all purposes as the record holder or holders of such shares of Common Stock on such date. (h) ADJUSTMENTS TO CONVERSION PRICE. (i) SPECIAL DEFINITIONS. For purposes of this Section 4(h) "ORIGINAL Issue Date" shall mean the date on which a share of Preferred Stock was first issued. (ii) ADJUSTMENTS FOR COMBINATIONS OR SUBDIVISIONS OF COMMON STOCK. In the event the Corporation at any time or from time to time after the Original Issue Date shall declare or pay any dividend on the Common Stock payable in Common Stock or in any right to acquire Common Stock, or shall effect a subdivision of the outstanding shares of Common Stock into a greater number of shares of Common Stock (by stock split, reclassification or otherwise), or in the event the outstanding shares of Common Stock shall be combined or consolidated, by reclassification or otherwise, into a lesser number of shares of Common Stock, then the respective Conversion Prices of the Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock in effect immediately prior to such event shall, concurrently with the effectiveness of such event, be proportionately decreased or increased, as appropriate. (i) OTHER DISTRIBUTIONS. In the event the Corporation shall at any time or from time to time make or issue, or fix a record date for the determination of holders of Common Stock entitled to receive, a dividend or other distribution payable in securities of the E-6 Corporation or any of its subsidiaries, then in each such event provision shall be made so that the holders of Preferred Stock shall receive, upon the conversion thereof, the securities of the Corporation or any of its subsidiaries which they would have received had their stock been converted into Common Stock on the date of such event. (j) NO IMPAIRMENT. The Corporation will not, by amendment of its Articles of Incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Corporation, but will at all times in good faith assist in the carrying out of all the provisions of this Section 4 and in the taking of all such action as may be necessary or appropriate in order to protect the Conversion Rights of the holders of the Preferred Stock against impairment. (k) CERTIFICATES AS TO ADJUSTMENTS. Upon the occurrence of each adjustment or readjustment of the Conversion Price pursuant to this Section 4, the Corporation at its expense shall promptly compute such adjustment or readjustment in accordance with the terms hereof and cause independent public accountants selected by the Corporation to verify such computation and prepare and furnish to each holder of Preferred Stock a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. The Corporation shall, upon the written request at any time of any holder of Preferred Stock, furnish or cause to be furnished to such holder a like certificate setting forth (i) such adjustments and readjustments, (ii) the Conversion Price at the time in effect, and (iii) the number of shares of Common Stock and the amount, if any, of other property which at the time would be received upon the conversion of Preferred Stock. (l) NOTICES OF RECORD DATE. In the event of any taking by the Corporation of a record of the holders of any class of securities for the purpose of determining the holders thereof who are entitled to receive any dividend (other than a cash dividend) or other distribution, any security or right convertible into or entitling the holder thereof to receive shares of Common Stock, or any right to subscribe for, purchase or otherwise acquire any shares of stock of any class or any other securities or property, or to receive any other right, the Corporation shall mail to each holder of Preferred Stock at least 20 days prior to the date specified therein, a notice specifying the date on which any such record is to be taken for the purpose of such dividend, distribution, security or right, and the amount and character of such dividend, distribution, security or right. (m) ISSUE TAXES. The Corporation shall pay any and all issue and other taxes, excluding federal, state or local income taxes, that may be payable in respect of any issue or delivery of shares of Common Stock on conversion of shares of Preferred Stock pursuant E-7 hereto; provided, however, that the Corporation shall not be obligated to pay any transfer taxes resulting from any transfer requested by any holder in connection with any such conversion. (n) RESERVATION OF STOCK ISSUABLE UPON CONVERSION. The Corporation shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock, solely for the purpose of effecting the conversion of the shares of the Preferred Stock, such number of its shares of Common Stock as shall from time to time be sufficient to effect the conversion of all outstanding shares of the Preferred Stock; and if at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the conversion of all then outstanding shares of the Preferred Stock, the Corporation will take such corporate action as may, in the opinion of its counsel, be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purpose, including, without limitation, engaging in best efforts to obtain the requisite shareholder approval of any necessary amendment to this Articles of Incorporation. (o) CONSENT TO CERTAIN DISTRIBUTIONS. Each holder of Preferred Stock shall be deemed to have consented for purposes of Sections 502, 503 and 506 of the General Corporation Law to distributions and payments made by the Corporation and approved by the Board of Directors of the Corporation in connection with the repurchases of shares of Common Stock issued or to held by directors, board advisors and employees of, or consultants to, the Corporation upon termination of their employment or services. (p) FRACTIONAL SHARES. No fractional share shall be issued upon the conversion of any share or shares of Preferred Stock. All shares of Common Stock (including fractions thereof) issuable upon conversion of more than one share of Preferred Stock by a holder thereof shall be aggregated for purposes of determining whether the conversion would result in the issuance of any fractional share. If, after the aforementioned aggregation, the conversion would result in the issuance of a fraction of a share of Common Stock, the Corporation shall, in lieu of issuing any fractional share, pay the holder otherwise entitled to such fraction a sum in cash equal to the fair market value of such fraction on the date of conversion (as determined in good faith by the Board of Directors of the Corporation). (q) NOTICES. Any notice required by the provisions of this Section 4 to be given to the holders of shares of Preferred Stock shall be deemed given if deposited in the United States mail, postage prepaid, and addressed to each holder of record at its address appearing on the books of the Corporation. Notwithstanding the above, any notice or communication to an address outside the United States shall be sent by telecopy and confirmed in writing sent by courier guaranteeing delivery in no more than two (2) business days. (r) ADJUSTMENTS. In case of any reorganization or any reclassification of the capital stock of the Corporation, any consolidation or merger of the Corporation with or into E-8 another corporation or corporations, or the conveyance of all or substantially all of the assets of the Corporation to another corporation, each share of Preferred Stock shall thereafter be convertible into the number of shares of stock or other securities or property (including cash) to which a holder of the number of shares of Common Stock deliverable upon conversion of such share of Preferred Stock would have been entitled upon the record date of (or date of, if no record date is fixed) such reorganization, reclassification, consolidation, merger or conveyance; and, in any case, appropriate adjustment (as determined by the Board of Directors) shall be made in the application of the provisions herein set forth with respect to the rights and interests thereafter of the holders of such Preferred Stock, to the end that the provisions set forth herein shall thereafter be applicable, as nearly as equivalent as is practicable, in relation to any shares of stock or the securities or property (including cash) thereafter deliverable upon the conversion of the shares of such Preferred Stock. 5. RESTRICTIONS AND LIMITATIONS. So long as at least 5,000,000 of the authorized shares of Preferred Stock remain outstanding, the Corporation shall not, without the vote or written consent by the holders of majority of the then outstanding shares of Series A Preferred Stock, Series B Preferred Stock, and Series C Preferred Stock, voting together as a single class on an as-converted basis: (a) Amend, repeal or waive any provision of, or add any provision to, the Corporation's Articles of Incorporation if such action would alter or change in an adverse manner the preferences, rights, privileges or powers of, or the restrictions provided for the benefit of, the Preferred Stock; (b) Increase the total number of authorized shares of Common Stock or Preferred Stock of the Corporation or the number of shares designated as any series of Preferred Stock; (c) Authorize or issue, or obligate itself to issue, any other equity security senior to the Series A Preferred Stock Series B Preferred Stock or Series C Preferred Stock as to dividend or redemption rights, liquidation preferences, conversion rights, voting rights or otherwise, or create any obligation or security convertible into or exchangeable for, or having any option rights to purchase, any such equity security which is senior to the Series A Preferred Stock, Series B Preferred Stock or Series C Preferred Stock; provided, however, that an equity security issued subsequent to the issuance of the Series A Preferred Stock, Series B Preferred Stock or Series C Preferred Stock for a share price and corresponding liquidation price higher than that of the Series A Preferred Stock, Series B Preferred Stock, or Series C Preferred Stock shall not be deemed senior to the Series A Preferred Stock, Series B Preferred Stock or Series C Preferred Stock solely by reason of such share price and liquidation price; E-9 (d) Do any act or thing which would result in taxation of the holders of shares of the Preferred Stock under Section 305 of the Internal Revenue Code of 1968, as amended (the "Code") (or any comparable provision of the Code as hereafter from time to time amended); (e) Effect any sale or other conveyance of all or substantially all of the assets of the Corporation or any of its subsidiaries, or any consolidation or merger involving the Corporation or any of its subsidiaries with or into any other corporation, if more than 50% of the surviving entity is not owned by persons who were holders of capital stock or securities convertible into capital stock of the Corporation immediately prior to such merger, consolidation or sale; or (f) Set aside any amounts for or purchase, or declare or pay any dividend or make any other distribution on, any shares of capital stock other than the Series A Preferred Stock, Series B Preferred Stock or Series C Preferred Stock, except for repurchases required by current agreements with directors, consultants or employees. 6. NO REISSUANCE OF PREFERRED STOCK. No share or shares of Preferred Stock acquired by the Corporation by reason of redemption, purchase, conversion or otherwise shall be reissued, and all such shares shall be returned to the status of undesignated shares of Preferred Stock. IV. A. The liability of the directors of this corporation for monetary damages shall be eliminated to the fullest extent permissible under California law. B. This corporation is authorized to provide indemnification of agents (as defined in Section 317 of the California Corporations Code) for breach of duty to the corporation and its shareholders through bylaw provisions or through agreements with the agents, or through shareholder resolutions, or otherwise, to the fullest extent permitted by California law. C. Any repeal or modification of this Article shall only be prospective and shall not affect the rights under this Article in effect at the time of the alleged occurrence of any act or omission to act giving rise to liability or indemnification." 3. The foregoing Amended and Restated Articles of Incorporation has been duly approved by the board of directors. E-10 4. The foregoing Amended and Restated Articles of Incorporation has been duly approved by the required vote of shareholders in accordance with Sections 902 and 903 of the Corporations Code. The total number of outstanding shares of the corporation is 3,486,370 shares of Common Stock, 5,000,000 shares of Series A Preferred Stock and 17,990,401 shares of Series B Preferred Stock. The number of shares voting in favor of the amendment equaled or exceeded the vote required. The percentage vote required was more than 50% of the Common Stock, 50% of the Series A Preferred Stock and Series B Preferred Stock voting together as a separate class and more than 50% of the Common Stock and Preferred Stock voting together on an as-converted basis. We further declare under penalty of perjury under the laws of the State of California that the matters set forth in this certificate are true and correct of our own knowledge. DATE: -------------- ---------------------------------------- J. Leighton Read, Chief Executive Officer ---------------------------------------- Alan C. Mendelson, Secretary E-11 CONFIDENTIAL TREATMENT REQUESTED SCHEDULE 1 PARTNER PRODUCTS 1) Cold adapted influenza vaccine 2) Recombinant influenza vaccine 3) Respiratory syncytial virus vaccine 4) Herpes simplex virus vaccine 5) [ ] 6) Cytomegalovirus vaccine 7) Epstein-Barr virus vaccine 8) [ ] 9) [ ] 1-1 SCHEDULE 2 PRIOR LICENSE AGREEMENTS OF AVIRON License Agreement between ARCH Development Corporation (University of Chicago) and Aviron dated as of July 1, 1992 Technology Transfer Agreement between Mount Sinai School of Medicine of the City University of New York and Aviron dated as of February 9, 1993 Cold Adapted Influenza Agreement between Aviron and the University of Michigan dated as of February 24, 1995 Public Health Service Cooperative Research and Development Agreement between the National Institutes of Health and Aviron 2-1 CONFIDENTIAL TREATMENT REQUESTED SCHEDULE 3 MANUFACTURING TERRITORY 1) United States of America 2) [ ] 3) [ ] 4) [ ] 5) [ ] 6) [ ] 7) [ ] 3-1 EX-10.6 16 COOP. RESEARCH & DEVELOPMENT AGREEMENT EXHIBIT 10.6 CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT HAS BEEN DELETED, AS MARKED BY BRACKETS, AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. PUBLIC HEALTH SERVICE COOPERATIVE RESEARCH AND DEVELOPMENT AGREEMENT This Cooperative Research and Development Agreement, hereinafter referred to as the "CRADA," consists of this Cover Page, an attached Agreement, a Signature Page, and various Appendices referenced in the Agreement. This Cover Page serves to identify the Parties to this CRADA: (1) the following Bureau(s), Institute(s), or Division(s) of the National Institutes of Health: NATIONAL INSTITUTE OF ALLERGY AND INFECTIOUS DISEASES, ("NIAID"), hereinafter singly or collectively referred to as the "NIH;" and (2) AVIRON, which has offices at 1450 Rollins Road, Burlingame, CA 94010, hereinafter referred to as the "Collaborator." Our proposal, including its attachments, contain confidential commercial information. Pursuant to 45 C. F. R. Section 5.65, we have designated those pages that include such confidential information with a stamp or in the page footer. It is Aviron's position that such information is exempt from disclosure under the Freedom of Information Act and we understand that we will receive predisclosure notification of any request for information we have designated as confidential which the Institute determines it is required to disclose. NIH Patent Policy Board, April 24, 1989 COOPERATIVE RESEARCH AND DEVELOPMENT AGREEMENT Article 1. INTRODUCTION This Cooperative Research and Development Agreement (CRADA) between NIH and the Collaborator will be effective when signed by all parties. By signing this CRADA, the Collaborator acknowledges that it has received and read a copy of the Policy Statement on Cooperative Research and Development Agreements and Intellectual Property Licensing which is attached as Appendix A. The research and development project(s) which will be undertaken by each of the Parties in the course of this CRADA are detailed in the Research Plan (RP) which is attached as Appendix B. The funding and staffing commitments of the Parties are set forth in Appendix C. Any exceptions or changes to the CRADA are set forth in Appendix D. Article 2. DEFINITIONS As used in this CRADA, the following terms shall have the indicated meanings: 2.1 "Cooperative Research and Development Agreement" or "CRADA" means this agreement, entered into by NIH pursuant to the Federal Technology Transfer Act of 1986 and Executive Order 12591 of October 10, 1987. 2.2 "Proprietary Information" means confidential scientific, business, or financial information provided that such information: 2.2.1 is not publicly known or available from other sources who are not under a confidentiality obligation to the source of the information; 2.2.2 has not been made available by its owners to others without a confidentiality obligation; 2.2.3 is not already known by or available to the receiving Party without a confidentiality obligation; or 2.2.4 does not relate to potential hazards or cautionary warnings associated with the production, handling, or use of the subject matter of the Research Plan of this CRADA. 2.3 "Subject Data" means all recorded information first produced in the performance of this CRADA. 2.4 "Research Results" means all tangible materials other than Subject Data first produced in the performance of this CRADA. 2 - NIH Patent Policy Board, April 24, 1989 2.5 "Subject Invention" means any invention, conceived or reduced to practice in the performance of research under this CRADA, that may be patentable under 35 U.S.C. Section 101 or Section 161, protectable under 7 U.S.D. Section 2321, or otherwise protectable by other types of U.S. or foreign "Intellectual Property" ("IP") right. 2.6 "Government" means the U.S. Government and any of its agencies. 2.7 "Research Plan" or "RP" means the statement in Appendix B of the respective research and development commitments of the Parties to this CRADA. 2.8 "Principal Investigator" or "PI" means the persons designated respectively by the Parties to this CRADA who will be responsible for the scientific and technical conduct of the RP. Article 3. COOPERATIVE RESEARCH 3.1 RESEARCH TEAM. The Parties agree to establish a joint research and development team (hereinafter referred to as the "Team") comprising at least the Principal Investigators designated pursuant to Article 3.3 to conduct and monitor the research in accordance with the RP. Although the members of the Team shall be considered as having been delegated to the Team, they shall continue to remain employed by their respective employers under their respective terms of employment. 3.2 REVIEW OF WORK. Periodic conferences shall be held by the Team to review work progress. It is understood that the nature of this cooperative research precludes a guarantee of its completion within the specified period of performance or limits of allocated financial or staffing support. Accordingly, research under this CRADA is to be performed on a best efforts basis. 3.3 PRINCIPAL INVESTIGATORS. NIH research work under this CRADA will be performed by the Laboratory identified in the RP, and the NIH Principal Investigator (PI) designated in the RP will be responsible for the scientific and technical conduct of this project on behalf of NIH. Also designated in the RP is the Collaborator PI, who will be responsible for the scientific and technical conduct of this project on behalf of the Collaborator. 3.4 RESEARCH PLAN CHANGE. The RP may be modified by mutual written consent of the Principal Investigators. Substantial changes in the scope of the RP will be treated as amendments under Article 14.6. 3 - NIH Patent Policy Board, April 24, 1989 Article 4. REPORTS 4.1 INTERIM REPORTS. The Parties shall exchange formal written interim progress reports on a schedule agreed to by the PIs, but at least within six (6) months after this CRADA becomes effective and at least within every six (6) months thereafter. Such reports shall set forth the technical progress made, identifying such problems as may have been encountered and establishing goals and objectives requiring further effort. 4.2 FINAL REPORTS. The Parties shall exchange final reports of their results within four (4) months after completing the projects described in the RP or after the termination of this CRADA. Article 5. FINANCIAL AND STAFFING OBLIGATIONS 5.1 NIH AND COLLABORATOR CONTRIBUTIONS. The NIH contribution to the RP in the form of personnel, services, and property only is designated in Appendix C. The Collaborator contribution to the RP in the form of personnel, services, property, support for staffing and/or funding is designated in Appendix C. Payment schedules, if applicable, are also indicated in Appendix C. 5.2 INSUFFICIENT AND EXCESS FUNDS. NIH shall not be obligated to perform any of the research specified herein or to take any other action required by this CRADA if the funding is not provided as set forth in Appendix C. NIH shall return excess funds to the Collaborator when it sends its final fiscal report pursuant to Article 5.3, except for staffing support pursuant to Article 11.3. 5.3 ACCOUNTING RECORDS. NIH shall maintain separate and distinct current accounts, records, and other evidence supporting all its obligations under this CRADA, and shall provide the Collaborator an annual report reflecting the use of the Collaborator's funds and a final such fiscal report at the time that final reports are exchanged pursuant to Article 4.2. Article 6. TITLE TO PROPERTY 6.1 CAPITAL EQUIPMENT. The purchase or use of capital equipment to carry out this CRADA does not affect the ownership rights that would otherwise apply. Equipment purchased by NIH with funds provided by the Collaborator shall be the property of NIH. All capital equipment provided under this CRADA by one party for the use of another Party remains the property of the providing Party unless other disposition is mutually agreed upon in writing by the PIs. If title to this equipment remains with the providing Party, that Party is responsible for maintenance of the equipment and the costs of its transportation to and from the site where it will be used. 4 - NIH Patent Policy Board, April 24, 1989 Article 7. INTELLECTUAL PROPERTY RIGHTS AND APPLICATIONS 7.1 REPORTING. The Parties shall promptly report to each other in writing each Subject Invention resulting from the research conducted under this CRADA that is reported to them by their respective employees. Such reports shall be treated in confidence by the receiving Party until such time as a patent or other Intellectual Property (IP) application, as appropriate, claiming that Subject Invention has been filed. Because of the royalty sharing provisions for Government inventors in the Federal Technology Transfer Act of 1986, and in view of Article 8.3 of this CRADA which grants the Government only a research license on inventions made solely by the Collaborator, the Collaborator acknowledges a special duty to report all Subject Inventions to NIH so that NIH may determine whether or not inventorship properly includes NIH investigators. 7.2 COLLABORATOR EMPLOYEE INVENTIONS. The Collaborator may elect to retain IP rights to any Subject Invention made solely by a Collaborator employee. The Collaborator shall notify NIH promptly upon making this election. If the Collaborator does not elect to retain its IP rights, the Collaborator shall offer to assign these IP rights to the Subject Invention to NIH pursuant to Article 7.5. If NIH declines such assignment, the Collaborator may release its IP rights to employee inventors pursuant to Article 7.6. 7.3 NIH EMPLOYEE INVENTIONS. NIH, on behalf of the U.S. Government, may elect to retain IP rights to each Subject Invention made solely by NIH employees. If NIH does not elect to retain IP rights, NIH shall offer to assign these IP rights to such Subject Invention to the Collaborator pursuant to Article 7.5. If the Collaborator declines such assignment, NIH may release IP rights in such Subject Invention to its employee inventors pursuant to Article 7.6. 7.4 JOINT INVENTIONS. Each Subject Invention made jointly by NIH and Collaborator employees shall be jointly owned by NIH and the Collaborator. The Collaborator may elect to file the joint patent or other IP application(s) thereon and shall notify NIH promptly upon making this election. If the Collaborator decides to file such applications, it shall do so in a timely manner and at its own expense. If the Collaborator does not elect to file such application(s), NIH, on behalf of the U.S. Government, shall have the right to file the joint applications in a timely manner and at its own expense. If either Party decides not to retain its IP rights to a jointly owned Subject Invention, it shall offer to assign such rights to the other Party pursuant to Article 7.5. If the other Party declines such assignment, the offering Party may release its IP rights to employee inventors pursuant to Article 7.6. 5 - NIH Patent Policy Board, April 24, 1989 7.5 FILING OF PATENT APPLICATIONS. With respect to Subject Inventions made by the Collaborator as described in Article 7.2 or by NIH as described in Article 7.3, a Party exercising its right to retain IP rights to a Subject Invention agrees to file patent or other IP applications in a timely manner and at its own expense. The Party may elect not to file a patent or other IP application thereon in any particular country or countries, provided it so advises the other Party ninety (90) days prior to the expiration of any applicable filing deadline, priority period, or statutory bar date, and hereby agrees to assign its IP right, title, and interest in such country or countries to the Subject Invention to the other Party and to cooperate in the preparation and filing of a patent or other IP applications. In any countries in which title to patent or other IP rights is transferred to the Collaborator, the Collaborator agrees that NIH inventors will share in any royalty distribution that the Collaborator pays to its own inventors. 7.6 RELEASE TO INVENTORS. In the event neither of the Parties to the CRADA elects to file a patent or other IP application on a Subject Invention, either or both (if a joint invention) may release their IP rights to their respective employee inventor(s) with a non-exclusive, non-transferrable, royalty-free license being retained by each Party. 7.7 PATENT EXPENSES. The expenses attendant to the filing of patent or other IP applications generally shall be paid by the Party filing such application. If an exclusive license to any Subject Invention is granted to the Collaborator, the Collaborator shall reimburse NIH for the reasonable past and Collaborator-approved ongoing funds expended worldwide for filing, prosecuting, and maintaining any applications claiming such exclusively-licensed inventions and any patents or other IP grants that may issue on such applications. The Collaborator may waive its exclusive license rights on any application, patent, or other IP grant at any time, and incur no subsequent compensation obligation for that application, patent, or IP grant. 7.8 PROSECUTION OF INTELLECTUAL PROPERTY APPLICATIONS. Each Party shall provide the other Party with copies of the applications it files on any Subject Invention along with the power to inspect and make copies of all documents retained in the patent or other IP application files by the applicable patent or other IP office. The Parties agree to consult with each other with respect to the prosecution of NIH Subject Inventions described in Article 7.3 and joint Subject Inventions described in Article 7.4. If the Collaborator elects to file and prosecute IP applications on joint Subject Inventions pursuant to Article 7.4, NIH will be granted an associate power of attorney (or its equivalent) on such IP applications. 6 - CONFIDENTIAL TREATMENT REQUESTED NIH Patent Policy Board, April 24, 1989 Article 8. LICENSING 8.1 OPTION FOR EXCLUSIVE COMMERCIALIZATION LICENSE. With respect to Government IP rights to any Subject Invention not made solely by the Collaborator's employees for which a patent or other IP application is filed, NIH hereby grants to the Collaborator[ ]The license will specify the licensed fields of use, breadth of exclusivity, and royalties. Royalty rates will be based on product sales and the rates conventionally granted in the field identified in the RP for inventions with reasonably similar commercial potential. Royalty rates generally will not exceed a rate within the range of 5 - 8% for exclusive commercialization licenses. Contingent royalty schemes based on, e.g., patent issuance or non-issuance, and provisions treating the stacking of royalties or packaging of other licensed inventions developed under this CRADA may be provided. Exclusive licensees will be expected to reimburse NIH for IP expenses related to each licensed intellectual property, and may be permitted to offset such reimbursement against future product royalties. 8.2 EXERCISE OF LICENSE OPTION. The option of Article 8.1 must be exercised by written notice mailed within three (3) months after the patent or other IP application is filed to the NIH Office of Technology Transfer, 6011 Executive Boulevard, Suite 325, Rockville, MD 20852. Exercise of this option by the Collaborator initiates a negotiation period that expires nine (9) months after the patent or other IP application filing date. If the last proposal by the Collaborator has not been responded to in writing by the NIH within this nine (9) month period, the negotiation period shall be extended to expire one (1) month after NIH so responds, during which month the Collaborator may accept in writing the final license proposal of NIH. After that time, NIH will be free to license such IP rights to others. 8.3 GOVERNMENT INTELLECTUAL PROPERTY RIGHTS. For inventions developed wholly by NIH investigators or jointly with a Collaborator under this CRADA, NIH are required by the Federal Technology Transfer Act of 1986 (15 U.S.C. at Section 3710a[b](2]) to retain at least a nonexclusive, irrevocable, paid-up license to practice the invention or to have the invention practiced throughout the world by or on behalf of the U.S. Government. For inventions developed wholly by the Collaborator under this CRADA, the Collaborator agrees to grant a research license as described in Article 8.4 to the Government. 8.4 RESEARCH LICENSES[ 7 - CONFIDENTIAL TREATMENT REQUESTED NIH Patent Policy Board, April 24, 1989 ] 8.5 JOINT INVENTIONS NOT EXCLUSIVELY LICENSED. In the event that the Collaborator does not acquire an exclusive commercialization license to IP rights in joint Subject Inventions described in Article 7.4, then each Party shall have the right to use the joint Subject Invention and to license its use to others. The Parties may agree to a joint licensing approach for such IP rights. Article 9. PROPRIETARY RIGHTS AND PUBLICATION 9.1 RIGHT OF ACCESS. NIH and the Collaborator agree to exchange all Subject Data and Research Results produced in the course of research under this CRADA, whether developed solely by NIH, jointly with the Collaborator, or solely by the Collaborator. Tangible research products developed under a CRADA will be shared equally by the Parties to the CRADA unless other disposition is agreed to by the Principal Investigators. All Parties to the CRADA will be free to utilize Subject Data and Research Results for their own purposes, consistent with their obligations under this CRADA. 9.2 OWNERSHIP OF SUBJECT DATA AND RESEARCH RESULTS. Subject to the sharing requirements of Article 9.1, the producing Party will retain ownership of and title to all Subject Inventions, all Subject Data, and all Research Results produced solely by their investigators. Jointly developed Subject Inventions, Subject Data, and Research Results will be jointly owned; however, except as may be afforded through IP rights that require public disclosure of the protected subject matter (e.g., patents), NIH do not have statutory authority to license (or agree with the Collaborator to limit dissemination of) Subject Data or Research Results developed solely by NIH investigators or jointly with the Collaborator. Accordingly, NIH will not agree to exclude others from utilizing or commercializing such Subject Data or Research Results. 9.3 PROPRIETARY AND CONFIDENTIAL INFORMATION. Each Party agrees to limit its disclosure of Proprietary Information to the amount necessary to carry out the Research Plan of this CRADA, and shall place a confidentiality notice on all such information. Research materials required for the RP may also be designated as Proprietary Information. Each party receiving Proprietary Information agrees that any information so designated shall be used by it only for the purposes described in the attached Research Plan. Any party may object to the designation of information as Proprietary Information by another Party and may decline to accept such 8 - CONFIDENTIAL TREATMENT REQUESTED NIH Patent Policy Board, April 24, 1989 information. Data and research products developed solely by the Collaborator may be designated as Proprietary Information when they are wholly separable from the data and research products developed jointly with NIH investigators, and advance designation of such data and product categories is set forth in the RP. The exchange of confidential information, e.g., patient data, should be similarly limited and treated. Unless disclosure is otherwise mutually agreed upon, all Parties to this CRADA agree to keep CRADA Subject Data and Research Results confidential, to the extent permitted by law, until they are published or corresponding patent or other IP application(s) have been filed. 9.4 PROTECTION OF PROPRIETARY INFORMATION. Proprietary information shall not be disclosed, copied, reproduced, or otherwise made available to any other person or entity without the consent of the owning Party except as required under court order or the Freedom of Information Act (5 U.S.C. Section 552). Each Party agrees to use its best efforts to maintain the confidentiality of Proprietary Information. Each Party agrees that another Party is not liable for the disclosure of Proprietary Information which, after notice to and consultation with the concerned Party, another Party in possession of the Proprietary Information determines may not lawfully be withheld, provided the concerned Party has been given an opportunity to obtain a court order to enjoin disclosure. 9.5 DURATION OF CONFIDENTIALITY OBLIGATION. The obligation to maintain the confidentiality of Proprietary Information shall expire at the earlier of the date when the information is no longer Proprietary Information as defined in Article 2.2 or[ ]after the expiration or termination date of this CRADA. The Collaborator may request an extension to this term when necessary to protect Proprietary Information relating to products not yet commercialized. 9.6 PUBLICATION. The Parties are encouraged to make publicly available the results of their research. Before either Party submits a paper or abstract for publication or otherwise intends to publicly disclose information about a Subject Invention, Subject Data, or Research Results, the other Party shall be provided thirty (30) days to review the proposed publication or disclosure to assure that Proprietary Information is protected. The publication or other disclosure shall be delayed for up to thirty (30) additional days upon written request by any Party as necessary to preserve U.S. or foreign patent or other IP rights. 9 - NIH Patent Policy Board, April 24, 1989 Article 10. REPRESENTATIONS AND WARRANTIES 10.1 REPRESENTATIONS AND WARRANTIES OF NIH. NIH hereby represents and warrants to the Collaborator that the Official signing this CRADA has authority to do so. 10.2 REPRESENTATIONS AND WARRANTIES OF THE COLLABORATOR. The Collaborator hereby represents and warrants to NIH that the Collaborator has the requisite power and authority to enter into this CRADA and to perform according to its terms, and that the Collaborator's Official signing this CRADA has authority to do so. The Collaborator further represents that it is financially able to satisfy any funding commitments made in Appendix C. Article 11. TERMINATION 11.1 TERMINATION BY MUTUAL CONSENT. NIH and the Collaborator may terminate this CRADA, or portions thereof, at any time by mutual written consent. In such event, the Parties shall specify the disposition of all property, inventions, patent or other IP applications, and other results of work accomplished or in progress, arising from or performed under this CRADA. 11.2 UNILATERAL TERMINATION. Either NIH or the Collaborator may unilaterally terminate this entire CRADA at any time by giving written notice at least thirty (30) days prior to the desired termination date, and any rights accrued in property, patents, or other IP shall be disposed of as in 11.1. 11.3 STAFFING. If this CRADA is mutually or unilaterally terminated prior to its expiration, funds will nevertheless remain available to NIH for continuing any staffing commitment made by the Collaborator pursuant to Article 5.1 above and Appendix C, if applicable, for a period of six (6) months after such termination. If there are insufficient funds to cover this expense, the Collaborator agrees to pay the difference. 11.4 NEW COMMITMENTS. No Party shall make new commitments related to this CRADA after a mutual or unilateral termination and shall, to the extent feasible, cancel all outstanding commitments and contracts by the termination date. 11.5 TERMINATION COSTS. Concurrently with the exchange of final reports pursuant to Articles 4.2 and 5.3, NIH shall submit to the Collaborator for payment a statement of all costs incurred prior to the date of termination and for all reasonable termination costs including the cost of returning Collaborator property or removal of abandoned property. 10 - NIH Patent Policy Board, April 24, 1989 Article 12. DISPUTES 12.1 SETTLEMENT. Any dispute arising under this CRADA which is not disposed of by agreement of the Principal Investigators shall be submitted jointly to the signatories of this CRADA. If the signatories are unable to jointly resolve the dispute within thirty (30) days after notification thereof, the Assistant Secretary of Health (or his/her designee) shall propose a resolution. Nothing in this section shall prevent any Party from pursuing any and all administrative and/or judicial remedies which may be available. 12.2 CONTINUATION OF WORK. Pending the resolution of any dispute or claim pursuant to this Article, the Parties agree that performance of all obligations shall be pursued diligently in accordance with the direction of the NIH signatory. Article 13. LIABILITY 13.1 PROPERTY. The U.S. Government shall not be responsible for damages to any property of the Collaborator provided to it or acquired by it pursuant to this CRADA. 13.2 NO WARRANTIES. Except as specifically stated in Article 10, the Parties make no express or implied warranty as to any matter whatsoever, including the conditions of the research or any invention or product, whether tangible or intangible, made, or developed under this CRADA, or the ownership, merchantability, or fitness for a particular purpose of the research or any invention or product. 13.3 INDEMNIFICATION. The Collaborator agrees to hold the U.S. Government harmless and to indemnify the Government for all liabilities, demands, damages, expenses, and losses arising out of the use by the Collaborator for any purpose of the Subject Data, Research Results, and/or Subject Inventions produced in whole or in part by NIH employees under this CRADA, unless due to the negligence of NIH, its employees or agents. The Collaborator shall be liable for any claims or damages it incurs in connection with this CRADA. NIH have no authority to indemnify the Collaborator. 13.4 FORCE MAJEURE. Neither Party shall be liable for any unforeseeable event beyond its reasonable control not caused by the fault or negligence of such Party, which causes such Party to be unable to perform its obligations under this CRADA, and which it has been unable to overcome by the exercise of due diligence. In the event of the occurrence of such a force majeure event, the Party unable to perform shall promptly notify the other Party. It shall further use its best efforts to resume performance as quickly as possible and shall suspend performance only for such period of time as is necessary as a result of the force majeure event. 11 - NIH Patent Policy Board, April 24, 1989 Article 14. MISCELLANEOUS 14.1 GOVERNING LAW. The construction, validity, performance, and effect of this CRADA shall be governed by Federal Law, as applied by the Federal Courts in the District of Columbia. Federal law and regulations will preempt any conflicting or inconsistent provisions in this CRADA. 14.2 ENTIRE AGREEMENT. This CRADA constitutes the entire agreement between the Parties concerning the subject matter of this CRADA and supersedes any prior understanding or written or oral agreement. 14.3 HEADINGS. Titles and headings of the sections and subsections of this CRADA are for the convenience of reference only, do not form a part of this CRADA, and shall in no way affect its interpretation. 14.4 WAIVERS. None of the provisions of this CRADA shall be considered waived by any Party hereto unless such waiver is given in writing to the other Party. The failure of a Party to insist upon strict performance of any of the terms and conditions hereof, or failure or delay to exercise any rights provided herein or by law, shall not be deemed a waiver of any rights of any Party. 14.5 SEVERABILITY. The illegality or invalidity of any provisions of this CRADA shall not impair, affect, or invalidate the other provisions of this CRADA. 14.6 AMENDMENTS. If either Party desires a modification to this CRADA, the Parties shall, upon reasonable notice of the proposed modification or extension by the Party desiring the change, confer in good faith to determine the desirability of such modification or extension. Such modification shall not be effective until a written amendment is signed by the signatories to this CRADA or by their representatives duly authorized to execute such amendment. 14.7 ASSIGNMENT. Neither this CRADA nor any rights or obligations of any Party hereunder shall be assigned or otherwise transferred by either Party without the prior written consent of the other Party. 14.8 NOTICES. All notices pertaining to or required by this CRADA shall be in writing and shall be signed by an authorized representative and shall be delivered by hand or sent by certified mail, return receipt requested, with postage prepaid, to the addresses indicated on the signature page for each Party. Notices regarding the exercise of license options shall be made pursuant to Article 8.2. Any Party may change such address by notice given to the other Party in the manner set forth above. 12 - NIH Patent Policy Board, April 24, 1989 14.9 INDEPENDENT CONTRACTORS. The relationship of the Parties to this CRADA is that of independent contractors and not as agents of each other or as joint venturers or partners. Each party shall maintain sole and exclusive control over its personnel and operations. Collaborator employees who will be working at NIH facilities may be asked to sign a Guest Researcher or Special Volunteer Agreement appropriately modified in view of the terms of this CRADA. 14.10 USE OF NAME OR ENDORSEMENTS. By entering into this CRADA, NIH does not directly or indirectly endorse any product or service provided, or to be provided, whether directly or indirectly related to either this CRADA or to any patent or other IP license or agreement which implements this CRADA by its successors, assignees, or licensees. The Collaborator shall not in any way state or imply that this CRADA is an endorsement of any such product or service by the U.S. Government or any of its organizational units or employees. 14.11 EXCEPTIONS TO THIS CRADA. Any exceptions or modifications to this CRADA that are agreed to by the Parties prior to their execution of this CRADA are set forth in Appendix D. 14.12 REASONABLE CONSENT. Whenever a Party's consent or permission is required under this CRADA, such consent or permission shall not be unreasonably withheld. Article 15. DURATION OF AGREEMENT 15.1 DURATION. It is mutually recognized that the duration of this project cannot be rigidly defined in advance, and that the contemplated time periods for various phases of the RP are only good faith guidelines subject to adjustment by mutual agreement to fit circumstances as the RP proceeds. In no case will the term of this CRADA extend beyond the term indicated in the RP unless it is revised in accordance with Article 14.6. 15.2 SURVIVABILITY. The provisions of Articles 4.2, 5.2, 5.3, 6.1, Articles 7 - 9, 11.3, 11.5, 12.1, 13.3, and 14.10 shall survive the termination of this CRADA. 13 - NIH Patent Policy Board, April 24, 1989 APPENDIX A NIH POLICY STATEMENT ON COOPERATIVE RESEARCH AND DEVELOPMENT AGREEMENTS AND INTELLECTUAL PROPERTY LICENSING NIH Patent Policy Board, April 24, 1989 NATIONAL INSTITUTES OF HEALTH POLICY STATEMENT ON COOPERATIVE RESEARCH AND DEVELOPMENT AGREEMENTS AND INTELLECTUAL PROPERTY LICENSING This statement sets forth the policies of the National Institutes of Health (NIH) on various aspects of cooperative research and intellectual property licensing. These policies apply to the negotiation of NIH Cooperative Research and Development Agreements (CRADAs). License agreements for intellectual property rights to inventions developed under a CRADA or through the NIH intramural research programs, whether negotiated by NIH or the National Technical Information Service on their behalf, will also incorporate these policies. This statement may be revised from time to time as NIH consider appropriate.* To implement the Federal Technology Transfer Act of 1986 (FTTA, 15 U.S.C. at Section 3710), Executive Order 12591 of April 10, 1987, orders Federal laboratories to assist universities and the private sector in broadening our national technology base by moving new knowledge from the research laboratory into the development of new procedures and processes. While Federal patent law (35 U.S.C. at Sections 200-212) authorizes the licensing of Government-owned patent rights, the FTTA seeks to facilitate technological collaboration at an earlier stage. Thus, the FTTA authorizes Federal laboratories to enter into CRADAs and to agree to grant intellectual property rights in advance to collaborators for inventions made in whole or part by Federal employees under the CRADA. Besides assisting in the transfer of commercially useful technologies from Federal laboratories to the marketplace, CRADAs make outside resources more accessible to Federal laboratories. NIH, an agency of the Public Health Service (PHS) within the Department of Health and Human Services (DHHS), is among the world's preeminent biomedical research organizations. Their general mission is to conduct biomedical and behavioral research that will lead to the better health of the American people. For the NIH investigator, this agency mission prescribes the exploration of ideas, the communication of ideas and information to colleagues, and a responsibility for the prompt and accurate publication of findings. Under the FTTA (15 U.S.C. at Section 3710a[a][2]), technology transfer, consistent with mission responsibilities, is also a responsibility of each laboratory science and engineering professional. - --------------- Questions or comments about this Statement and requests for updated versions should be directed to the NIH Office of Technology Transfer at (301) 496-0750. This Statement is effective on an interim basis, and will be revised after October 1, 1989. 2 - NIH Patent Policy Board March 27, 1989 To support their mission, NIH have developed an interdisciplinary and synergistic research environment that promotes the free exchange of ideas and information. In order to safeguard the collegiality and integrity of, as well as public confidence in, the NIH research programs, the following cooperative research technology transfer policies have been adopted. 1. RESEARCH FREEDOM: NIH investigators generally are free to choose the subject matter of their research, consistent with the mission of their Institute and the research programs of their Laboratories. No CRADAs or license agreement may contravene this freedom. 2. RESEARCH POLICY: NIH research results generally are disseminated freely through publication in the scientific literature and presentations at public fora. Brief delays in this dissemination of research results may be permitted under a CRADA as necessary in order to file corresponding patent or other intellectual property applications. NIH consider the filing of such applications to be an important component of their research efforts. 3. COOPERATIVE RESEARCH AND DEVELOPMENT UNDER A CRADA: As defined by the FTTA (15 U.S.C. at Section 3710a[d][1]), a CRADA means any agreement, between one or more Federal Laboratories and one or more non- Federal parties, under which the Government provides personnel, services, facilities, equipment, or other resources (but not funds), and the non-Federal parties provide funds, personnel, services, facilities, equipment, or other resources toward the conduct of specified research or development efforts. Cooperative research and development activities are intended to facilitate the transfer of Federally-funded research and development for use by State and local governments, universities, and the private sector, particularly small business. 4. NIH CRADAS: As adopted by NIH, a CRADA is a standardized agreement intended to provide an appropriate legal framework for, and to expedite the approval of, cooperative research and development projects. The use of CRADAs is encouraged for cooperative efforts because they permit NIH to accept, retain, and use funds, personnel services, and property to collaborating parties. NIH may permit their investigators to enter into CRADAs with collaborators who will make a significant intellectual contribution to the research project undertaken or who will contribute essential research materials or technical resources not otherwise reasonably available. While NIH welcome contributions to their gift funds for research purposes, they do not view CRADAs as a general funding source or a mechanism for sponsored research. This approach to 3 - NIH Patent Policy Board March 27, 1989 implementing the FTTA has been chosen in order to maintain the public's confidence in NIH through maintaining an independence from reliance on industry funding. 5. SELECTION OF COLLABORATORS UNDER A CRADA: Collaborators under a CRADA may be suggested by potential Collaborators or by NIH investigators. Generally, the decision to initiate the approval process for a CRADA is made by the involved NIH investigator and laboratory chief based on scientific considerations and the desire for the public to benefit from the commercialization of particular NIH research. For some cooperative projects, where the development and commercialization potential is more immediate relative to the basic research aspects, NIH may seek a collaborator(s) which has both scientific expertise and commercialization capabilities. In certain areas of research, e.g., where the Government has the intellectual lead or where both scientific and commercialization capabilities are deemed essential at the outset, NIH may competitively seek a collaborator through Federal Register notification. The PHS has also developed policy guidelines for ensuring fairness of access to PHS laboratories such as NIH in the process of initiating and developing CRADAs. 6. PROPRIETARY OR CONFIDENTIAL INFORMATION AND MATERIALS: NIH recognize that an effective collaborative research program may require the disclosure of proprietary information to NIH investigators. Although agreements to maintain confidentiality are permitted under a CRADA, collaborators should limit their disclosure of proprietary information to the amount necessary to carry out the research plan of the CRADA. The mutual exchange of confidential information, e.g., patient data, should be similarly limited. NIH also recognize that cooperative research may require the exchange of proprietary research materials. Such materials may be used only for the purposes specified in the research plan set forth in the CRADA. All parties to the CRADA will agree to keep CRADA research results confidential to the extent permitted by law until they are published in the scientific literature or presented at a public forum. 7. TREATMENT OF DATA AND RESEARCH PRODUCTS PRODUCED UNDER A CRADA: The NIH investigator and the collaborator will agree to exchange all data and research products developed in the course of the research under a CRADA whether developed solely by NIH, jointly with the collaborator, or solely by the collaborator. In general, tangible research products developed under a CRADA will be shared equally by the parties to the CRADA. All parties to a CRADA will be free to utilize such data and research products for their own purposes. Data and research products developed solely by the collaborator may be designated as proprietary by the collaborator when they are wholly separable from the data and research products developed jointly with NIH investigators; however, except as may be afforded through intellectual property rights that require public disclosure of the protected subject matter (e.g., patents), NIH will not agree to exclude others from utilizing or commercializing the data or research products developed 4 - NIH Patent Policy Board March 27, 1989 solely by NIH investigators or jointly with the collaborator under a CRADA. 8. OWNERSHIP AND LICENSING OF NIH INTELLECTUAL PROPERTY RIGHTS: Pursuant to the FTTA (15 U.S.C. at Section 3710a[b][2]), a Federal laboratory is authorized to own and license patent rights to inventions made in whole or part by its employees under a CRADA. The term "invention" is defined at Section 3703(9) to mean any invention or discovery which is or may be patentable or otherwise protected under Title 35, or any novel variety of plant which is or may be protectable under the Plant Variety Protection Act (7 U.S.C. Section 2321 et seq.). The patent law (35 U.S.C. at Section 207), authorizes the ownership and licensing of intramural inventions. Executive Order 12591 at Section l(b)(1)(B) further authorizes the transfer of Government intellectual property rights. Although the FTTA speaks broadly of the transfer of "technology," NIH do not have statutory authority to license (or to agree to limit dissemination of) technology developed in whole or in part by their investigators under a CRADA unless a patent, PVPA certificate, or other intellectual property application has been filed for that technology. NIH will retain the Government ownership interest in, but license rights to, all intellectual property rights to inventions developed solely through intramural research or developed in whole or in part by their investigators under a CRADA. 9. GENERAL LICENSING POLICY: NIH recognize that under the FTTA and the patent licensing law to which it refers, Congress and the President have chosen to utilize the patent system as the primary mechanism for transferring Government inventions to the private sector. The importance of patents to commercialization in the biomedical field is further reflected by the Drug Price Competition and Patent Term Restoration Act of 1984 (Pub. L. 98-419). A fundamental principle of the patent system is that the owner of a patent have time-limited "right to exclude others from making, using, or selling the [patented] invention." The reason for such a period of exclusivity is to encourage industry to invest the resources necessary to bring an invention from the discovery stage through subsequent development, clinical trials, regulatory approvals, and ultimately into commercial production. NIH accordingly are willing to grant exclusive commercialization licenses under their patent or other intellectual property rights in cases where substantial additional risks, time, and costs must be undertaken by a licensee prior to commercialization. Under a CRADA, NIH are also willing, to agree to grant exclusive commercialization licenses in advance to collaborators. NIH will attempt, however, to license their intramural inventions nonexclusively in cases where an invention reflects a relatively more advanced stage in its commercial development, e.g., when an NIH investigator invents a patentable new therapeutic use for a known and FDA-approved compound. Federal laboratories are authorized to negotiate license agreements for Government-owned patent rights in intramural inventions pursuant to 35 U.S.C. Section 207. Although Section 207 does 5 - NIH Patent Policy Board March 27, 1989 not apply to intellectual property license agreements authorized by the FTTA for inventions made under a CRADA, NIH have adopted the following approach of Section 207 for all license agreements: Each Federal Agency [may] ... grant nonexclusive, exclusive or partially exclusive licenses under Federally owned patent applications, patents, or other forms of protection ... on such terms and conditions ... as determined appropriate in the public interest. NIH have determined it to be appropriate in the public interest to grant nonexclusive research licenses and either exclusive or nonexclusive commercialization licenses to DHHS-owned intellectual property. 10. GOVERNMENT INTELLECTUAL PROPERTY RIGHTS: For inventions developed wholly by NIH investigators or jointly with a collaborator under a CRADA, NIH are required by the FTTA at 15 U.S.C. Section 3710a(b)(2) to retain at least a nonexclusive, irrevocable, paid-up license to practice the invention or to have the invention practiced throughout the world by or on behalf of the U.S. Government. When granting exclusive or partially exclusive licenses to NIH intramural inventions, 35 U.S.C. Section 208, as implemented by 37 C.F.R. Section 404.7(2)(i), requires the reservation of similar Government rights. NIH will not assert an ownership right in inventions made solely by a collaborator under a CRADA, but will require the grant of a research license, as described below, to the Government for inventions made wholly by a collaborator under a CRADA. 11. RESEARCH LICENSES: NIH will reserve the right under any CRADA and intellectual property license to grant nonexclusive licenses to make and to use the invention for purposes of research involving the invention itself, and not for purposes of commercial manufacture of, or in lieu of purchase as a commercial product for use in other research. The purpose of the research license is to facilitate basic academic research. NIH intend to consult with any involved commercialization licensee(s) before granting research licenses to commercial entities. 12. COMMERCIALIZATION LICENSES: NIH are willing to consider requests for nonexclusive or exclusive commercialization licenses to intellectual property rights to inventions developed under a CRADA or in the course of intramural research, pursuant to applicable statutes and regulations. Under a CRADA, NIH generally will grant a time-limited option to negotiate, in good faith, the terms of a license that fairly reflects the relative contributions of the parties, the risks incurred by the collaborator, and the costs of subsequent research and development needed to bring the results of CRADA research to the marketplace. NIH contemplate the drafting of a model invention license to serve as the 6 - NIH Patent Policy Board March 27, 1989 starting point for license negotiations. It is contemplated further that such a model will reduce negotiations essentially to matters of execution fees, royalty rates, and minimum annual royalties. Royalty rates will be based on product sales and the rates conventionally granted in the field identified in the CRADA's research plan for inventions with reasonably similar commercial potential. Royalty rates generally will not exceed a rate within the range of 5 - - 8 % for exclusive commercialization licenses. Contingent royalty schemes based on, e.g., patent issuance or nonissuance, and clauses treating the stacking of royalties or packaging of other inventions developed under the CRADA may be provided. Exclusive licensees will be expected to reimburse NIH for intellectual property-related expenses, and may be permitted to offset such reimbursement against future product royalties. 13. NONEXCLUSIVE COMMERCIALIZATION LICENSES: Unless a request for exclusive commercialization license is made under a CRADA or submitted for an intramural invention, NIH will attempt to license their inventions nonexclusively. Such nonexclusive licenses generally will follow the guidelines of 37 C.F.R., Part 404. 14. EXCLUSIVE COMMERCIALIZATION LICENSES: All NIH exclusive commercialization licenses will require the submission by a prospective licensee of an acceptable development and commercialization plan as described by 35 U.S.C. Section 209(a) and subsequent, periodic reports on utilization of the invention as described by Section 209(f)(1). All such plans and reports will be treated in confidence and as privileged from disclosure under the Freedom of Information Act. Modification provisions as described by Section 209(f)(2) - (4) may apply. In appropriate cases, NIH may also reserve the right to grant separate exclusive commercialization licenses in various fields of use. The remaining provisions of 35 U.S.C. Sections 200 - 212 will also apply to licenses to NIH intramural inventions. NIH also consider the following provisions for exclusive commercialization licenses to be necessary and appropriate in the public interest: (i) the exclusive licensee must pledge its reasonable best efforts to commercialize a licensed invention, and the development and commercialization plan mentioned above may serve as the measure of such efforts; (ii) NIH shall have the right, after notice and opportunity to cure, to terminate or render nonexclusive any license granted: (1) if the licensee is not reasonably engaged in research, development, clinical trials, manufacturing, marketing, sublicensing, or other activities reasonably necessary to the expeditious commercial dissemination of the licensed inventions; or (2) when the licensee cannot reasonably satisfy unmet health and safety needs; (iii) in order to maximize the commercialization of the licensed invention in other 7 - NIH Patent Policy Board March 27, 1989 fields of use not utilized by the exclusive licensee through ongoing development, manufacturing, or sublicensing, NIH reserve the right to require the licensee to grant sublicenses to responsible applicants, on reasonable terms, in such other fields of use, unless the licensee can reasonably demonstrate that such a sublicense would be contrary to sound and reasonable business practice and the granting of the sublicense would not materially increase the availability to the public of the licensed invention; and (iv) exclusive licenses to DHHS inventions, whether developed under a CRADA or through intramural research, must agree to not unreasonably deny requests for sublicense or cross license rights from future CRADA collaborators when the possibility of acquiring such derivative rights is necessary in order to permit a proposed cooperative research project with NIH to go forward, and the exclusive licensee has been given a reasonable opportunity to join as a party to the proposed CRADA. 15. COMPLIANCE UNDER A CRADA WITH OTHER POLICIES: For research conducted pursuant to a CRADA, collaborators must agree to comply with PHS and NIH policies and guidelines concerning, e.g., human subjects research, the use of research animals including non-wild chimpanzees, recombinant DNA, and other policy statements as may be promulgated from time to time. 16. WAIVERS: NIH will consider requests to modify any of the foregoing policies in special cases where public health exigencies or commercial situations warrant such a modification. Modifications dealing with business terms such as royalties are not decided by the NIH investigators and should be discussed with the appropriate NIH technology management personnel. 17. SPECIAL CONSIDERATION AND PREFERENCE UNDER A CRADA: NIH will give special consideration to entering into CRADAs with small business firms and consortia involving small business firms; and will give preference to business units located in the United States which agree to manufacture substantially in the United States products which embody inventions developed in the course of research under CRADAs. 8 - CONFIDENTIAL TREATMENT REQUESTED APPENDIX B RESEARCH PLAN TITLE OF CRADA: Development of a Live, Attenuated Cold-Adapted Influenza Vaccine NIH/ADAMHA PRINCIPAL INVESTIGATOR: Carole A. Heilman, Ph.D. ------------------------ COLLABORATOR PRINCIPAL INVESTIGATOR: J. Leighton Read, M.D. ------------------------ TERM OF CRADA: (5) years. ----------- CONFLICTS OF INTEREST INFORMATION: Describe any relevant past, present, or contemplated relationships between the NIH/ADAMHA Principal Investigator and his/her Laboratory and the Collaborator in sufficient detail to permit reviewers of this CRADA to determine whether or not any conflicts of interest exist: [ ] The Research Plan which follows this page should be concise but of sufficient detail to permit reviewers of this CRADA to evaluate the scientific merit of the proposed collaboration. The RP should explain the scientific importance of the collaboration and the research goals of NIH/ADAMHA and the Collaborator. The respective contributions in terms of expertise and/or research materials of NIH/ADAMHA and Collaborator should be summarized. Initial and subsequent projects contemplated under the RP, and the time periods estimated for their completion, should be described, and pertinent methodological considerations summarized. Pertinent literature references may be cited and additional relevant information included. Include additional pages to identify the Principal Investigators of all other Parties to this CRADA. CONFIDENTIAL TREATMENT REQUESTED Cold Adapted Influenza Vaccine CRADA Appendix B 1. GOAL OF THIS CRADA This CRADA is being undertaken to advance the CA influenza vaccine system from its current status to an FDA approved vaccine for use [ ] To accomplish this goal, the NIH and Aviron must show that the vaccine can be consistently manufactured and remain safe after transfer to a new producer, and that [ ] envisioned here is efficacious in the target populations. Clinical trials will be conducted to enable FDA approval for [ ] These trials as well as other studies will also be designed to assess the cost-effectiveness of the vaccine system in order to support the widest possible recommendations from the CDC's Advisory Committee on Immunization Practices (ACIP) and the American Academy of Pediatrics (AAP) and other recommending bodies. 2. DETAILED DESCRIPTION OF THE RESEARCH PLAN This application describes a preliminary clinical program based on the review of the data. It will be modified based on discussions with the FDA, as well as the clinical investigators who will be participating in these trials and investigators having extensive previous experience with this vaccine. The specific studies proposed are: 1. [ ] [ ] 2. [ AVIRON CONFIDENTIAL PAGE 1 MAY 19, 1995 CONFIDENTIAL TREATMENT REQUESTED Cold Adapted Influenza Vaccine CRADA Appendix B ] 3. [ ] 4. [ ] 5. [ ] [ ] AVIRON CONFIDENTIAL PAGE 2 MAY 19, 1995 CONFIDENTIAL TREATMENT REQUESTED Cold Adapted Influenza Vaccine CRADA Appendix B [ ] AVIRON CONFIDENTIAL PAGE 3 MAY 19, 1995 CONFIDENTIAL TREATMENT REQUESTED Cold Adapted Influenza Vaccine CRADA Appendix B 3. RESPECTIVE CONTRIBUTIONS OF THE PARTIES Contributions to the main elements of this program are listed below. Aviron and the NIH intend to work collaboratively and in consultation with each other in this program via joint committees involving the Principal Investigators and other key contributors. As NIH scientists and their contractors have extensive experience with the evaluation and manufacture of this vaccine, it is expected that their reasonable assistance will be provided to transfer know-how to Aviron as required in support of this project. 1. Development of Clinical Trial Plan [ ] 2 . Development of Clinical Protocol Design [ ] 3 . Enrollment of Subjects by DMID contractors [ ] 4. Enrollment of Subjects in non-NIH sponsored sites [ ] 5. Ops Manual, Investigators Brochure, Case Report Forms [ ] 6. IND preparation and filing [ ] 7. Supply of vaccine and placebo for trials defined here [ ] 8. Supply of challenge virus or inactivated vaccine [ ] 9. Development of a Data Safety and Monitoring Function [ ] and the preparation of the relevant information needed for safety evaluation in pediatric populations 10. Site Monitoring [ ] 11. Monitoring of VTEU sites for compliance with DHHS [ ] regulations 12. Central Laboratory Facility and sample transport [ ] 13. Standardized Reagents [ ] 14. Data processing and statistical analysis [ ] 15. Data reports for regulatory filings [ ] 16. Publication of results [ ] 17. Manufacturing and Commercial Sale [ ] 18. Aviron travel, supplies, and personnel [ ] 19. Extra NIH travel, admin. support as delineated [ ] in App. C 20. Supply of all vaccine for investigator proposed [ ] trials AVIRON CONFIDENTIAL PAGE 4 MAY 19, 1995 CONFIDENTIAL TREATMENT REQUESTED Cold Adapted Influenza Vaccine CRADA Appendix B [ ] 21. Special requirements of investigator proposed trials [ ] 22. Special Clinical Trials (i.e., in high risk [ ] populations) 23. IND preparation and filing for product licensure in [ ] high risk populations AVIRON CONFIDENTIAL PAGE 5 MAY 19, 1995 CONFIDENTIAL TREATMENT REQUESTED Cold Adapted Influenza Vaccine CRADA Appendix B 4. ABSTRACT OF THE PLAN FOR PUBLIC RELEASE Influenza is a major health problem in the United States and all other countries because annual epidemics typically cause several days of severe illness in approximately one fifth of the population and many deaths occur in high risk individuals. Existing vaccines are effective, but poorly utilized due to misunderstanding about vaccine safety and efficacy, and the unpleasant route of administration via injection. The individual components of an intranasally- delivered live attenuated cold adapted influenza vaccine have been shown to be safe and effective in testing over many seasons of influenza epidemics. This CRADA is intended to provide the necessary data for FDA approval regarding safety and efficacy of a [ ] this vaccine which could be used on an annual basis to provide influenza prophylaxis [ ][ ] of the population will also be evaluated. 5. RELATED CRADAS Aviron does not have any other CRADAs with the NIH. 6. - 8. Items for NIH Principal Investigator 6. RELATED MTAs [ ] 7. RELATED PATENT APPLICATIONS AND PATENTS None 8. AVOIDANCE OF CONFLICT OF INTERESTS AND ASSURANCE OF FAIR ACCESS See attached. AVIRON CONFIDENTIAL PAGE 6 MAY 19, 1995 CONFIDENTIAL TREATMENT REQUESTED [Logo] - DRAFT CLINICAL TRIAL PLAN - [ ] Study Phase Age Group Number Year ----- ----- --- ----- ------ ---- (1) [ ] (2) [ ] (3) [ ] (4) [ ] (5) [ ] AVIRON CONFIDENTIAL TREATMENT REQUESTED - - [ [Logo] ] AVIRON CONFIDENTIAL TREATMENT REQUESTED APPENDIX C FINANCIAL AND STAFFING CONTRIBUTIONS OF THE PARTIES I. ANNUAL INSTITUTE (DMID, NIAID) CONTRIBUTIONS (INTERNAL): A. Supply funds: [ ] B. Equipment funds: [ ](photocopier and/or computer equipment) C. Travel funds: [ ] D. Time requirements of NIAID personnel: [ ] FTE Professional [ ] FTE Administrative E. Contract support: approx: [ ] VTEUs* YEAR 1** [ [ [ ] *VTEUs=Vaccine Treatment and Evaluation Units ] NON-VTEUs [ ] ] Total **exact amounts spent at any one VTEU site may vary but the total expenditure per year for all VTEUs is expected to remain constant at approx: [ ] II. TO BE PROVIDED TO NIAID BY AVIRON ANNUALLY: A. Supply funds: [ ] B. Equipment funds: [ ] C. Travel funds: [ ] travel to VTEU sites travel to scientific meetings D. Personnel funds: [ ] - -------------------------------------------------------------------------------- NIAID/CRADA: Appendix C Page 1 of 2 CONFIDENTIAL TREATMENT REQUESTED [ ] II. continued E. Contract support: [ ] F. Overhead: [ ] NIAID has the discretion to transfer funds between categories if it is appropriate to support objectives of the CRADA. NIAID has the authority to carry over funds from one year to the next throughout the CRADA as long as funding is used in direct support of the CRADA, as outlined in Appendix C. III. ANNUAL COMPANY CONTRIBUTIONS (INTERNAL): All dollars in Thousands ($000) Year 1 Year 2 Year 3 Year 4 Year 5 ------ ------ ------ ------ ------ A. Supply funds: $ [ ] B. Equipment funds: $ [ ] (see note 1) C. Travel funds: $ [ ] III. ANNUAL COMPANY CONTRIBUTIONS (INTERNAL) continued All Dollars in Thousands (5000) Year 1 Year 2 Year 3 Year 4 Year 5 ------ ------ ------ ------ ------ D. Time requirements of $ [ ] Company personnel E. Contract support: $ [ ] (See Note 2) Notes: (1) Equipment includes dedicated facility requirements. (2) Contract support represents development and manufacturing to be performed by a third party for Aviron, and research support to University of Michigan and other clinical support. - -------------------------------------------------------------------------------- NIAID/ CRADA: Appendix C Page 2 of 2 APPENDIX D EXCEPTIONS OR MODIFICATIONS TO THIS CRADA - -------------------------------------------------------------------------------- NIAID/Aviron CRADA - #A1000062 Appendix D CONFIDENTIAL TREATMENT REQUESTED NIH Patent Policy Board, April 24, 1989 COOPERATIVE RESEARCH AND DEVELOPMENT AGREEMENT Article 1. INTRODUCTION This Cooperative Research and Development Agreement (CRADA) between NIH and the Collaborator will be effective when signed by all parties. By signing this CRADA, the Collaborator acknowledges that it has received and read a copy of the Policy Statement on Cooperative Research and Development Agreements and Intellectual Property Licensing which is attached as Appendix A. The research and development project(s) which will be undertaken by each of the Parties in the course of this CRADA are detailed in the Research Plan (RP) which is attached as Appendix B. The funding and staffing commitments of the Parties are set forth in Appendix C. Any exceptions or changes to the CRADA are set forth in Appendix D. Article 2. DEFINITIONS As used in this CRADA, the following terms shall have the indicated meanings: 2.1 "Cooperative Research and Development Agreement" or "CRADA" means this agreement, entered into by NIH pursuant to the Federal Technology Transfer Act of 1986 and Executive Order 12591 of October 10, 1987. 2.2 "Confidential Information": shall mean all technical, scientific, product, manufacturing, production, business, and financial information, [ ] and disclosed by either Party to the other under this CRADA, which are [ ] provided that such information: 2.2.1 is not publicly known or available from other sources who are not under a confidentiality obligation to the source of the information; 2.2.2 has not been made available by the disclosing Party to others without a confidentiality obligation; 2.2.3 is not already known by or available to the receiving Party without a confidentiality obligation; or 2.2.4 cannot be demonstrated through adequate written documentation as being independently developed or acquired by the receiving Party without reference to or reliance upon such Confidential Information. [ Heilman/Aviron CRADA (AI#000062) Appendix D page 2 CONFIDENTIAL TREATMENT REQUESTED NIH Patent Policy Board, April 24, 1989 ] All information to be deemed confidential under this Agreement [ ] Notwithstanding the foregoing, the Parties may disclose any information relating to potential hazards or cautionary warnings associated with production, handling, or use of the subject matter of the Research Plan of this CRADA to any governmental authority in accordance with applicable laws and regulations. 2.3 "Subject Invention" means any invention, conceived or reduced to practice in the performance of research under this CRADA, that may be patentable under 35 U.S.C. Section 101 or Section 161, protectable under 7 U.S.C. Section 2321, or otherwise protectable by other types of U.S. or foreign "Intellectual Property" ("IP") right. 2.4 "Government" means the U.S. Government and any of its agencies. 2.5 "Research Plan" or "RP" means the statement in Appendix B of the respective research and development commitments of the Parties to this CRADA. 2.6 "Principal Investigator" or "PI" means the persons designated respectively by the Parties to this CRADA who will be responsible for the scientific and technical conduct of the RP. 2.7 "Clinical Data and Research Results" means all information, data, tangible materials, and results[ ] 2.8 "Raw Data" means the[ ] Article 3. COOPERATIVE RESEARCH 3.1 RESEARCH TEAM. The Parties agree to establish a joint research and development team (hereinafter referred to as the "Team") comprising at least the Principal Investigators designated pursuant to Article 3.3 to conduct and monitor the research in accordance with the RP. Although the members of the Team shall be Heilman/Aviron CRADA (AI#000062) Appendix D page 3 CONFIDENTIAL TREATMENT REQUESTED NIH Patent Policy Board, April 24, 1989 considered as having been delegated to the Team, they shall continue to remain employed by their respective employers under their respective terms of employment. 3.2 REVIEW OF WORK. Periodic conferences shall be held by the Team to review work progress. It is understood that the nature of this cooperative research precludes a guarantee of its completion within the specified period of performance or limits of allocated financial or staffing support. Accordingly, research under this CRADA is to be performed on a best efforts basis. 3.3 PRINCIPAL INVESTIGATORS. NIH research work under this CRADA will be performed by the Laboratory identified in the RP, and the NIH Principal Investigator (PI) designated in the RP will be responsible for the scientific and technical conduct of this project on behalf of NIH. Also designated in the RP is the Collaborator PI, who will be responsible for the scientific and technical conduct of this project on behalf of the Collaborator. 3.4 RESEARCH PLAN CHANGE. The RP may be modified by mutual written consent of the Principal Investigators. Substantial changes in the scope of the RP will be treated as amendments under Article 14.6. 3.5 FILING OF INVESTIGATIONAL NEW DRUG APPLICATION (IND). The Parties understand that Collaborator is to file and own any new IND for the technology which is the subject of this CRADA. Collaborator will supply all manufacturing information required by the U.S. Food and Drug Administration ("FDA") in support of such IND. [ ] NIH grants Collaborator an exclusive right of reference to[ ] and any new[ ]shall be confidential and made available exclusively to Collaborator for use in obtaining regulatory approval for the commercialization and marketing of[ ]NIH shall take appropriate precautions to ensure that Collaborator may review, cross reference or, as appropriate, otherwise use[ ]in conducting critical trials within the scope of this CRADA, and in fulfilling all the requirements necessary for obtaining FDA approval to market products incorporating the technology which is the subject of this CRADA. Article 4. REPORTS 4.1 INTERIM REPORTS. The Parties shall exchange formal written interim progress reports on a schedule agreed to by the PIs, but at least within six (6) months after this Heilman/Aviron CRADA (AI#000062) Appendix D page 4 CONFIDENTIAL TREATMENT REQUESTED NIH Patent Policy Board, April 24, 1989 CRADA becomes effective and at least within every six (6) months thereafter. Such reports shall set forth the technical progress made, identifying such problems as may have been encountered and establishing goals and objectives requiring further effort. 4.2 FINAL REPORTS. The Parties shall exchange final reports of their results within four (4) months after completing the projects described in the RP or after the termination of this CRADA. Article 5. FINANCIAL AND STAFFING OBLIGATIONS 5.1 NIH AND COLLABORATOR CONTRIBUTIONS. The NIH contribution to the RP in the form of[ ]The Collaborator contribution to the RP in the form of[ ] 5.2 INSUFFICIENT AND EXCESS FUNDS. NIH shall not be obligated to perform any of the research specified herein or to take any other action required by this CRADA if the funding is not provided as set forth in Appendix C. NIH shall return excess funds to the Collaborator when it sends its final fiscal report pursuant to Article 5.3, except for staffing support pursuant to Article 11.3. 5.3 ACCOUNTING RECORDS. NIH shall maintain separate and distinct current accounts, records, and other evidence supporting all its obligations under this CRADA, and shall provide the Collaborator an annual report reflecting the use of the Collaborator's funds and a final such fiscal report at the time that final reports are exchanged pursuant to Article 4.2. Article 6. TITLE TO PROPERTY 6.1 CAPITAL EQUIPMENT. The purchase or use of capital equipment to carry out this CRADA does not affect the ownership rights that would otherwise apply. Equipment purchased by NIH with funds provided by the Collaborator shall be the property of NIH. All capital equipment provided under this CRADA by one party for the use of another Party remains the property of the providing Party unless other disposition is mutually agreed upon in writing by the PIs. If title to this equipment remains with the providing Party, that Party is responsible for maintenance of the equipment and the costs of its transportation to and from the site where it will be used. Article 7. INTELLECTUAL PROPERTY RIGHTS AND APPLICATIONS 7.1 REPORTING. The Parties shall promptly report to each other in writing each Heilman/Aviron CRADA (AI#000062) Appendix D page 5 CONFIDENTIAL TREATMENT REQUESTED NIH Patent Policy Board, April 24, 1989 Subject Invention resulting from the research conducted under this CRADA that is reported to them by their respective employees. Such reports shall be treated in confidence by the receiving Party until such time as a patent or other Intellectual Property (IP) application, as appropriate, claiming that Subject Invention has been filed. Because of the royalty sharing provisions for Government inventors in the Federal Technology Transfer Act of 1986, and in view of Article 8.2 of this CRADA which grants the Government only a research license on inventions made solely by the Collaborator, the Collaborator acknowledges a special duty to report all Subject Inventions to NIH so that NIH may determine whether or not inventorship properly includes NIH investigators. 7.2 COLLABORATOR EMPLOYEE INVENTIONS. The Collaborator may elect to retain IP rights to any Subject Invention made solely by a Collaborator employee. The Collaborator shall notify NIH promptly upon making this election. If the Collaborator does not elect to retain its IP rights, the Collaborator shall offer to assign these IP rights to the Subject Invention to NIH pursuant to Article 7.5. If NIH declines such assignment, the Collaborator may release its IP rights to employee inventors pursuant to Article 7.6. 7.3 NIH EMPLOYEE INVENTIONS. NIH, on behalf of the U.S. Government, may elect to retain IP rights to each Subject Invention made solely by NIH employees. If NIH does not elect to retain IP rights, NIH shall offer to assign these IP rights to such Subject Invention to the Collaborator pursuant to Article 7.5. If the Collaborator declines such assignment, NIH may release IP rights in such Subject Invention to its employee inventors pursuant to Article 7.6. 7.4 JOINT INVENTIONS. Each Subject Invention made jointly by NIH and Collaborator employees shall be jointly owned by NIH and the Collaborator. The Collaborator may elect to file the joint patent or other IP application(s) thereon and shall notify NIH promptly upon making this election. If the Collaborator decides to file such applications, it shall do so in a timely manner and at its own expense. If the Collaborator does not elect to file such application(s), NIH, on behalf of the U.S. Government, shall have the right to file the joint applications in a timely manner and at its own expense. If either Party decides not to retain its IP rights to a jointly owned Subject Invention, it shall offer to assign such rights to the other Party pursuant to Article 7.5. If the other Party declines such assignment, the offering Party may release its IP rights to employee inventors pursuant to Article 7.6. 7.5 FILING OF PATENT APPLICATIONS. With respect to Subject Inventions made by the Collaborator as described in Article 7.2 or by NIH as described in Article 7.3, a Party exercising its right to retain IP rights to a Subject Invention agrees to file patent or other IP applications in a timely manner and at its own expense. The Party may elect not to file a patent or other IP application thereon in any particular country or Heilman/Aviron CRADA (AI#000062) Appendix D page 6 CONFIDENTIAL TREATMENT REQUESTED NIH Patent Policy Board, April 24, 1989 countries, provided it so advises the other Party ninety (90) days prior to the expiration of any applicable filing deadline, priority period, or statutory bar date, and hereby agrees to assign its IP right, title, and interest in such country or countries to the Subject Invention to the other Party and to cooperate in the preparation and filing of a patent or other IP applications. In any countries in which title to patent or other IP rights is transferred to the Collaborator, the Collaborator agrees that NIH inventors will share in any royalty distribution that the Collaborator pays to its own inventors. 7.6 RELEASE TO INVENTORS. In the event neither of the Parties to the CRADA elects to file a patent or other IP application on a Subject Invention, either or both (if a joint invention) may release their IP rights to their respective employee inventor(s) with a non-exclusive, non-transferrable, royalty-free license being retained by each Party. 7.7 PATENT EXPENSES. The expenses attendant to the filing of patent or other IP applications generally shall be paid by the Party filing such application. If an exclusive license to any Subject Invention is granted to the Collaborator, the Collaborator shall reimburse NIH for the reasonable past and Collaborator-approved ongoing funds expended worldwide for filing, prosecuting, and maintaining any applications claiming such exclusively-licensed inventions and any patents or other IP grants that may issue on such applications. The Collaborator may waive its exclusive license rights on any application, patent, or other IP grant at any time, and incur no subsequent compensation obligation for that application, patent, or IP grant. 7.8 PROSECUTION OF INTELLECTUAL PROPERTY APPLICATIONS. Each Party shall provide the other Party with copies of the applications it files on any Subject Invention along with the power to inspect and make copies of all documents retained in the patent or other IP application files by the applicable patent or other IP office. The Parties agree to consult with each other with respect to the prosecution of NIH Subject Inventions described in Article 7.3 and joint Subject Inventions described in Article 7.4. If the Collaborator elects to file and prosecute IP applications on joint Subject Inventions pursuant to Article 7.4, NIH will be granted an associate power of attorney (or its equivalent) on such IP applications. Article 8. LICENSING 8.1 OPTION FOR EXCLUSIVE COMMERCIALIZATION LICENSE. With respect to Government IP rights to any Subject Invention not made solely by the Collaborator's employees for which a patent or other IP application is filed. NIH hereby grants to the Collaborator[ ]The license will specify the licensed fields of use, Heilman/Aviron CRADA (AI#000062) Appendix D page 7 CONFIDENTIAL TREATMENT REQUESTED NIH Patent Policy Board, April 24, 1989 breadth of exclusivity, and royalties. Royalty rates will be based on product sales and the rates conventionally granted in the field identified in the RP for inventions with reasonably similar commercial potential. Royalty rates generally will not exceed a rate within the range of[ ] Contingent royalty schemes based on, e.g., patent issuance or non-issuance, and provisions treating the stacking of royalties or packaging of other licensed inventions developed under this CRADA may be provided. Exclusive licensees will be expected to reimburse NIH for IP expenses related to each licensed intellectual property, and may be permitted to offset such reimbursement against future product royalties. 8.2 EXERCISE OF LICENSE OPTION. The option of Article 8.1 must be exercised by written notice mailed within three (3) months after the patent or other IP application is filed to the NIH Office of Technology Transfer, 6011 Executive Boulevard, Suite 325, Rockville, MD 20852. NIH shall promptly advise Collaborator of the filing of any patent or other IP application. Exercise of this option by the Collaborator initiates a negotiation period that expires nine (9) months after the patent or other IP application filing date. If the last proposal by the Collaborator has not been responded to in writing by the NIH within this nine (9) month period, the negotiation period shall be extended to expire three (3) months after NIH so responds, during which month the Collaborator may accept in writing the final license proposal of NIH. After that time, NIH will be free to license such IP rights to others. In the event that NIH and the Collaborator do not enter into a license during this negotiation period, NIH agrees not to make an offer on more favorable terms to a third Party without first offering the Collaborator those more favorable terms. 8.3 GOVERNMENT INTELLECTUAL PROPERTY RIGHTS. For inventions developed wholly by NIH investigators or jointly with a Collaborator under this CRADA, NIH is required by the Federal Technology Transfer Act of 1986 (15 U.S.C. Section 3710a[b](2)) to retain at least a nonexclusive, irrevocable, paid-up license to practice the invention or to have the invention practiced throughout the world by or on behalf of the U. S. Government. For inventions developed wholly by the Collaborator under this CRADA, the Collaborator agrees to grant a research license as described in Article 8.4 to the Government. In the event the Collaborator is granted one or more exclusive licenses to inventions under Article 8.1 of this CRADA, NIH shall not grant to any third Party any commercialization license with respect to any such invention for the same field of use as granted to Collaborator. NIH shall be free to grant commercialization licenses for any fields of use not specified in an exclusive license to the Collaborator. 8.4 RESEARCH LICENSES.[ Heilman/Aviron CRADA (AI#000062) Appendix D page 8 CONFIDENTIAL TREATMENT REQUESTED NIH Patent Policy Board, April 24, 1989 ] 8.5 JOINT INVENTIONS NOT EXCLUSIVELY LICENSED. In the event that the Collaborator does not acquire an exclusive commercialization license to IP rights in joint Subject Inventions described in Article 7.4, then each Party shall have the right to use the joint Subject Invention and to license its use to others. The Parties may agree to a joint licensing approach for such IP rights. Article 9. PROPRIETARY RIGHTS AND PUBLICATION 9.1 RIGHT OF ACCESS. NIH and the Collaborator agree to exchange all Clinical Data, Research Results and Raw Data produced in the course of research under this CRADA, whether developed solely by NIH, jointly with the Collaborator, or solely by the Collaborator. Tangible research products developed under a CRADA will be shared equally by the Parties to the CRADA unless other disposition is agreed to by the Principal Investigators. All Parties to the CRADA will be free to utilize Subject Data and Research Results for their own purposes, consistent with their obligations under this CRADA. [ Heilman/Aviron CRADA (AI#000062) Appendix D page 9 CONFIDENTIAL TREATMENT REQUESTED NIH Patent Policy Board, April 24, 1989 ] 9.2 OWNERSHIP AND USE OF CLINICAL DATA AND RESEARCH RESULTS AND RAW DATA. Subject to the sharing requirements of Article 9.1, all Clinical Data and Research Results and all Raw Data, whether produced solely by one party's investigators and other employees and personnel or jointly by both parties' investigators and other employees and personnel will be[ ] 9.3 CONFIDENTIAL INFORMATION. Each Party agrees to limit its disclosure of Proprietary Information to the amount necessary to carry out the Research Plan of this CRADA, and shall place a confidentiality notice on all such information. Materials required for the RP may also be designated as Confidential Information from the party receiving Confidential Information. Each party receiving Confidential Information from the other Party agrees that any information so designated shall be used by it only for the purposes described in the attached Research Plan. Any party may object to the designation of information as Confidential Information by another Party and may decline to accept such information. In addition to all other information identified as Confidential Information as set forth in Section 2.2 above, data and research products developed solely by the Collaborator may be designated as Confidential Information when they are wholly separable from the data and research products developed jointly with NIH investigators, and advance designation of such data and product categories is set forth in the Research Plan. The exchange of confidential information, e.g., patient data, should be similarly limited and treated. Unless disclosure is otherwise mutually agreed upon, all Parties to this CRADA agree to keep CRADA Clinical Data, Research Results, and Raw Data confidential, to the extent permitted by law, until they are published or corresponding patent or other IP application(s) have been published. The use of Confidential Information shall be governed by Sections 9.4 and 9.6 below. However, nothing contained herein shall be deemed to restrict publication of summary clinical data consistent with NIH policy. Information provided to one or more third parties pursuant to Confidential Disclosure Agreements in connection with their determination of the desirability of entering into a CRADA for cold adapted Heilman/Aviron CRADA (AI#000062) Appendix D page 10 CONFIDENTIAL TREATMENT REQUESTED NIH Patent Policy Board, April 24, 1989 influenza vaccine development shall be maintained as Confidential Information. 9.4 PROTECTION OF CONFIDENTIAL INFORMATION. No Confidential information obtained or disclosed in the conduct of research or as a result of activities under this CRADA shall be disclosed, copied, reproduced, or otherwise made available to any other person or entity without the consent of the owning Party except as required under court order or the Freedom of Information Act (5 U.S.C. Section 552). Each Party agrees to use its best efforts to maintain the confidentiality of Proprietary Information. Each Party agrees that the other Party is not liable for the disclosure of Confidential Information it determines may not lawfully be withheld, provided the concerned Party has been given an opportunity to obtain a court order to enjoin disclosure. 9.5 DURATION OF CONFIDENTIALITY OBLIGATION. Except as provided in Section 9.6, the obligation to maintain the confidentiality of Confidential Information shall expire at the earlier of the date when the information is no longer Proprietary Information as defined in Article 2.2 or [ ] after the expiration or termination date of this CRADA; provided that upon the expiration of this [ ] period, the Collaborator may request a [ ] extension period to this term when necessary to protect Confidential Information relating to products not yet commercialized. NIH may not unreasonably deny such request and shall, upon such notice, refrain from disclosing any such Confidential Information for said [ ] extension period. If one or more third parties were provided access to certain proprietary information pursuant to Confidential Disclosure Agreements in connection with their determination of the desirability of entering into a CRADA for cold adapted Influenza vaccine development, NIH shall require such third party or parties to maintain the confidentiality of such information for the term of this CRADA plus any extension granted under this Article. 9.6 CONSISTENCY WITH POLICIES OF THE FOOD AND DRUG ADMINISTRATION (FDA). Notwithstanding any other provisions of this Agreement, all information submitted to FDA under this Agreement by Collaborator or NIH shall be treated as Confidential Information by NIH; provided that if FDA determines that certain information submitted to it is not Confidential, NIH must treat such information as Confidential only if such information is "Confidential Information" as defined in Article 2.2. If the information is submitted to FDA solely by Collaborator, NIH's confidentiality obligations will not begin until Collaborator has provided notice of the submission. 9.7 PUBLICATION. The Parties are encouraged to make publicly available the results of their research. Before either Party submits a paper or abstract for publication or Heilman/Aviron CRADA (AI#000062) Appendix D page 11 CONFIDENTIAL TREATMENT REQUESTED NIH Patent Policy Board, April 24, 1989 otherwise intends to publicly disclose information about a Subject Invention, [ ] the other Party shall be provided thirty (30) days to review the proposed publication or disclosure. Such publication or other disclosure shall be delayed for up to sixty (60) additional days upon written request by any Party as necessary to preserve U.S. or foreign patent, trade secret, or other IP rights. Article 10. REPRESENTATIONS AND WARRANTIES 10.1 REPRESENTATIONS AND WARRANTIES OF NIH. NIH hereby represents and warrants to the Collaborator that the Official signing this CRADA has authority to do so. 10.2 REPRESENTATIONS AND WARRANTIES OF THE COLLABORATOR. The Collaborator hereby represents and warrants to NIH that the Collaborator has the requisite power and authority to enter into this CRADA and to perform according to its terms, and that the Collaborator's Official signing this CRADA has authority to do so. The Collaborator further represents that it is financially able to satisfy any funding commitments made in Appendix C. Article 11. TERMINATION 11.1 TERMINATION BY MUTUAL CONSENT. NIH and the Collaborator may terminate this CRADA, or portions thereof, at any time by mutual written consent. In such event, the Parties shall specify the disposition of all property, inventions, patent or other IP applications, and other results of work accomplished or in progress, arising from or performed under this CRADA. 11.2 MATERIAL BREACH. Either NIH or the Collaborator may propose termination of this CRADA by giving written notice of a material breach of the other party's obligations as specified herein. Any such notice shall specify the obligation or obligations believed to be breached and actions that may be taken to cure such breach. After receipt of such notice, the parties agree to negotiate in good faith in an effort to achieve resolution and avoid termination. Termination may not become effective until at least ninety (90) days following receipt of such notice in order to provide the notified party opportunity to respond. For purposes of this Article, material breach shall mean substantial failure by or inability of either party to fulfill obligations under the CRADA. 11.3 STAFFING. If this CRADA is mutually or unilaterally terminated prior to its Heilman/Aviron CRADA (AI#000062) Appendix D page 12 NIH Patent Policy Board, April 24, 1989 expiration, funds will nevertheless remain available to NIH for continuing any staffing commitment made by the Collaborator pursuant to Article 5.1 above and Appendix C, if applicable, for a period of six (6) months after such termination. If there are insufficient funds to cover this expense, the Collaborator agrees to pay the difference. 11.4 NEW COMMITMENTS. No Party shall make new commitments related to this CRADA after a mutual or unilateral termination and shall, to the extent feasible, cancel all outstanding commitments and contracts by the termination date. 11.5 TERMINATION COSTS. Concurrently with the exchange of final reports pursuant to Articles 4.2 and 5.3, NIH shall submit to the Collaborator for payment a statement of all costs incurred prior to the date of termination which Collaborator has agreed to pay pursuant to Appendix C, if applicable, and for all reasonable termination costs including the cost of returning Collaborator property or removal of abandoned property. Article 12. DISPUTES 12.1 SETTLEMENT. Any dispute arising under this CRADA which is not disposed of by agreement of the Principal Investigators shall be submitted jointly to the signatories of this CRADA. If the signatories are unable to jointly resolve the dispute within thirty (30) days after notification thereof, the Assistant Secretary of Health (or his/her designee) shall propose a resolution. Nothing in this section shall prevent any Party from pursuing any and all administrative and/or judicial remedies which may be available. 12.2 CONTINUATION OF WORK. Pending the resolution of any dispute or claim pursuant to this Article, the Parties agree that performance of all obligations shall be pursued diligently in accordance with the direction of the NIH signatory. Article 13. LIABILITY 13.1 PROPERTY. The U.S. Government shall not be responsible for damages to any property of the Collaborator provided to it or acquired by it pursuant to this CRADA. 13.2 NO WARRANTIES. Except as specifically stated in Article 10, the Parties make no express or implied warranty as to any matter whatsoever, including the conditions of the research or any invention or product, whether tangible or intangible, made, or developed under this CRADA, or the ownership, merchantability, or fitness for a particular purpose of the research or any invention or product. Heilman/Aviron CRADA (AI#000062) Appendix D page 13 NIH Patent Policy Board, April 24, 1989 13.3 INDEMNIFICATION. The Collaborator agrees to hold the U.S. Government harmless and to indemnify the Government for all liabilities, demands, damages, expenses, and losses arising out of the use by the Collaborator for any purpose of the Subject Data, Research Results, and/or Subject Inventions produced in whole or in part by NIH employees under this CRADA, unless due to the negligence of NIH, its employees or agents. The Collaborator shall be liable for any claims or damages it incurs in connection with this CRADA. NIH has no authority to indemnify the Collaborator. 13.4 FORCE MAJEURE. Neither Party shall be liable for any unforeseeable event beyond its reasonable control not caused by the fault or negligence of such Party, which causes such Party to be unable to perform its obligations under this CRADA, and which it has been unable to overcome by the exercise of due diligence. In the event of the occurrence of such a force majeure event, the Party unable to perform shall promptly notify the other Party. It shall further use its best efforts to resume performance as quickly as possible and shall suspend performance only for such period of time as is necessary as a result of the force majeure event. Article 14. MISCELLANEOUS 14.1 GOVERNING LAW. The construction, validity, performance, and effect of this CRADA shall be governed by Federal Law, as applied by the Federal Courts in the District of Columbia. Federal law and regulations will preempt any conflicting or inconsistent provisions in this CRADA. 14.2 ENTIRE AGREEMENT. This CRADA constitutes the entire agreement between the Parties concerning the subject matter of this CRADA and supersedes any prior understanding or written or oral agreement. 14.3 HEADINGS. Titles and headings of the sections and subsections of this CRADA are for the convenience of reference only, do not form a part of this CRADA, and shall in no way affect its interpretation. 14.4 WAIVERS. None of the provisions of this CRADA shall be considered waived by any Party hereto unless such waiver is given in writing to the other Party. The failure of a Party to insist upon strict performance of any of the terms and conditions hereof, or failure or delay to exercise any rights provided herein or by law, shall not be deemed a waiver of any rights of any Party. 14.5 SEVERABILITY. The illegality or invalidity of any provisions of this CRADA shall not impair, affect, or invalidate the other provisions of this CRADA. Heilman/Aviron CRADA (AI#000062) page 14 NIH Patent Policy Board, April 24, 1989 14.6 AMENDMENTS. If either Party desires a modification to this CRADA, the Parties shall, upon reasonable notice of the proposed modification or extension by the Party desiring the change, confer in good faith to determine the desirability of such modification or extension. Such modification shall not be effective until a written amendment is signed by the signatories to this CRADA or by their representatives duly authorized to execute such amendment. 14.7 ASSIGNMENT. Neither this CRADA nor any rights or obligations of any Party hereunder shall be assigned or otherwise transferred by either Party without the prior written consent of the other Party. 14.8 NOTICES. All notices pertaining to or required by this CRADA shall be in writing and shall be signed by an authorized representative and shall be delivered by hand or sent by certified mail, return receipt requested, with postage prepaid, to the addresses indicated on the signature page for each Party. Notices regarding the exercise of license options shall be made pursuant to Article 8.2. Any Party may change such address by notice given to the other Party in the manner set forth above. 14.9 INDEPENDENT CONTRACTORS. The relationship of the Parties to this CRADA is that of independent contractors and not as agents of each other or as joint venturers or partners. Each party shall maintain sole and exclusive control over its personnel and operations. Collaborator employees who will be working at NIH facilities may be asked to sign a Guest Researcher or Special Volunteer Agreement appropriately modified in view of the terms of this CRADA. 14.10 USE OF NAME OR ENDORSEMENTS. By entering into this CRADA, NIH does not directly or indirectly endorse any product or service provided, or to be provided, whether directly or indirectly related to either this CRADA or to any patent or other IP license or agreement which implements this CRADA by its successors, assignees, or licensees. The Collaborator shall not in any way state or imply that this CRADA is an endorsement of any such product or service by the U.S. Government or any of its organizational units or employees. 14.11 EXCEPTIONS TO THIS CRADA. Any exceptions or modifications to this CRADA that are agreed to by the Parties prior to their execution of this CRADA are set forth in Appendix D. 14.12 REASONABLE CONSENT. Whenever a Party's consent or permission is required under this CRADA, such consent or permission shall not be unreasonably withheld. Article 15. DURATION OF AGREEMENT Heilman/Aviron CRADA (AI#000062) page 15 NIH Patent Policy Board, April 24, 1989 15.1 DURATION. It is mutually recognized that the duration of this project cannot be rigidly defined in advance, and that the contemplated time periods for various phases of the RP are only good faith guidelines subject to adjustment by mutual agreement to fit circumstances as the RP proceeds. In no case will the term of this CRADA extend beyond the term indicated in the RP unless it is revised in accordance with Article 14.6. 15.2 SURVIVABILITY. The provisions of Articles 4.2, 5.2, 5.3, 6.1, Articles 7 - 9, 11.3, 11.5, 12.1, 13.3, and 14.10 shall survive the termination of this CRADA. Heilman/Aviron CRADA (AI#000062) page 16 NIH Patent Policy Board, April 24, 1989 CRADA SIGNATURE PAGE FOR NIH: /s/ Anthony S. Fauci 6/18/95 - ------------------------- ---------- Anthony S. Fauci, M.D. Date Director NIAID Mailing Address for Notices: Technology Transfer Branch National Institute of Allergy & Infectious Diseases 9000 Rockville Pike Bldg. 31, Rm. 7A32 Bethesda, MD 20892 FOR THE COLLABORATOR: (The undersigned expressly certifies or affirms that the contents of any statements made or reflected in this document are truthful and accurate. /s/ J. Leighton Read, M.D. 28 Feb., 1995 - ------------------------------ --------------- J. Leighton Read, M.D. Date Chairman and CEO, Aviron Mailing Address for Notices: Aviron - ------------------------------ 1450 Rollins Road - ------------------------------ Burlingame, CA 94010 - ------------------------------ [Include additional signature and address blocks as necessary for all Parties to this CRADA] CONFIDENTIAL TREATMENT REQUESTED TRADE SECRETS AND/OR CONFIDENTIAL COMMERCIAL /FINANCIAL INFORMATION EXEMPT FROM THE F0IA DISCLOSURE [5 U.S.C. 552(b) (4)] ASSIGNMENT OF CRADA THIS ASSIGNMENT OF CRADA [ ] is by Wyeth-Ayerst Laboratories (Wyeth-Ayerst), which has offices at 145 King of Prussia Road, Radnor, PA 19087 (hereinafter "Assignor"), a division of American Home Products Corporation, a corporation of the State of Delaware, U.S.A., having its principal place of business at Five Giralda Farms, Madison, New Jersey 07940-0874, U.S.A. WHEREAS, Assignor and the National Institute of Allergy and Infectious Diseases (NIAID) are parties to a Cooperative Research and Development Agreement ("CRADA") [ ] and WHEREAS, Assignor is desirous of assigning certain of its rights and obligations under the CRADA to Aviron ("Assignee") having its principal place of business at 1450 Rollins Road, Burlingame, California 94010, as provided for in Article 14.7 of said CRADA, which Article requires prior written consent of the parties; and WHEREAS, NIAID has given its written consent to this assignment by Assignor, as provided for in Article 14.7 of said CRADA; and WHEREAS, in satisfaction of its sole remaining financial obligation to NIAID under CRADA [ ] Assignor shall pay said sum to NIAID subsequent to the consummation of the present Assignment; and NOW, THEREFORE, in consideration of the mutual covenants and agreements contained herein, Assignor does hereby bargain, sell, assign, transfer, convey and deliver to Assignee and its successors and assigns all of Assignor's right, title and interest in, to and under the CRADA. However, the provisions of paragraphs 6.1, 12.1, 13.2, 13.3 (but only to the extent that Collaborator under CRADA is Wyeth-Ayerst), 14.10 and Article 9 shall remain in effect as between NIAID and Assignor. Assignor does hereby agree, from and after the date hereof upon request of Assignee, to execute such other documents, to take such actions, and to make such filings, as Assignee may request in order to obtain the full benefit of this Assignment of CRADA and Assignor's rights and obligations hereunder. IN WITNESS WHEREOF, Assignor has caused this Assignment of CRADA to be executed as of the day and year first above written. ASSIGNOR: National Institute of Allergy WYETH-AYERST LABORATORIES and Infectious Diseases By: /s/ Anthony S. Fauci By: /s/ Robert Essner -------------------------------- ------------------------------------ Name: Name: Robert Essner Title: Title: President Date: 6/8/95 Date: May 30, 1995 ------------------------------ ---------------------------------- EX-10.8 17 MANUFACTURING & DEVELOPMENT AGREEMENT CONFIDENTIAL TREATMENT REQUESTED EXHIBIT 10.8 CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT HAS BEEN DELETED, AS NOTED BY BRACKETS, AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. DATED 7th November 1995 ------------------------ EVANS MEDICAL LIMITED and AVIRON ------------------------------ MANUFACTURING AND DEVELOPMENT AGREEMENT ------------------------------ Stringer Saul Marcol House 293 Regent Street London W1R 7PD THIS AGREEMENT is made the 7th day of November 1995 BETWEEN EVANS MEDICAL LIMITED of Evans House, Regent Park, Kingston Road, Leatherhead, Surrey, KT22 7PQ, United Kingdom (hereinafter called "Evans") - and - AVIRON a corporation incorporated in the State of California, located at 1450 Rollins Road, Burlingame, California, 94010, United States of America (hereinafter called "Aviron") WHEREAS A. Aviron is the exclusive licensee of Michigan, the legal and beneficial owner, of all the commercial rights to the Master Strain and the rights to the technology associated with and required for the production of the Virus Seed from the Master Strain. B. Evans has experience in the production of influenza vaccines. C. The parties wish to enter arrangements with regard to the Development and thereafter the manufacture by Evans of the Vaccine. IT IS AGREED as follows: DEFINITIONS In this Agreement the following words and phrases shall have the following meanings:- "Approved named senior personnel of Aviron (who Personnel" individually shall previously have signed Evans' usual form of confidentiality agreement covering such situations) notified to Evans "Change of means in respect of either party if greater Control" than fifty per cent. (50%) of its assets or voting shares become vested in or subject to the direction of a person, firm, corporation or other instrument, other than the parties in which presently vested such that there is - 1 - CONFIDENTIAL TREATMENT REQUESTED an effective change of control of that party "Clinical [ Trials" ] to be conducted in accordance with this Agreement in respect of the Vaccine as may be necessary to obtain Regulatory Approval "Commencement 1 November 1994 Date" "Commercial production of the Vaccine for all purposes other Production" than the Trials Production, and whether or not as a consequence of Aviron obtaining the Regulatory Approval. Such Commercial Production, if conducted by Evans, will be conducted in a facility licensed by the relevant regulatory authority for such purpose "Early Phase III those clinical field trials conducted by or Trials" on behalf of Aviron using material manufactured by Evans[ ][ ] "Development" the development of a manufacturing process for Production of the Vaccine "Evans' those costs incurred by Evans[ Production Costs" ] "the Further the rights to[ Rights" ] "Late Phase III those clinical trials conducted by or on Trials" behalf of Aviron using materials, if Evans is the manufacturer, manufactured by Evans in a facility licensed by the relevant regulatory authority for the manufacture of the Vaccine for commercial sale.[ ] "the Evans' Manufacturing Licence No[ ] Manufacturing granted pursuant to the Medicines Act 1968 permitting Licence" Evans to manufacture and/or assemble the Vaccine, among other things "Manufacturing the exclusive right to carry out the manufacture of Rights" [ ] the Vaccine insofar as is required for the Commercial Production for Aviron or any other party to whom Aviron may grant, - 2 - CONFIDENTIAL TREATMENT REQUESTED license or allow rights in respect of the Working Seed or the Vaccine "Master Strain" live attenuated influenza vaccine seeds as are further defined in the Michigan Agreement "Michigan" the Regents of the University of Michigan, a constitutional corporation of the State of Michigan with offices located at Wolverine Tower, Room 2071, 3003 South State Street, Ann Arbor, Michigan, 48109-1280, USA "Michigan a certain Materials Transfer and Intellectual Property Agreement" Agreement between Aviron and Michigan dated 24 February 1995, attached as Schedule 4 "Price" that amount calculated in accordance with clause 9 herein "Production" the Trials Production and the Commercial Production or either of them, as the context requires "Regulatory all such marketing authorisations and/or Approval" product licences and any other approvals from the relevant regulatory authority responsible for such matters as are necessary to enable Evans to manufacture, distribute and sell the Vaccine [ ] [ ] "Restricted all technical information relating to the Master Seeds, Information" the Virus Seeds and the manufacture of the Vaccine disclosed in confidence to Evans by Aviron excluding any such information which: (a) is or was already known to Evans at the time of disclosure or communication by Aviron; (b) was at the time of such disclosure or communication by Aviron or thereafter becomes or became published accessible to the public or otherwise in the public domain other than through any breach of this Agreement by Evans; (c) must be disclosed to Government Inspectors in the discharge of statutory obligations provided that before disclosure Evans shall use - 3 - CONFIDENTIAL TREATMENT REQUESTED reasonable endeavors as it would in respect of its own restricted information to obtain from such government inspectors any assurances as regards confidentiality as may be afforded to such information in the circumstances; (d) is disclosed by Evans to the relevant regulatory authority in there course of applying for, obtaining or maintaining Regulatory Approval; (e) is hereafter disclosed to Evans without any obligations of confidence by a third party who has not derived it directly or indirectly from Aviron; (f) is required to be disclosed by law "the the requirements and specifications attached hereto as Specification" Schedule 1, whether formulated before or after the Development, as the same, may be amended from time to time by agreement between the parties "the Test" the testing protocol[ ] "Trials production of the Vaccine in sufficient quantities to Production" enable Aviron to conduct the Clinical Trials "Vaccine" cold-adapted influenza vaccine[ ] "VAT" United Kingdom value added tax or any other tax levied in substitution therefor "Virus Seed" [ ] "Working Seed" [ ] - 4 - CONFIDENTIAL TREATMENT REQUESTED PART I 1. TRIALS PRODUCTION 1.1 Aviron requires the performance of the Trials Production to enable it to conduct the Clinical Trials. Subject to Aviron providing sufficient Virus Seeds suitable for the purpose, Evans hereby agrees to perform the Development and thereafter the Trials Production of the Vaccine for Aviron at the Price and otherwise on the terms set out in Part II hereof. 1.2 Aviron shall notify Evans of the trial programme in accordance with which Aviron shall conduct the Clinical Trials. Should the Clinical Trials or any of them involve any product produced or supplied by Evans (other than the Vaccine) Aviron shall promptly and fully notify Evans of the trial programme, the manner in which such Clinical Trials are to be conducted, and the results thereof. [ ] Accordingly, in respect of the Trials Production of the Vaccine for any particular Influenza season[ ] 1.3 Aviron shall keep Evans fully and regularly informed of the progress of the Clinical Trials. 1.4 Aviron shall inform Evans of the results of the Clinical Trials no later than or, where practicable, earlier than the said results are released or allowed to be released to any third party. 1.5 Promptly after the execution of this Agreement, and in no event later than 45 days thereafter, the parties will work together in good faith and agree upon the Specification, the Test and the required Product Recall Procedures. Aviron agrees and acknowledges that Evans shall not be obliged to manufacture Vaccine under this Agreement in accordance with a specification to which it has not agreed. 2. COMMERCIAL PRODUCTION It is the agreed intention of the parties that Evans shall carry out the Development associated with the Commercial Production. Further, it is the agreed intention of the parties that Evans shall have the Manufacturing Rights for at least[ ] of Aviron's requirements of Commercial Production for Europe. In accordance with that intention should Aviron intend to offer for exploitation the Manufacturing Rights - 5 - CONFIDENTIAL TREATMENT REQUESTED it shall enter good faith negotiations with Evans with a view to Evans undertaking the Commercial Production in respect of at least the said [ ] proportion of Aviron's requirements for such countries. Should those negotiations not result within a reasonable time in agreement between the parties then Aviron may offer the Manufacturing Rights and the conduct of the Commercial Production to any third party[ ] For the avoidance of doubt it is acknowledged and agreed that the Manufacturing Rights are independent of the Further Rights. Aviron shall[ ] 3. MICHIGAN LICENCE Evans acknowledges the existence of Aviron's licence under the Michigan Agreement (attached hereto as Schedule 4) and acknowledges and accepts that Aviron may only grant to Evans such rights as Aviron is permitted to grant pursuant to the Michigan Agreement. In that regard Evans accepts: 3.1 [ ] 3.2 Evans shall not provide any[ ]Evans shall limit access to the[ ]supplied by Aviron to those employees reasonably requiring such access for the purpose of the Development and Production of the Vaccine, which employees are governed by Evans' customary confidentiality obligations. 3.3 Evans must keep confidential and must not use except as provided in this Agreement, the[ ]and any know-how or technical data related thereto for a period of ten years after termination of the Michigan Agreement. The terms of this subclause 3.3 will in all events apply to the [ ] but shall not apply to any [ ]know-how or technical data which: 3.3.1 is or becomes public knowledge through no act or default of Evans; - 6 - CONFIDENTIAL TREATMENT REQUESTED 3.3.2 was known to Evans prior to its supply or disclosure to it by Aviron; 3.3.3 is disclosed to Evans by a third party with no obligations of confidentiality attached; or 3.3.4 is required to be disclosed by law. 3.4 Aviron shall: 3.4.1 use every reasonable effort to honour and observe its obligations under the Michigan Agreement and shall not act or fail to act in any way which might jeopardise or cause to be terminated the Michigan Agreement; and, 3.4.2 promptly notify Evans of any amendment to the Michigan Agreement; and, 3.4.3 make every reasonable effort to notify Evans in writing of the expiry or termination of the Michigan Agreement at least six weeks prior to either event. 3.5 Evans will[ ]to manufacture and store the Virus Seeds, the Working Seeds and Vaccine in accordance with all applicable government laws and regulations. 3.6 Aviron, on Michigan's behalf, may request from Evans at reasonable times and in reasonable quantities at a price equal to[ ]such batch samples of Vaccine as it may desire for non-human research purposes only, PROVIDED THAT Evans shall be under no obligation under this sub-clause or otherwise[ ] 3.7 Evans acknowledges Michigan's warranty disclaimer and limitation of liability contained in the Michigan Agreement but makes no assessment or admission of its validity or reasonableness. Notwithstanding such, Evans will not make any statements, representations or warranties inconsistent with such warranty disclaimer or limitation of liability other than in pursuance or prosecution of its own rights and remedies. 3.8 Evans will indemnify Michigan, its fellows, officers, employees and agents for and against any and all claims, damages, losses and expenses of any nature resulting from, but not limited to, death, personal injury, - 7 - CONFIDENTIAL TREATMENT REQUESTED illness, or property damage, arising from or in connection with: 3.8.1 any manufacture, use or other disposition by Evans of the Working Seeds or Vaccine; 3.8.2 the direct or indirect use by any person of Working Seeds or Vaccine made or used by Evans; 3.8.3 the use, handling, storage or disposal of Working Seeds, any derivatives or Vaccine by Evans; or 3.8.4 the unauthorized and negligent use by Evans of any know-how, technical data, sub-licensed to Aviron from Michigan, or developed by Evans pursuant to the Development, where but only where such claims, damages, losses and expenses are a direct consequence of the negligence of Evans, its agents or employees. 3.9 Evans shall not use the name of Michigan in publicity or advertising concerning the Vaccine, the Working Seed or the Virus Seed without the prior written consent of Michigan, such consent not to be unreasonably or arbitrarily withheld nor delayed. Reports in scientific literature and presentations of joint research and development work are not considered publicity for the purpose of this clause. 3.10 Aviron may request from Evans at reasonable times and in reasonable quantities, at a Price equal to[ ]such batch samples of Working Seed as Aviron may require PROVIDED THAT Evans shall be under no obligation under this sub-clause or otherwise to produce extra batches of Working Seed solely or substantially to meet such requirements. 4. MANUFACTURING LICENCE Performance by Evans of Production shall at all times be conditional upon the maintenance of the whole, or appropriate section, of the Manufacturing Licence. Evans will maintain the Manufacturing Licence in full force and effect throughout the term of this Agreement. Should for any reason other than the default or negligence of Aviron the Manufacturing Licence expire lapse or be revoked Evans shall forthwith notify Aviron of such occurrence and shall make every reasonable effort to restore, renew or replace the Manufacturing Licence. Should within[ ]the Manufacturing Licence not be restored, renewed or replaced, or if no authorisation to manufacture is granted to Evans in - 8 - CONFIDENTIAL TREATMENT REQUESTED substitution therefor, Aviron may by written notice to Evans, terminate this Agreement. 5. GRANT OF FURTHER RIGHTS Should Aviron intend to exploit the Further Rights, it shall keep Evans fully and promptly informed of its intentions in regard thereto and shall consider[ ] 6. PROCESS TECHNOLOGY 6.1 Evans acknowledges and agrees that process technology specific solely to the Vaccine and developed by Evans in the course of the Development shall be[ ]Aviron shall be responsible for the[ ] All other process technology developed by Evans pursuant to this Agreement shall be [ ] 6.2 In respect of process technology developed by Evans pursuant to this Agreement which is the property of Evans,[ ] 6.3 Evans shall notify Aviron should it be approached by any third party wishing to exploit any process technology developed by Evans pursuant to this Agreement which is the property of Evans in respect of[ ] and upon receipt of such notification, Aviron may request the parties enter negotiations for a licence in respect thereof prior to any rights being licensed exclusively to such a third party. - 9 - CONFIDENTIAL TREATMENT REQUESTED PART II 7. PRODUCTION, ASSEMBLY, STORAGE AND QUALITY CONTROL 7.1 Evans shall perform all Production of the Vaccine in accordance with the Specification. For the avoidance of doubt the Specification may not be amended or modified by Aviron without Evans's prior written agreement which shall not be unreasonably withheld. 7.2 The method of supply, storage and handling of materials, components and the Vaccine; the specifications for the materials, components and the finished products; the methods of manufacture and/or assembly of the Vaccine; the Quality Control and Quality Assurance methods and procedures to be employed for the Vaccine; and the Health and Safety precautions that need to be observed in the handling, storage, processing or quality control of the materials, components and Vaccine shall be as specified or referred to in the Specification. 7.3 Evans shall not deviate from such mutually agreed methods and procedures without prior written approval from Aviron except insofar as is required by the relevant regulatory authority or applicable laws or as is required for the maintenance of the Manufacturing Licence. Evans shall promptly notify Aviron of such requirements and any deviation in accordance therewith. 7.4 Evans shall be entitled to purchase and instal all such new or replacement tooling or parts as may be required exclusively for the Production of the Vaccine [ ] 7.5 Should Evans and Aviron agree that it is necessary or desirable for the effective and efficient undertaking of the Development and the Production, [ ] and Aviron acknowledges and - 10 - CONFIDENTIAL TREATMENT REQUESTED agrees that [ ] as described in clause 9 herein. 7.6 Any amount payable under sub-clauses 7.4 and 7.5 herein shall be made in accordance with clause 9 herein. 8. SUPPLY OF VIRUS SEED 8.1 Pursuant to the Michigan Agreement, Aviron shall acquire from Michigan the Master Strain which Aviron shall [ ] Aviron shall supply the Virus Seed to Evans [ ] Evans warrants and undertakes that it shall [ ] then in that event Evans shall indemnify Aviron against any and all claims, damages, losses and expenses of any nature (excluding economic loss or loss of profits or consequential loss of whatever nature) arising from or in connection with Evans' failure to [ ] other than in accordance with its required procedures. For the avoidance of doubt, should Evans have [ ] 8.2 Aviron shall supply to Evans at all times throughout the existence of this Agreement the Virus Seed in sufficient quantities and in good time to enable Evans to perform [ ] 8.3 Aviron shall ensure that all of the Virus Seed supplied to Evans at any time shall comply with in all respects [ ] any Regulatory Approval and all applicable rules and regulations regarding the same. 8.4 Evans shall have no responsibility regarding testing of the Virus Seed upon receiving the same from Aviron [ - 11 - CONFIDENTIAL TREATMENT REQUESTED ] 8. 5 Evans shall be responsible for the importation of the Virus Seed into the United Kingdom and for export of the Vaccine from the United Kingdom to Aviron [ ] 9. THE PRICE AND OTHER PAYMENTS 9.1 The Price of the [ ] shall be in respect of the Trials Production either: 9.1.1 where Evans undertakes both the Trials Production and the Commercial Production an amount equal to [ ]; or, 9.1.2 where Evans undertakes the Trials Production only and [ ] an amount equal to [ ]; and, 9.1.3 where Evans undertakes the Trials Production only and [ ]Aviron either: 9.1.3.1 [ ] or, 9.1.3.2 [ ] then in addition to any amount paid or payable in accordance with clause 9.1.2, an amount equal to [ ] such amount payable in respect of sub-clause 9.1.3.2 or sub-clause 9.1.3.2 upon [ - 12 - CONFIDENTIAL TREATMENT REQUESTED ] 9.2 Evans may [ ] the Price shall be subject to [ ] variation with effect from the [ ] of the Commencement Date and with effect from each anniversary thereof. Any Price variation [ ] Any variation in the Price shall reflect actual variations in [ ] 9.3 Evans will invoice Aviron for Vaccine despatched and Aviron shall pay the invoice not later than thirty (30) days from the date of the invoice. In respect of any invoice rendered for Trials Production in accordance with sub-clause 9.1.1, should it transpire that the Vaccine should have been invoiced in accordance with sub-clause 9.1.2 then any payment made shall be deemed to have been a part payment in respect of the amount due and Evans shall invoice Aviron for the balance which shall be payable in accordance with this clause. In respect of any invoice rendered for Trials Production in accordance with sub-clause 9.1.1, should it transpire that the Vaccine should have been invoiced in accordance with sub-clause 9.1.3 then any payment made shall be deemed to have been a part payment in respect of the amount due and Evans shall invoice Aviron for the balance which shall be payable immediately. Where settlement of any amount payable hereunder is not made by the due date Evans (without prejudice to its other rights) may charge interest at a rate of [ ] or part thereof on the amount outstanding. In the event of non-payment of any invoice or part thereof by Aviron, Evans (without prejudice to its other rights and remedies) [ ] 9.4 In respect of any amount payable pursuant to sub-clauses 7.4 and 7.5 herein and for any[ ] 9.5 Upon termination of this Agreement, Aviron shall have the option either: (i) to purchase from Evans, at the Price, or (ii) to direct Evans to destroy, in which event Evans shall nonetheless be paid the Price, [ - 13 - CONFIDENTIAL TREATMENT REQUESTED ] are reasonable given Aviron's requirements for the Vaccine prior to termination together with all of Evans' [ ] Notwithstanding the foregoing, in the event of termination of this Agreement due to breach by Evans, Aviron shall not be obliged to pay Evans the Price, but shall instead pay [ ] 9.6 Evans shall give Aviron such assistance as is reasonable to allow Aviron to conduct its affairs in the most advantageous manner in respect of VAT. Any costs to Evans associated with such assistance shall be met by Aviron. 10. SUPPLIES AND ORDERS 10.1 Evans shall use all reasonable efforts to supply the Vaccine whether pursuant to the Trials Production or the Commercial Production in accordance with the forecasts supplied by Aviron pursuant to this Clause. 10.2 Within [ ] following the date of execution hereof the parties shall mutually agree upon a production schedule for the first year of the Trials Production [ ] thereafter the parties shall mutually agree upon a production schedule for the second and third years of the Trials Production. Thereafter, the parties shall mutually agree upon as necessary a production schedule for any remaining period prior to obtaining Regulatory Approval for the Vaccine. 10.3 All orders submitted by Aviron to Evans must be in writing and shall be accepted or rejected by Evans in a timely manner in writing, and no order shall be binding upon either party until such time as it has been accepted by Evans in accordance herewith. 10.4 Other than the Virus Seed or the syringes, which shall be supplied by Aviron, Evans shall provide all materials and/or components required for Trials Production of the Vaccine. 10.5 If the Virus Seed and/or purchase orders to be supplied by Aviron or on its behalf do not reach Evans by any agreed date, Evans and Aviron shall agree new delivery dates for the Vaccine which are commensurate with the actual dates of supply to Evans but subject to clause 10.7 herein. - 14 - CONFIDENTIAL TREATMENT REQUESTED 10. 6 It is accepted that whilst Evans will [ ] 10.7 Evans will at the request of Aviron deliver the Vaccine to Aviron at any address as Aviron may specify but all Prices are [ ] 10.8 If Aviron fails to pay for any Vaccine in accordance with the provisions hereof within the stated periods for payment Evans, in addition to its rights under clause 9.3 herein, may: 10.8.1 sell or otherwise dispose of to Michigan or its designee any of the Vaccine the subject of any order made by Aviron and accepted by Evans but not yet delivered; and 10.8.2 suspend or cancel any further supplies or deliveries of the Vaccine hereunder. 10.9 [ ] property in and title to any batch of the Vaccine or any part thereof shall remain with Evans unless and until Aviron shall have paid the Price in full for that batch of the Vaccine. 10.10 All Vaccine will be supplied on the terms and conditions herein contained and in the event of any order for Vaccine being made by Aviron on its Standard Conditions of Purchase or being accepted by Evans on its Standard Conditions of Sale it is hereby agreed that any such Standard Conditions shall be of no effect and that the terms and conditions set forth in this Agreement shall prevail. 10.11 In the event that Evans is unable to deliver any Vaccine against the agreed delivery date for that Vaccine, Evans shall immediately advise Aviron to this effect, explain the reason for the delay, and agree a revised delivery date with Aviron. Evans shall make every reasonable effort to ensure that Aviron is not unduly inconvenienced by delay in the delivery of the Vaccine. 10.12 Should Evans fail to deliver any Vaccine in accordance with an agreed order within [ ] of an agreed delivery day then Aviron may give to Evans [ ] written notice requiring Evans to remedy its default and should Evans fail to remedy its default on or before the expiry of the said [ ] period, - 15 - CONFIDENTIAL TREATMENT REQUESTED Aviron may terminate this Agreement unless any failure to supply by Evans is due to: 10.12.1 Aviron's failure to supply the Virus Seed; 10.12.2 [ ] or 10.12.3 [ ] 11. INVENTORY 11.1 Evans shall submit to Aviron a statement on the status of all orders placed by Aviron which have not been fulfilled at that date. 11.2 At the end of a Production campaign Evans shall list and inform Aviron of all unused Virus Seed that has been supplied by Aviron. By return Aviron may request Evans to destroy all such Virus Seed, or may request Evans to return them to Aviron at Aviron's expense. 12. [ ] TECHNOLOGY Upon Evans' request the parties shall enter into good faith negotiations with respect to Aviron granting to Evans an exclusive licence in respect of Aviron's [ ] technology for use in Europe. Such licence shall be on terms to be agreed but shall include payment by Evans of a royalty based upon [ ] 13. ACCESS BY AVIRON Subject to receiving reasonable prior notice from Aviron, Evans shall allow Approved Personnel access to that part of the Evans premises dedicated to the Production at any time during normal business hours to inspect and/or reconcile virus Seeds, Working Seeds, materials, components and Vaccine held at Evans premises on behalf of Aviron, and to audit any manufacturing and/or assembly processes (including the related Quality Assurance and Quality Control operations) being performed by Evans for Aviron under this Agreement. Evans shall inform Aviron of any findings of any regulatory inspection or audit insofar as those findings may affect the Production contemplated under this Agreement, together with any corrective action required and/or taken. Evans shall - 16 - CONFIDENTIAL TREATMENT REQUESTED provide to Aviron copies of all correspondence between Evans and the relevant regulatory authorities with respect to such audit, subject to Evans' right to withhold or excise any information which Evans considers to be confidential or commercially sensitive. Evans shall grant to Aviron access to those records in the possession of Evans regarding the manufacture of the Vaccine as may be necessary in compiling submissions to the US Food and Drug Administration ("FDA") or responding to any enquiries from the FDA. [ ] 14. WARRANTY 14.1 Aviron shall, within a period of [ ] inform Evans of any failure of the Vaccine to meet the Specification. Should Aviron fail to inform Evans within the said period of [ ] Aviron shall be deemed to have accepted the Vaccine. 14.2 Evans shall make no charge hereunder in respect of any batch where the failure to meet the Specification arises from any act or omission on its part. Subject to the written agreement of Aviron, Evans shall at its expense either correct or cause to be corrected the deficiency in that batch of the Vaccine or if the defect cannot be corrected Evans shall indemnify Aviron against all reasonable costs and expenses of replacing the relevant batch and Evans shall destroy the batch or return it to Aviron (as may be agreed) for destruction. Subject to either party's obligations at law to act other than in compliance with this provision each party shall give to the other reasonable assistance with any recall of the Vaccine (which shall be conducted in accordance with Evans' Product Recall Procedure which is attached hereto as Schedule 2) including provision of relevant information and the list of customers to whom the recall products have been supplied and the issue of notices, warnings and information as reasonably requested by the relevant party to enable that party to comply with its recall procedures. 14.3 If notwithstanding the above Vaccine is released for distribution and is subsequently found to be faulty or defective and is not in compliance with the Specification then Evans shall indemnify Aviron against all costs, claims and expenses arising directly or indirectly from the replacement of such vaccine and its recall for destruction unless the fault or defect arises from any act or omission on Aviron's part or was otherwise caused by the negligence of Aviron, its agents or [ - 17 - CONFIDENTIAL TREATMENT REQUESTED ] For the avoidance of doubt the aforesaid indemnity shall not be operative and Evans shall not be liable thereunder should the Vaccine be in accordance with the Specification. 14.4 Subject to clause 14.3 Aviron shall be solely responsible for the recall of Vaccine sold in Aviron's livery in accordance with the Regulatory Approval granted to Aviron. 15. LIABILITY FOR LOSS AND CLAIMS 15.1 Liability for third party claims against either party or any loss or damage suffered resulting from the supply of any Vaccine manufactured and/or assembled under this Agreement will be subject to the following provisions: 15.1.1 Evans shall be liable for and shall indemnify Aviron [ ] 15.1.2 Aviron shall be liable for and shall indemnify Evans [ ] 15.1.3 Without prejudice to the right to be indemnified pursuant to 15.1.1 and 15.1.2 neither party limits liability for death or personal injury arising out of that party's negligence. 15.2 Evans shall be liable for any loss of or damage to Aviron materials, components or Vaccine arising from Evans's negligence whilst at Evans premises, [ ] 15.3 Other than as specified in Clause 15.2, Evans shall not be liable for any loss of or damage to [ ] In respect of all such losses or damages Aviron hereby: - 18 - CONFIDENTIAL TREATMENT REQUESTED 15.3.1 [ ] and; 15.3.2 [ ] 16. CONFIDENTIALITY 16.1 Evans acknowledges that much of the Restricted Information disclosed to it hereunder will be deemed to be confidential information under the Michigan Agreement and so subject to clause 3.3. Accordingly, Evans undertakes that during the period of this Agreement and for a period of [ ] it will treat as confidential all Restricted Information and shall not disclose such information to any third party except with the prior written agreement of Aviron. 16.2 Evans shall be entitled to use such Restricted Information and may disclose such Restricted Information to its own personnel, under obligations of secrecy, only to the extent necessary for Evans to perform its obligations to Aviron under this Agreement. 16.3 In the event of any inconsistency or conflict between the provisions of the Michigan Agreement in respect of Restricted Information and any provision of this Agreement, the provisions of the Michigan Agreement shall prevail, but only insofar as: (a) such provision is an obligation of Aviron which has been assumed by Evans under this Agreement and, (b) the performance of this Agreement would be rendered impossible by the application of both of the conflicting or inconsistent provisions. 16.4 On the expiry or termination of this Agreement, Evans will return to Aviron all Restricted Information in its possession and Evans shall not make any further use of that information. 16.5 In this Clause references to Evans or Aviron shall be deemed to include any Affiliate of that party. 16.6 Aviron undertakes to keep confidential all information received by it directly or indirectly from Evans or obtained by it pursuant to the performance of this Agreement which relates in any way to Evans's business including but not limited to Evans's technical know-how in relation to the Development and to the Production of the Vaccine provided however that this obligation of confidentiality shall not apply to such information: - 19 - CONFIDENTIAL TREATMENT REQUESTED 16.6.1 which is or was already known to Aviron at the time it was received or obtained from Evans; 16.6.2 which was at the time that it was received or obtained from Evans by Aviron or thereafter becomes or became published, accessible to the public or otherwise in the public domain other than through any breach of this Agreement by Aviron; 16.6.3 which must be disclosed to government inspectors in the discharge of statutory obligations; 16.6.4 which is hereafter disclosed to Aviron without any obligations of confidence by a third party who has not derived it directly or indirectly from Evans. 17. ASSIGNMENT 17.1 [ ] 17.2 Notwithstanding clause 17.1 Evans may without Aviron's consent procure the performance of any of its obligations by any Affiliate of Evans but Evans shall not thereby be relieved of responsibility for the performance of such obligations, and the provisions of clause 17.1 shall not apply. 17.3 [ ] 18. FORCE MAJEURE 18.1 If the performance of any part of this Agreement by either party is prevented, hindered or delayed by any act, events, non-happenings, omissions or accidents beyond the control of that party (force majeure) then that party shall (subject to compliance with Clause 18.2) be excused from such performance to the extent that such party is necessarily prevented, hindered or delayed thereby during the continuance of the matter constituting "force majeure" and this Agreement shall be deemed suspended so long as and to the extent that any such cause prevents, hinders or delays its performance. 18.2 The party affected by force majeure shall give notice to the other party as soon as practical after the matter - 20 - CONFIDENTIAL TREATMENT REQEUSTED constituting force majeure has arisen or occurred giving the other party full particulars of the nature and extent of such matter. The affected party shall additionally at its own cost and expense take all reasonable steps as may be necessary to overcome the force majeure and to minimize its effects. 18.3 If the duration of any force majeure occurrence exceeds two months the parties shall consult with a view to determining what steps they may agree to take, appropriate to the force majeure circumstances, in relation to this Agreement. 19. TERM Performance of this Agreement shall commence from the Commencement Date and subject to termination in accordance with any other right of termination specified herein this Agreement shall continue in force until terminated by either party giving not less than six (6) months notice in writing to the other party which notice may be given at any time after 31 December 1996. 20. TERMINATION 20.1 Either party may terminate this Agreement: 20.1.1 forthwith if the other party has committed any breach of any of the terms of this Agreement, and in the case of any such breach which is capable of remedy has not remedied that breach within [ ] of being required by written notice from the other party so to do; or 20.1.2 by [ ] prior written notice if the other party becomes bankrupt, goes into liquidation (either voluntary or compulsory, unless as part of a bona fide scheme of reconstruction, re-organization or amalgamation), makes a general assignment for the benefit of its creditors (whether voluntary or compulsory) or has a receiver appointed for its property or imposes suffers or incurs any process or occurrence having similar effect; or 20.1.3 by[ ] but without prejudice to any right of either party to sue for any antecedent breach of this Agreement. 20.2 This Agreement shall, unless expiring or terminating earlier in accordance with any other provision herein, - 21 - terminate upon termination of the Michigan Agreement. In such event, at Michigan's option as notified to Evans by Aviron, Evans shall, at Aviron's cost, [ ] Evans shall provide [ ] 20.3 Any termination of this Agreement (however occasioned) shall not affect any accrued rights or liabilities of either of the parties nor shall it affect the coming into force or the continuance in force of any provision hereof which is expressly intended to come into or continue in force on or after such termination, including (but not limited to) clauses 2, 3, 9, 12, 14, 15 and 16. 21. NOTICE Any notice or other communication required or permitted to be given under this Agreement by either party shall be deemed to be sufficiently served if sent to the other party by pre paid airmail post or fax addressed to that party at the address set out in this Agreement or to any other address so designated in writing by that party. Any such notice shall in the case of a notice sent by post be deemed to have been served ten (10) days after the date on which it is mailed. In the case of a notice or communication by fax, the fax must be confirmed by sending a copy of the same by pre paid airmail post within seven (7) days, in which event the date of service shall be the date of transmission of the fax. 22. MISCELLANEOUS 22.1 This Agreement shall be governed and construed in accordance with the laws of England. 22.2 No amendment or modification of this Agreement shall be valid or binding upon either party unless made in writing and signed by an authorized representative of that party. 22.3 Evans and Aviron represent to each other that the respective officer or officers of each company who have signed this Agreement are duly authorized to do so. 22.4 Any waiver by either party of a breach of any provision of this Agreement shall not be considered as a waiver of - 22 - any continued or subsequent breach of the same or any other provision thereof. 22.5 Nothing in this Agreement shall create, or be deemed to create, a partnership or the relationship of principal and agent or employer and employee between the parties. 22.6 This Agreement contains the entire agreement between the parties with respect to the subject matter hereof, supersedes all previous agreements understandings or letters of intent between the parties with respect thereto. 22.7 If any provision of this Agreement is held by any court or other competent authority to be void or unenforceable in whole or part, this Agreement shall continue to be valid as to the other provisions thereof and the remainder of the affected provision. 22.8 The clause and paragraph headings in this Agreement are for ease of reference only and are not to be taken into account in the construction or interpretation of any covenant condition or proviso to which they refer. 22.9 Unless the context otherwise requires, references: 22.9.1 to numbered clauses and Schedules are references to the relevant clause in or Schedule to this Agreement; and 22.9.2 in any Schedule to a numbered paragraph are references to the relevant paragraph in that Schedule 22.10 Words in this Agreement importing the singular meaning, where the context so allows, include the plural meaning and vice versa. IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and the year first above written. - 23 - For and on behalf of EVANS MEDICAL LIMITED Full Name and Title: M.J. HARVEY (UK OPERATIONS DIRECTOR) . . . . . . . . . . . . . . . . . . . . Signature: /s/ M. J. Harvey . . . . . . . . . . . . . . . . . . . . In the presence of: S. R. PARISH . . . . . . . . . . . . . . . . . . . . Witness's signature:/s/ S. R. Parish . . . . . . . . . . . . . . . . . . . . Address: EVANS MEDICAL . . . . . . . . . . . . . . . . . . . . CASICILL ROAD, LIVERPOOL . . . . . . . . . . . . . . . . . . . . Occupation: S. R. PARISH . . . . . . . . . . . . . . . . . . . . For and on behalf of AVIRON Full Name and Title: LEIGHTON READ (CEO) . . . . . . . . . . . . . . . . . . . . Signature: /s/ L. Read . . . . . . . . . . . . . . . . . . . . In the presence of: Julie C. Neumann . . . . . . . . . . . . . . . . . . . . Witness's signature:/s/ Julie C. Neumann . . . . . . . . . . . . . . . . . . . . Address: 297 N. Bernardo Avenue . . . . . . . . . . . . . . . . . . . . Mountain View, CA 94043 . . . . . . . . . . . . . . . . . . . . Occupation: Controller . . . . . . . . . . . . . . . . . . . . - 24 - SCHEDULE I THE SPECIFICATION [Not Completed in Original Document] SCHEDULE 2 PRODUCT RECALL PROCEDURES CONFIDENTIAL TREATMENT REQUESTED SCHEDULE 2 ADVERSE EXPERIENCE REPORTING AND PROVISION OF MEDICAL INFORMATION 1. ADVERSE EXPERIENCE REPORTING [ ] 1.2 [ ] 1.3 [ ] CONFIDENTIAL TREATMENT REQUESTED 2. PROVISION OF MEDICAL INFORMATION 2.1 [ ] 2.2 [ ] 2.3 [ ] 3. PRODUCT COMPLAINTS 3.1 [ ] CONFIDENTIAL TREATMENT REQUESTED SPONTANEOUS ADVERSE EVENT (ADE) REPORTING PROCEDURE - INDIVIDUAL CASE REPORTS [ ] CONFIDENTIAL TREATMENT REQUESTED [ ] CONFIDENTIAL TREATMENT REQUESTED [ ] CONFIDENTIAL TREATMENT REQUESTED [ ] CONFIDENTIAL TREATMENT REQUESTED PRODUCT RECALL PROCEDURE INITIATING PRODUCT RECALL [ ] CONFIDENTIAL TREATMENT REQUESTED SCHEDULE 3 THE TEST [Not Completed in Original Document] CONFIDENTIAL TREATMENT REQUESTED SCHEDULE 4 MICHIGAN AGREEMENT [See Exhibit 10.3 to the Registration Statement on Form S-1 filed on behalf of Aviron with the SEC ] EX-10.9 18 1996 EQUITY INCENTIVE PLAN AVIRON 1996 EQUITY INCENTIVE PLAN ADOPTED MARCH 6, 1996 APPROVED BY STOCKHOLDERS ________, 1996 1. PURPOSES. (a) The purpose of the Plan is to provide a means by which selected Employees of and Consultants to the Company and its Affiliates may be given an opportunity to benefit from increases in value of the stock of the Company through the granting of (i) Incentive Stock Options, (ii) Nonstatutory Stock Options, (iii) stock bonuses, (iv) rights to purchase restricted stock, and (v) stock appreciation rights, all as defined below. The Plan is successor to, and restatement of, the Company's 1992 Stock Option Plan. (b) The Company, by means of the Plan, seeks to retain the services of persons who are now Employees of or Consultants, to secure and retain the services of new Employees and Consultants, and to provide incentives for such persons to exert maximum efforts for the success of the Company and its Affiliates. (c) The Company intends that the Stock Awards issued under the Plan shall, in the discretion of the Board or any Committee to which responsibility for administration of the Plan has been delegated pursuant to subsection 3(c), be either (i) Options granted pursuant to Section 6 hereof, including Incentive Stock Options and Nonstatutory Stock Options, (ii) stock bonuses or rights to purchase restricted stock granted pursuant to Section 7 hereof, or (iii) stock appreciation rights granted pursuant to Section 8 hereof. All Options shall be separately designated Incentive Stock Options or Nonstatutory Stock Options at the time of grant, and in such form as issued pursuant to Section 6, and a separate certificate or certificates will be issued for shares purchased on exercise of each type of Option. 2. DEFINITIONS. (a) "AFFILIATE" means any parent corporation or subsidiary corporation, whether now or hereafter existing, as those terms are defined in Sections 424(e) and (f) respectively, of the Code. (b) "BOARD" means the Board of Directors of the Company. (c) "CODE" means the Internal Revenue Code of 1986, as amended. 1. (d) "COMMITTEE" means a Committee appointed by the Board in accordance with subsection 3(c) of the Plan. (e) "COMPANY" means Aviron, a Delaware corporation. (f) "CONCURRENT STOCK APPRECIATION RIGHT" or "CONCURRENT RIGHT" means a right granted pursuant to subsection 8(b)(2) of the Plan. (g) "CONSULTANT" means any person, including an advisor, engaged by the Company or an Affiliate to render consulting services and who is compensated for such services, provided that the term "Consultant" shall not include Directors who are paid only a director's fee by the Company or who are not compensated by the Company for their services as Directors. (h) "CONTINUOUS STATUS AS AN EMPLOYEE, DIRECTOR OR CONSULTANT" means the employment or relationship as a Director or Consultant is not interrupted or terminated. The Board, in its sole discretion, may determine whether Continuous Status as an Employee, Director or Consultant shall be considered interrupted in the case of: (i) any leave of absence approved by the Board, including sick leave, military leave, or any other personal leave; or (ii) transfers between locations of the Company or between the Company, Affiliates or their successors. (i) "COVERED EMPLOYEE" means the chief executive officer and the four (4) other highest compensated officers of the Company for whom total compensation is required to be reported to shareholders under the Exchange Act, as determined for purposes of Section 162(m) of the Code. (j) "DIRECTOR" means a member of the Board. (k) "DISINTERESTED PERSON" means a Director: who either: (i) was not during the one year prior to service as an administrator of the Plan granted or awarded equity securities pursuant to the Plan or any other plan of the Company or any Affiliate entitling the participants therein to acquire equity securities of the Company or any Affiliate except as permitted by Rule 16b-3(c)(2)(i); or (ii) is otherwise considered to be a "disinterested person" in accordance with Rule 16b-3(c)(2)(i), or any other applicable rules, regulations or interpretations of the Securities and Exchange Commission. (l) "EMPLOYEE" means any person, including Officers and Directors, employed by the Company or any Affiliate of the Company. Neither service as a Director nor payment of a director's fee by the Company shall be sufficient to constitute "employment" by the Company. (m) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended. 2. (n) "FAIR MARKET VALUE" means, as of any date, the value of the common stock of the Company determined as follows: (1) If the common stock is listed on any established stock exchange or a national market system, including without limitation the National Market of The Nasdaq Stock Market, the Fair Market Value of a share of common stock shall be the closing sales price for such stock (or the closing bid, if no sales were reported) as quoted on such system or exchange (or the exchange with the greatest volume of trading in common stock) on the last market trading day prior to the day of determination, as reported in the Wall Street Journal or such other source as the Board deems reliable; (2) If the common stock is quoted on The Nasdaq Stock Market (but not on the National Market thereof) or is regularly quoted by a recognized securities dealer but selling prices are not reported, the Fair Market Value of a share of common stock shall be the mean between the bid and asked prices for the common stock on the last market trading day prior to the day of determination, as reported in the Wall Street Journal or such other source as the Board deems reliable; (3) In the absence of an established market for the common stock, the Fair Market Value shall be determined in good faith by the Board. (o) "INCENTIVE STOCK OPTION" means an Option intended to qualify as an incentive stock option within the meaning of Section 422 of the Code and the regulations promulgated thereunder. (p) "INDEPENDENT STOCK APPRECIATION RIGHT" or "INDEPENDENT RIGHT" means a right granted pursuant to subsection 8(b)(3) of the Plan. (q) "NONSTATUTORY STOCK OPTION" means an Option not intended to qualify as an Incentive Stock Option. (r) "OFFICER" means a person who is an officer of the Company within the meaning of Section 16 of the Exchange Act and the rules and regulations promulgated thereunder. (s) "OPTION" means a stock option granted pursuant to the Plan. (t) "OPTION AGREEMENT" means a written agreement between the Company and an Optionee evidencing the terms and conditions of an individual Option grant. Each Option Agreement shall be subject to the terms and conditions of the Plan. (u) "OPTIONEE" means an Employee or Consultant who holds an outstanding Option. (v) "OUTSIDE DIRECTOR" means a Director who either (i) is not a current employee of the Company or an "affiliated corporation" (within the meaning of Treasury regulations 3. promulgated under Section 162(m) of the Code), is not a former employee of the Company or an "affiliated corporation" receiving compensation for prior services (other than benefits under a tax qualified pension plan), was not an officer of the Company or an "affiliated corporation" at any time, and is not currently receiving direct or indirect remuneration from the Company or an "affiliated corporation" for services in any capacity other than as a Director, or (ii) is otherwise considered an "outside director" for purposes of Section 162(m) of the Code. (w) "PLAN" means this Aviron 1996 Equity Incentive Plan. (x) "RULE 16B-3" means Rule 16b-3 of the Exchange Act or any successor to Rule 16b-3, as in effect when discretion is being exercised with respect to the Plan. (y) "STOCK APPRECIATION RIGHT" means any of the various types of rights which may be granted under Section 8 of the Plan. (z) "STOCK AWARD" means any right granted under the Plan, including any Option, any stock bonus, any right to purchase restricted stock, and any Stock Appreciation Right. (aa) "STOCK AWARD AGREEMENT" means a written agreement between the Company and a holder of a Stock Award evidencing the terms and conditions of an individual Stock Award grant. Each Stock Award Agreement shall be subject to the terms and conditions of the Plan. (bb) "TANDEM STOCK APPRECIATION RIGHT" or "TANDEM RIGHT" means a right granted pursuant to subsection 8(b)(1) of the Plan. 3. ADMINISTRATION. (a) The Plan shall be administered by the Board unless and until the Board delegates administration to a Committee, as provided in subsection 3(c). (b) The Board shall have the power, subject to, and within the limitations of, the express provisions of the Plan: (1) To determine from time to time which of the persons eligible under the Plan shall be granted Stock Awards; when and how each Stock Award shall be granted; whether a Stock Award will be an Incentive Stock Option, a Nonstatutory Stock Option, a stock bonus, a right to purchase restricted stock, a Stock Appreciation Right, or a combination of the foregoing; the provisions of each Stock Award granted (which need not be identical), including the time or times when a person shall be permitted to receive stock pursuant to a Stock Award; whether a person shall be permitted to receive stock upon exercise of an Independent Stock Appreciation Right; and the number of shares with respect to which a Stock Award shall be granted to each such person. 4. (2) To construe and interpret the Plan and Stock Awards granted under it, and to establish, amend and revoke rules and regulations for its administration. The Board, in the exercise of this power, may correct any defect, omission or inconsistency in the Plan or in any Stock Award Agreement, in a manner and to the extent it shall deem necessary or expedient to make the Plan fully effective. (3) To amend the Plan or a Stock Award as provided in Section 14. (4) Generally, to exercise such powers and to perform such acts as the Board deems necessary or expedient to promote the best interests of the Company which are not in conflict with the provisions of the Plan. (c) The Board may delegate administration of the Plan to a committee composed of not fewer than two (2) members (the "Committee"), all of the members of which Committee shall be Disinterested Persons and may also be, in the discretion of the Board, Outside Directors. If administration is delegated to a Committee, the Committee shall have, in connection with the administration of the Plan, the powers theretofore possessed by the Board (and references in this Plan to the Board shall thereafter be to the Committee), subject, however, to such resolutions, not inconsistent with the provisions of the Plan, as may be adopted from time to time by the Board. The Board may abolish the Committee at any time and revest in the Board the administration of the Plan. Notwithstanding anything in this Section 3 to the contrary, at any time the Board or the Committee may delegate to a committee of one or more members of the Board the authority to grant Stock Awards to eligible persons who (1) are not then subject to Section 16 of the Exchange Act and/or (2) are either (i) not then Covered Employees and are not expected to be Covered Employees at the time of recognition of income resulting from such Stock Award, or (ii) not persons with respect to whom the Company wishes to avoid the application of Section 162(m) of the Code. (d) Any requirement that an administrator of the Plan be a Disinterested Person shall not apply if the Board or the Committee expressly declares that such requirement shall not apply. Any Disinterested Person shall otherwise comply with the requirements of Rule 16b-3. 4. SHARES SUBJECT TO THE PLAN. (a) Subject to the provisions of Section 13 relating to adjustments upon changes in stock, the stock that may be issued pursuant to Stock Awards shall not exceed in the aggregate one million seven hundred fifty thousand (1,750,000) shares of the Company's common stock (after giving effect to the one-for-five reverse split of the Company's Common Stock approved in March, 1996). If any Stock Award shall for any reason expire or otherwise terminate, in whole or in part, without having been exercised in full, the stock not acquired under such Stock Award shall revert to and again become available for issuance under the Plan. Shares subject to Stock Appreciation Rights exercised in accordance with Section 8 of the Plan shall not be available for subsequent issuance under the Plan. 5. (b) The stock subject to the Plan may be unissued shares or reacquired shares, bought on the market or otherwise. 5. ELIGIBILITY. (a) Incentive Stock Options and Stock Appreciation Rights appurtenant thereto may be granted only to Employees. Stock Awards other than Incentive Stock Options and Stock Appreciation Rights appurtenant thereto may be granted only to Employees or Consultants. (b) A Director shall in no event be eligible for the benefits of the Plan unless at the time of grant the Director is also an Employee or Consultant. (c) No person shall be eligible for the grant of an Incentive Stock Option if, at the time of grant, such person owns (or is deemed to own pursuant to Section 424(d) of the Code) stock possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or of any of its Affiliates unless the exercise price of such Option is at least one hundred ten percent (110%) of the Fair Market Value of such stock at the date of grant and the Option is not exercisable after the expiration of five (5) years from the date of grant, or in the case of a restricted stock purchase award, the purchase price is at least one hundred percent (100%) of the Fair Market Value of such stock at the date of grant. (d) Subject to the provisions of Section 13 relating to adjustments upon changes in stock, no person shall be eligible to be granted Options and Stock Appreciation Rights covering more than one hundred fifty thousand (150,000) (after giving effect to the one-for-five reverse split of the Company's Common Stock approved in March, 1996) shares of the Company's common stock in any calendar year. 6. OPTION PROVISIONS. Each Option shall be in such form and shall contain such terms and conditions as the Board shall deem appropriate. The provisions of separate Options need not be identical, but each Option shall include (through incorporation of provisions hereof by reference in the Option or otherwise) the substance of each of the following provisions: (a) TERM. No Option shall be exercisable after the expiration of ten (10) years from the date it was granted. (b) PRICE. The exercise price of each Incentive Stock Option shall be not less than one hundred percent (100%) of the Fair Market Value of the stock subject to the Option on the date the Option is granted; the exercise price of a Nonstatutory Stock Option shall be not less than eighty-five percent (85%) of the Fair Market Value of the stock subject to the Option on the date the Option is granted. Notwithstanding the foregoing, an Incentive Stock Option may be granted with an exercise price lower than that set forth in the preceding sentence if such Option is granted 6. pursuant to an assumption or substitution for another option in a manner satisfying the provisions of Section 424(a) of the Code. (c) CONSIDERATION. The purchase price of stock acquired pursuant to an Option shall be paid, to the extent permitted by applicable statutes and regulations, either (i) in cash at the time the Option is exercised, or (ii) at the discretion of the Board or the Committee, at the time of the grant of the Option, (A) by delivery to the Company of other common stock of the Company, (B) according to a deferred payment or other arrangement (which may include, without limiting the generality of the foregoing, the use of other common stock of the Company) with the person to whom the Option is granted or to whom the Option is transferred pursuant to subsection 6(d), or (C) in any other form of legal consideration that may be acceptable to the Board. In the case of any deferred payment arrangement, interest shall be payable at least annually and shall be charged at the minimum rate of interest necessary to avoid the treatment as interest, under any applicable provisions of the Code, of any amounts other than amounts stated to be interest under the deferred payment arrangement. (d) TRANSFERABILITY. An Incentive Stock Option shall not be transferable except by will or by the laws of descent and distribution, and shall be exercisable during the lifetime of the person to whom the Incentive Stock Option is granted only by such person. A Nonstatutory Stock Option shall not be transferable except by will, by the laws of descent and distribution or pursuant to a qualified domestic relations order satisfying the requirements of Rule 16b-3 and any administrative interpretations or pronouncements thereunder (a "QDRO"), and shall be exercisable during the lifetime of the person to whom the Option is granted only by such person or any transferee pursuant to a QDRO. Notwithstanding the foregoing, the person to whom the Option is granted may, by delivering written notice to the Company, in a form satisfactory to the Company, designate a third party who, in the event of the death of the Optionee, shall thereafter be entitled to exercise the Option. (e) VESTING. The total number of shares of stock subject to an Option may, but need not, be allotted in periodic installments (which may, but need not, be equal). The Option Agreement may provide that from time to time during each of such installment periods, the Option may become exercisable ("vest") with respect to some or all of the shares allotted to that period, and may be exercised with respect to some or all of the shares allotted to such period and/or any prior period as to which the Option became vested but was not fully exercised. The Option may be subject to such other terms and conditions on the time or times when it may be exercised (which may be based on performance or other criteria) as the Board may deem appropriate. The provisions of this subsection 6(e) are subject to any Option provisions governing the minimum number of shares as to which an Option may be exercised. (f) TERMINATION OF EMPLOYMENT OR RELATIONSHIP AS A DIRECTOR OR CONSULTANT. In the event an Optionee's Continuous Status as an Employee, Director or Consultant terminates (other than upon the Optionee's death or disability), the Optionee may exercise his or her Option (to the extent that the Optionee was entitled to exercise it at the date of termination) but only 7. within such period of time ending on the earlier of (i) the date three (3) months after the termination of the Optionee's Continuous Status as an Employee, Director or Consultant (or such longer or shorter period specified in the Option Agreement), or (ii) the expiration of the term of the Option as set forth in the Option Agreement. If, after termination, the Optionee does not exercise his or her Option within the time specified in the Option Agreement, the Option shall terminate, and the shares covered by such Option shall revert to and again become available for issuance under the Plan. An Optionee's Option Agreement may also provide that if the exercise of the Option following the termination of the Optionee's Continuous Status as an Employee, Director, or Consultant (other than upon the Optionee's death or disability) would result in liability under Section 16(b) of the Exchange Act, then the Option shall terminate on the earlier of (i) the expiration of the term of the Option set forth in the Option Agreement, or (ii) the tenth (10th) day after the last date on which such exercise would result in such liability under Section 16(b) of the Exchange Act. Finally, an Optionee's Option Agreement may also provide that if the exercise of the Option following the termination of the Optionee's Continuous Status as an Employee, Director or Consultant (other than upon the Optionee's death or disability) would be prohibited at any time solely because the issuance of shares would violate the registration requirements under the Act, then the Option shall terminate on the earlier of (i) the expiration of the term of the Option set forth in the first paragraph of this subsection 6(f), or (ii) the expiration of a period of three (3) months after the termination of the Optionee's Continuous Status as an Employee, Director or Consultant during which the exercise of the Option would not be in violation of such registration requirements. (g) DISABILITY OF OPTIONEE. In the event an Optionee's Continuous Status as an Employee, Director or Consultant terminates as a result of the Optionee's disability, the Optionee may exercise his or her Option (to the extent that the Optionee was entitled to exercise it at the date of termination), but only within such period of time ending on the earlier of (i) the date twelve (12) months following such termination (or such longer or shorter period specified in the Option Agreement), or (ii) the expiration of the term of the Option as set forth in the Option Agreement. If, at the date of termination, the Optionee is not entitled to exercise his or her entire Option, the shares covered by the unexercisable portion of the Option shall revert to and again become available for issuance under the Plan. If, after termination, the Optionee does not exercise his or her Option within the time specified herein, the Option shall terminate, and the shares covered by such Option shall revert to and again become available for issuance under the Plan. (h) DEATH OF OPTIONEE. In the event of the death of an Optionee during, or within a period specified in the Option after the termination of, the Optionee's Continuous Status as an Employee, Director or Consultant, the Option may be exercised (to the extent the Optionee was entitled to exercise the Option at the date of death) by the Optionee's estate, by a person who acquired the right to exercise the Option by bequest or inheritance or by a person designated to exercise the option upon the Optionee's death pursuant to subsection 6(d), but only within the period ending on the earlier of (i) the date twelve (12) months following the date of death (or such 8. longer or shorter period specified in the Option Agreement), or (ii) the expiration of the term of such Option as set forth in the Option Agreement. If, at the time of death, the Optionee was not entitled to exercise his or her entire Option, the shares covered by the unexercisable portion of the Option shall revert to and again become available for issuance under the Plan. If, after death, the Option is not exercised within the time specified herein, the Option shall terminate, and the shares covered by such Option shall revert to and again become available for issuance under the Plan. (i) EARLY EXERCISE. The Option may, but need not, include a provision whereby the Optionee may elect at any time while an Employee, Director or Consultant to exercise the Option as to any part or all of the shares subject to the Option prior to the full vesting of the Option. Any unvested shares so purchased may be subject to a repurchase right in favor of the Company or to any other restriction the Board determines to be appropriate. (j) RE-LOAD OPTIONS. Without in any way limiting the authority of the Board or Committee to make or not to make grants of Options hereunder, the Board or Committee shall have the authority (but not an obligation) to include as part of any Option Agreement a provision entitling the Optionee to a further Option (a "Re-Load Option") in the event the Optionee exercises the Option evidenced by the Option agreement, in whole or in part, by surrendering other shares of Common Stock in accordance with this Plan and the terms and conditions of the Option Agreement. Any such Re-Load Option (i) shall be for a number of shares equal to the number of shares surrendered as part or all of the exercise price of such Option; (ii) shall have an expiration date which is the same as the expiration date of the Option the exercise of which gave rise to such Re-Load Option; and (iii) shall have an exercise price which is equal to one hundred percent (100%) of the Fair Market Value of the Common Stock subject to the Re- Load Option on the date of exercise of the original Option. Notwithstanding the foregoing, a Re-Load Option which is an Incentive Stock Option and which is granted to a 10% stockholder (as described in subsection 5(c)), shall have an exercise price which is equal to one hundred ten percent (110%) of the Fair Market Value of the stock subject to the Re-Load Option on the date of exercise of the original Option and shall have a term which is no longer than five (5) years. Any such Re-Load Option may be an Incentive Stock Option or a Nonstatutory Stock Option, as the Board or Committee may designate at the time of the grant of the original Option; PROVIDED, HOWEVER, that the designation of any Re-Load Option as an Incentive Stock Option shall be subject to the one hundred thousand dollar ($100,000) annual limitation on exercisability of Incentive Stock Options described in subsection 12(d) of the Plan and in Section 422(d) of the Code. There shall be no Re-Load Options on a Re-Load Option. Any such Re-Load Option shall be subject to the availability of sufficient shares under subsection 4(a) and shall be subject to such other terms and conditions as the Board or Committee may determine which are not inconsistent with the express provisions of the Plan regarding the terms of Options. 7. TERMS OF STOCK BONUSES AND PURCHASES OF RESTRICTED STOCK. 9. Each stock bonus or restricted stock purchase agreement shall be in such form and shall contain such terms and conditions as the Board or the Committee shall deem appropriate. The terms and conditions of stock bonus or restricted stock purchase agreements may change from time to time, and the terms and conditions of separate agreements need not be identical, but each stock bonus or restricted stock purchase agreement shall include (through incorporation of provisions hereof by reference in the agreement or otherwise) the substance of each of the following provisions as appropriate: (a) PURCHASE PRICE. The purchase price under each restricted stock purchase agreement shall be such amount as the Board or Committee shall determine and designate in such agreement but in no event shall the purchase price be less than eighty-five percent (85%) of the stock's Fair Market Value on the date such award is made. Notwithstanding the foregoing, the Board or the Committee may determine that eligible participants in the Plan may be awarded stock pursuant to a stock bonus agreement in consideration for past services actually rendered to the Company for its benefit. (b) TRANSFERABILITY. No rights under a stock bonus or restricted stock purchase agreement shall be transferable except by will or the laws of descent and distribution or pursuant to a qualified domestic relations order satisfying the requirements of Rule 16b-3 and any administrative interpretations or pronouncements thereunder, so long as stock awarded under such agreement remains subject to the terms of the agreement. (c) CONSIDERATION. The purchase price of stock acquired pursuant to a stock purchase agreement shall be paid either: (i) in cash at the time of purchase; (ii) at the discretion of the Board or the Committee, according to a deferred payment or other arrangement with the person to whom the stock is sold; or (iii) in any other form of legal consideration that may be acceptable to the Board or the Committee in its discretion. Notwithstanding the foregoing, the Board or the Committee to which administration of the Plan has been delegated may award stock pursuant to a stock bonus agreement in consideration for past services actually rendered to the Company or for its benefit. (d) VESTING. Shares of stock sold or awarded under the Plan may, but need not, be subject to a repurchase option in favor of the Company in accordance with a vesting schedule to be determined by the Board or the Committee. (e) TERMINATION OF EMPLOYMENT OR RELATIONSHIP AS A DIRECTOR OR CONSULTANT. In the event a Participant's Continuous Status as an Employee, Director or Consultant terminates, the Company may repurchase or otherwise reacquire any or all of the shares of stock held by that person which have not vested as of the date of termination under the terms of the stock bonus or restricted stock purchase agreement between the Company and such person. 8. STOCK APPRECIATION RIGHTS. 10. (a) The Board or Committee shall have full power and authority, exercisable in its sole discretion, to grant Stock Appreciation Rights under the Plan to Employees and Consultants. To exercise any outstanding Stock Appreciation Right, the holder must provide written notice of exercise to the Company in compliance with the provisions of the Stock Award Agreement evidencing such right. If a Stock Appreciation Right is granted to an individual who is at the time subject to Section 16(b) of the Exchange Act (a "Section 16(b) Insider"), the Stock Award Agreement of grant shall incorporate all the terms and conditions at the time necessary to assure that the subsequent exercise of such right shall qualify for the safe-harbor exemption from short-swing profit liability provided by Rule 16b-3 promulgated under the Exchange Act (or any successor rule or regulation). Except as provided in subsection 5(d), no limitation shall exist on the aggregate amount of cash payments the Company may make under the Plan in connection with the exercise of a Stock Appreciation Rights. (b) Three types of Stock Appreciation Rights shall be authorized for issuance under the Plan: (1) TANDEM STOCK APPRECIATION RIGHTS. Tandem Stock Appreciation Rights will be granted appurtenant to an Option, and shall, except as specifically set forth in this Section 8, be subject to the same terms and conditions applicable to the particular Option grant to which it pertains. Tandem Stock Appreciation Rights will require the holder to elect between the exercise of the underlying Option for shares of stock and the surrender, in whole or in part, of such Option for an appreciation distribution. The appreciation distribution payable on the exercised Tandem Right shall be in cash (or, if so provided, in an equivalent number of shares of stock based on Fair Market Value on the date of the Option surrender) in an amount up to the excess of (A) the Fair Market Value (on the date of the Option surrender) of the number of shares of stock covered by that portion of the surrendered Option in which the Optionee is vested over (B) the aggregate exercise price payable for such vested shares. (2) CONCURRENT STOCK APPRECIATION RIGHTS. Concurrent Rights will be granted appurtenant to an Option and may apply to all or any portion of the shares of stock subject to the underlying Option and shall, except as specifically set forth in this Section 8, be subject to the same terms and conditions applicable to the particular Option grant to which it pertains. A Concurrent Right shall be exercised automatically at the same time the underlying Option is exercised with respect to the particular shares of stock to which the Concurrent Right pertains. The appreciation distribution payable on an exercised Concurrent Right shall be in cash (or, if so provided, in an equivalent number of shares of stock based on Fair Market Value on the date of the exercise of the Concurrent Right) in an amount equal to such portion as shall be determined by the Board or the Committee at the time of the grant of the excess of (A) the aggregate Fair Market Value (on the date of the exercise of the Concurrent Right) of the vested shares of stock purchased under the underlying Option which have Concurrent Rights appurtenant to them over (B) the aggregate exercise price paid for such shares. (3) INDEPENDENT STOCK APPRECIATION RIGHTS. Independent Rights will be granted independently of any Option and shall, except as specifically set forth in this Section 8, 11. be subject to the same terms and conditions applicable to Nonstatutory Stock Options as set forth in Section 6. They shall be denominated in share equivalents. The appreciation distribution payable on the exercised Independent Right shall be not greater than an amount equal to the excess of (A) the aggregate Fair Market Value (on the date of the exercise of the Independent Right) of a number of shares of Company stock equal to the number of share equivalents in which the holder is vested under such Independent Right, and with respect to which the holder is exercising the Independent Right on such date, over (B) the aggregate Fair Market Value (on the date of the grant of the Independent Right) of such number of shares of Company stock. The appreciation distribution payable on the exercised Independent Right shall be in cash or, if so provided, in an equivalent number of shares of stock based on Fair Market Value on the date of the exercise of the Independent Right. 9. CANCELLATION AND RE-GRANT OF OPTIONS. (a) The Board or the Committee shall have the authority to effect, at any time and from time to time, (i) the repricing of any outstanding Options and/or any Stock Appreciation Rights under the Plan and/or (ii) with the consent of any adversely affected holders of Options and/or Stock Appreciation Rights, the cancellation of any outstanding Options and/or any Stock Appreciation Rights under the Plan and the grant in substitution therefor of new Options and/or Stock Appreciation Rights under the Plan covering the same or different numbers of shares of stock, but having an exercise price per share not less than: eighty-five percent (85%) of the Fair Market Value for a Nonstatutory Stock Option, one hundred percent (100%) of the Fair Market Value in the case of an Incentive Stock Option or, in the case of an Incentive Stock Option held by a 10% stockholder (as described in subsection 5(c)), not less than one hundred ten percent (110%) of the Fair Market Value per share of stock on the new grant date. Notwithstanding the foregoing, the Board or the Committee may grant an Option and/or Stock Appreciation Right with an exercise price lower than that set forth above if such Option and/or Stock Appreciation Right is granted as part of a transaction to which section 424(a) of the Code applies. (b) Shares subject to an Option or Stock Appreciation Right canceled under this Section 9 shall continue to be counted against the maximum award of Options and Stock Appreciation Rights permitted to be granted pursuant to subsection 5(d) of the Plan. The repricing of an Option and/or Stock Appreciation Right under this Section 9, resulting in a reduction of the exercise price, shall be deemed to be a cancellation of the original Option and/or Stock Appreciation Right and the grant of a substitute Option and/or Stock Appreciation Right; in the event of such repricing, both the original and the substituted Options and Stock Appreciation Rights shall be counted against the maximum awards of Options and Stock Appreciation Rights permitted to be granted pursuant to subsection 5(d) of the Plan. The provisions of this subsection 9(b) shall be applicable only to the extent required by Section 162(m) of the Code. 10. COVENANTS OF THE COMPANY. (a) During the terms of the Stock Awards, the Company shall keep available at all times the number of shares of stock required to satisfy such Stock Awards. 12. (b) The Company shall seek to obtain from each regulatory commission or agency having jurisdiction over the Plan such authority as may be required to issue and sell shares of stock upon exercise of the Stock Award; provided, however, that this undertaking shall not require the Company to register under the Securities Act of 1933, as amended (the "Securities Act") either the Plan, any Stock Award or any stock issued or issuable pursuant to any such Stock Award. If, after reasonable efforts, the Company is unable to obtain from any such regulatory commission or agency the authority which counsel for the Company deems necessary for the lawful issuance and sale of stock under the Plan, the Company shall be relieved from any liability for failure to issue and sell stock upon exercise of such Stock Awards unless and until such authority is obtained. 11. USE OF PROCEEDS FROM STOCK. Proceeds from the sale of stock pursuant to Stock Awards shall constitute general funds of the Company. 12. MISCELLANEOUS. (a) The Board shall have the power to accelerate the time at which a Stock Award may first be exercised or the time during which a Stock Award or any part thereof will vest pursuant to subsection 6(e), 7(d) or 8(b), notwithstanding the provisions in the Stock Award stating the time at which it may first be exercised or the time during which it will vest. (b) Neither an Employee, a Consultant nor any person to whom a Stock Award is transferred in accordance with the Plan shall be deemed to be the holder of, or to have any of the rights of a holder with respect to, any shares subject to such Stock Award unless and until such person has satisfied all requirements for exercise of the Stock Award pursuant to its terms. (c) Nothing in the Plan or any instrument executed or Stock Award granted pursuant thereto shall confer upon any Employee, Consultant or other holder of Stock Awards any right to continue in the employ of the Company or any Affiliate or to continue acting as a Consultant or shall affect the right of the Company or any Affiliate to terminate the employment of any Employee with or without notice and with or without cause, or the right to terminate the relationship of any Consultant pursuant to the terms of such Consultant's agreement with the Company or Affiliate. (d) To the extent that the aggregate Fair Market Value (determined at the time of grant) of stock with respect to which Incentive Stock Options are exercisable for the first time by any Optionee during any calendar year under all plans of the Company and its Affiliates exceeds one hundred thousand dollars ($100,000), the Options or portions thereof which exceed such limit (according to the order in which they were granted) shall be treated as Nonstatutory Stock Options. 13. (e) The Company may require any person to whom a Stock Award is granted, or any person to whom a Stock Award is transferred in accordance with the Plan, as a condition of exercising or acquiring stock under any Stock Award, (1) to give written assurances satisfactory to the Company as to such person's knowledge and experience in financial and business matters and/or to employ a purchaser representative reasonably satisfactory to the Company who is knowledgeable and experienced in financial and business matters, and that he or she is capable of evaluating, alone or together with the purchaser representative, the merits and risks of exercising the Stock Award; and (2) to give written assurances satisfactory to the Company stating that such person is acquiring the stock subject to the Stock Award for such person's own account and not with any present intention of selling or otherwise distributing the stock. The foregoing requirements, and any assurances given pursuant to such requirements, shall be inoperative if (i) the issuance of the shares upon the exercise or acquisition of stock under the Stock Award has been registered under a then currently effective registration statement under the Securities Act, or (ii) as to any particular requirement, a determination is made by counsel for the Company that such requirement need not be met in the circumstances under the then applicable securities laws. The Company may, upon advice of counsel to the Company, place legends on stock certificates issued under the Plan as such counsel deems necessary or appropriate in order to comply with applicable securities laws, including, but not limited to, legends restricting the transfer of the stock. (f) To the extent provided by the terms of a Stock Award Agreement, the person to whom a Stock Award is granted may satisfy any federal, state or local tax withholding obligation relating to the exercise or acquisition of stock under a Stock Award by any of the following means or by a combination of such means: (1) tendering a cash payment; (2) authorizing the Company to withhold shares from the shares of the common stock otherwise issuable to the participant as a result of the exercise or acquisition of stock under the Stock Award; or (3) delivering to the Company owned and unencumbered shares of the common stock of the Company. 13. ADJUSTMENTS UPON CHANGES IN STOCK. (a) If any change is made in the stock subject to the Plan, or subject to any Stock Award, without the receipt of consideration by the Company (through merger, consolidation, reorganization, recapitalization, reincorporation, stock dividend, dividend in property other than cash, stock split, liquidating dividend, combination of shares, exchange of shares, change in corporate structure or other transaction not involving the receipt of consideration by the Company), the Plan will be appropriately adjusted in the class(es) and maximum number of shares subject to the Plan pursuant to subsection 4(a) and the maximum number of shares subject to award to any person during any calendar year pursuant to subsection 5(d), and the outstanding Stock Awards will be appropriately adjusted in the class(es) and number of shares and price per share of stock subject to such outstanding Stock Awards. Such adjustments shall be made by the Board or the Committee, the determination of which shall be final, binding and conclusive. (The conversion of any convertible securities of the Company shall not be treated as a "transaction not involving the receipt of consideration by the Company".) 14. (b) In the event of: (1) a dissolution, liquidation or sale of substantially all of the assets of the Company; (2) a merger or consolidation in which the Company is not the surviving corporation; or (3) a reverse merger in which the Company is the surviving corporation but the shares of the Company's common stock outstanding immediately preceding the merger are converted by virtue of the merger into other property, whether in the form of securities, cash or otherwise, then to the extent permitted by applicable law: (i) any surviving corporation or an Affiliate of such surviving corporation shall assume any Stock Awards outstanding under the Plan or shall substitute similar Stock Awards for those outstanding under the Plan, or (ii) such Stock Awards shall continue in full force and effect. In the event any surviving corporation and its Affiliates refuse to assume or continue such Stock Awards, or to substitute similar options for those outstanding under the Plan, then, with respect to Stock Awards held by persons then performing services as Employees, Directors or Consultants, the time during which such Stock Awards may be exercised shall be accelerated and the Stock Awards terminated if not exercised prior to such event. 14. AMENDMENT OF THE PLAN AND STOCK AWARDS. (a) The Board at any time, and from time to time, may amend the Plan. However, except as provided in Section 13 relating to adjustments upon changes in stock, no amendment shall be effective unless approved by the stockholders of the Company within twelve (12) months before or after the adoption of the amendment, where the amendment will modify the Plan in any way that would require stockholder approval in order for the Plan to satisfy the requirements of Section 422 of the Code or to comply with the requirements of Rule 16b-3 (e.g., increases in the number of shares available for awards or changes to eligibility for Awards). (b) The Board may in its sole discretion submit any other amendment to the Plan for stockholder approval, including, but not limited to, amendments to the Plan intended to satisfy the requirements of Section 162(m) of the Code and the regulations promulgated thereunder regarding the exclusion of performance- based compensation from the limit on corporate deductibility of compensation paid to certain executive officers. (c) It is expressly contemplated that the Board may amend the Plan in any respect the Board deems necessary or advisable to provide eligible Employees or Consultants with the maximum benefits provided or to be provided under the provisions of the Code and the regulations promulgated thereunder relating to Incentive Stock Options and/or to bring the Plan and/or Incentive Stock Options granted under it into compliance therewith. (d) Rights and obligations under any Stock Award granted before amendment of the Plan shall not be impaired by any amendment of the Plan unless (i) the Company requests the consent of the person to whom the Stock Award was granted and (ii) such person consents in writing. (e) The Board at any time, and from time to time, may amend the terms of any one or more Stock Award; provided, however, that the rights and obligations under any Stock Award 15. shall not be impaired by any such amendment unless (i) the Company requests the consent of the person to whom the Stock Award was granted and (ii) such person consents in writing. 15. TERMINATION OR SUSPENSION OF THE PLAN. (a) The Board may suspend or terminate the Plan at any time. Unless sooner terminated, the Plan shall terminate ten (10) years from the date the Plan is adopted by the Board or approved by the stockholders of the Company, whichever is earlier. No Stock Awards may be granted under the Plan while the Plan is suspended or after it is terminated. (b) Rights and obligations under any Stock Award granted while the Plan is in effect shall not be impaired by suspension or termination of the Plan, except with the consent of the person to whom the Stock Award was granted. 16. EFFECTIVE DATE OF PLAN. The Plan shall become effective as determined by the Board, but no Stock Awards granted under the Plan shall be exercised unless and until the Plan has been approved by the stockholders of the Company, which approval shall be within twelve (12) months before or after the date the Plan is adopted by the Board. 16. EX-10.10 19 1996 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN AVIRON 1996 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN ADOPTED MARCH 6, 1996 APPROVED BY STOCKHOLDERS ______________, 1996 1. PURPOSE. (a) The purpose of the Aviron 1995 Non-Employee Directors' Stock Option Plan (the "Plan") is to provide a means by which each director of Aviron, a Delaware corporation (the "Company") who is not otherwise an employee of the Company or of any Affiliate of the Company (each such person being hereafter referred to as a "Non-Employee Director") will be given an opportunity to purchase stock of the Company. (b) The word "Affiliate" as used in the Plan means any parent corporation or subsidiary corporation of the Company as those terms are defined in Sections 424(e) and (f), respectively, of the Internal Revenue Code of 1986, as amended from time to time (the "Code"). (c) The Company, by means of the Plan, seeks to retain the services of persons now serving as Non-Employee Directors of the Company, to secure and retain the services of persons capable of serving in such capacity, and to provide incentives for such persons to exert maximum efforts for the success of the Company. 2. ADMINISTRATION. (a) The Plan shall be administered by the Board of Directors of the Company (the "Board") unless and until the Board delegates administration to a committee, as provided in subparagraph 2(b). 1. (b) The Board may delegate administration of the Plan to a committee composed of not fewer than two (2) members of the Board (the "Committee"). If administration is delegated to a Committee, the Committee shall have, in connection with the administration of the Plan, the powers theretofore possessed by the Board, subject, however, to such resolutions, not inconsistent with the provisions of the Plan, as may be adopted from time to time by the Board. The Board may abolish the Committee at any time and revest in the Board the administration of the Plan. 3. SHARES SUBJECT TO THE PLAN. (a) Subject to the provisions of paragraph 10 relating to adjustments upon changes in stock, the stock that may be sold pursuant to options granted under the Plan shall not exceed in the aggregate two hundred thousand (200,000) shares of the Company's common stock (after giving effect to the one-for-five reverse split of the Company's Common Stock approved in March, 1996). If any option granted under the Plan shall for any reason expire or otherwise terminate without having been exercised in full, the stock not purchased under such option shall again become available for the Plan. (b) The stock subject to the Plan may be unissued shares or reacquired shares, bought on the market or otherwise. 4. ELIGIBILITY. Options shall be granted only to Non-Employee Directors of the Company. 5. NON-DISCRETIONARY GRANTS. (a) Each person who is, after the Effective Date, elected for the first time to be a Non-Employee Director automatically shall, upon the date of initial election to be a Non-Employee Director by the Board or stockholders of the Company, be granted an option to purchase fifteen 2. thousand (15,000) shares of common stock of the Company (after giving effect to the one-for-five reverse split of the Company's Common Stock approved in March, 1996) on the terms and conditions set forth herein. (b) On December 31st of each year, commencing with December 31, 1996, (i) each person who is then a Non-Employee Director and continuously has been a Non-Employee Director since December 31st of the immediately preceding year automatically shall be granted an option to purchase three thousand (3,000) shares of common stock of the Company (after giving effect to the one-for-five reverse split of the Company's Common Stock approved in March, 1996) on the terms and conditions set forth herein, and (ii) each other person who is then a Non-Employee Director automatically shall be granted an option to purchase, on the terms and conditions set forth herein, the number of shares of common stock of the Company (rounded up to the nearest whole share) determined by multiplying three thousand (3,000) shares (after giving effect to the one-for-five reverse split of the Company's Common Stock approved in March, 1996) by a fraction, the numerator of which is the number of days the person continuously has been a Non-Employee Director as of the date of such grant and the denominator of which is 365. 6. OPTION PROVISIONS. Each option shall be subject to the following terms and conditions: (a) The term of each option commences on the date it is granted and, unless sooner terminated as set forth herein, expires on the date ("Expiration Date") ten (10) years from the date of grant. If the optionee's service as a Non-Employee Director or employee of or consultant to the Company or any Affiliate terminates for any reason or for no reason, the option shall terminate on the earlier of the Expiration Date or the date twelve (12) months following the date 3. of termination of all such service; PROVIDED, HOWEVER, that if such termination of service is due to the optionee's death, the option shall terminate on the earlier of the Expiration Date or eighteen (18) months following the date of the optionee's death. In any and all circumstances, an option may be exercised following termination of the optionee's service as a Non-Employee Director or employee of or consultant to the Company or any Affiliate only as to that number of shares as to which it was exercisable on the date of termination of such service under the provisions of subparagraph 6(e). (b) The exercise price of each option shall be one hundred percent (100%) of the fair market value of the stock subject to such option on the date such option is granted. (c) Payment of the exercise price of each option is due in full in cash upon any exercise when the number of shares being purchased upon such exercise is less than 1,000 shares. However, when the number of shares being purchased upon an exercise is 1,000 or more shares, the optionee may elect to make payment of the exercise price under one of the following alternatives: (i) Payment of the exercise price per share in cash or by check at the time of exercise; or (ii) Provided that at the time of the exercise the Company's common stock is publicly traded and quoted regularly in the Wall Street Journal, payment by delivery of shares of common stock of the Company already owned by the optionee, held for the period required to avoid a charge to the Company's reported earnings, and owned free and clear of any liens, claims, encumbrances or security interest, which common stock shall be valued at its fair market value on the date preceding the date of exercise; or 4. (iii) Payment by a combination of the methods of payment specified in subparagraph 6(c)(i) and 6(c)(ii) above. Notwithstanding the foregoing, this option may be exercised pursuant to a program developed under Regulation T as promulgated by the Federal Reserve Board which results in the receipt of cash (or check) by the Company prior to the issuance of shares of the Company's common stock. (d) An option shall not be transferable except by will or by the laws of descent and distribution, or pursuant to a qualified domestic relations order satisfying the requirements of Rule 16b-3 under the Securities Exchange Act of 1934 ("Rule 16b-3") and shall be exercisable during the lifetime of the person to whom the option is granted only by such person (or by his guardian or legal representative) or transferee pursuant to such an order. Notwithstanding the foregoing, the optionee may, by delivering written notice to the Company in a form satisfactory to the Company, designate a third party who, in the event of the death of the optionee, shall thereafter be entitled to exercise the option. (e) The option shall become exercisable in installments over a period of three (3) years from the date of grant commencing on the date one (1) year after the date of grant of the option, with thirty-three percent (33%) becoming exercisable one (1) year after the date of the grant, thirty-four percent (34%) becoming exercisable two (2) years after the date of grant and the remaining thirty-three percent (33%) becoming exercisable three (3) years after the date of grant; provided that the optionee has, during the entire period prior to such vesting date, continuously served as a Non-Employee Director or employee of or consultant to the Company or any Affiliate 5. of the Company, whereupon such option shall become fully exercisable in accordance with its terms with respect to that portion of the shares represented by that installment. (f) The Company may require any optionee, or any person to whom an option is transferred under subparagraph 6(d), as a condition of exercising any such option: (i) to give written assurances satisfactory to the Company as to the optionee's knowledge and experience in financial and business matters; and (ii) to give written assurances satisfactory to the Company stating that such person is acquiring the stock subject to the option for such person's own account and not with any present intention of selling or otherwise distributing the stock. These requirements, and any assurances given pursuant to such requirements, shall be inoperative if (i) the issuance of the shares upon the exercise of the option has been registered under a then-currently-effective registration statement under the Securities Act of 1933, as amended (the "Securities Act"), or (ii), as to any particular requirement, a determination is made by counsel for the Company that such requirement need not be met in the circumstances under the then-applicable securities laws. (g) Notwithstanding anything to the contrary contained herein, an option may not be exercised unless the shares issuable upon exercise of such option are then registered under the Securities Act or, if such shares are not then so registered, the Company has determined that such exercise and issuance would be exempt from the registration requirements of the Securities Act. (h) The Company (or a representative of the underwriters) may, in connection with the first underwritten registration of the offering of any securities of the Company under the Securities Act, require that any optionee not sell or otherwise transfer or dispose of any shares of common stock or other securities of the Company during such period (not to exceed one hundred eighty 6. (180) days) following the effective date of the registration statement of the Company filed under the Securities Act as may be requested by the Company or the representative of the underwriters. 7. COVENANTS OF THE COMPANY. (a) During the terms of the options granted under the Plan, the Company shall keep available at all times the number of shares of stock required to satisfy such options. (b) The Company shall seek to obtain from each regulatory commission or agency having jurisdiction over the Plan such authority as may be required to issue and sell shares of stock upon exercise of the options granted under the Plan; PROVIDED, HOWEVER, that this undertaking shall not require the Company to register under the Securities Act either the Plan, any option granted under the Plan, or any stock issued or issuable pursuant to any such option. If, after reasonable efforts, the Company is unable to obtain from any such regulatory commission or agency the authority which counsel for the Company deems necessary for the lawful issuance and sale of stock under the Plan, the Company shall be relieved from any liability for failure to issue and sell stock upon exercise of such options. 8. USE OF PROCEEDS FROM STOCK. Proceeds from the sale of stock pursuant to options granted under the Plan shall constitute general funds of the Company. 9. MISCELLANEOUS. (a) Neither an optionee nor any person to whom an option is transferred under subparagraph 6(d) shall be deemed to be the holder of, or to have any of the rights of a holder 7. with respect to, any shares subject to such option unless and until such person has satisfied all requirements for exercise of the option pursuant to its terms. (b) Throughout the term of any option granted pursuant to the Plan, the Company shall make available to the holder of such option, not later than one hundred twenty (120) days after the close of each of the Company's fiscal years during the option term, upon request, such financial and other information regarding the Company as comprises the annual report to the stockholders of the Company provided for in the Bylaws of the Company and such other information regarding the Company as the holder of such option may reasonably request. (c) Nothing in the Plan or in any instrument executed pursuant thereto shall confer upon any Non-Employee Director any right to continue in the service of the Company or any Affiliate or shall affect any right of the Company, its Board or stockholders or any Affiliate to terminate the service of any Non-Employee Director with or without cause. (d) No Non-Employee Director, individually or as a member of a group, and no beneficiary or other person claiming under or through him, shall have any right, title or interest in or to any option reserved for the purposes of the Plan except as to such shares of common stock, if any, as shall have been reserved for him pursuant to an option granted to him. (e) In connection with each option made pursuant to the Plan, it shall be a condition precedent to the Company's obligation to issue or transfer shares to a Non-Employee Director, or to evidence the removal of any restrictions on transfer, that such Non-Employee Director make arrangements satisfactory to the Company to insure that the amount of any federal or other 8. withholding tax required to be withheld with respect to such sale or transfer, or such removal or lapse, is made available to the Company for timely payment of such tax. (f) As used in this Plan, "fair market value" means, as of any date, the value of the common stock of the Company determined as follows: (i) If the common stock is listed on any established stock exchange or a national market system, including without limitation the National Market of The Nasdaq Stock Market , the Fair Market Value of a share of common stock shall be the closing sales price for such stock (or the closing bid, if no sales were reported) as quoted on such system or exchange (or the exchange with the greatest volume of trading in common stock) on the last market trading day prior to the day of determination, as reported in the Wall Street Journal or such other source as the Board deems reliable; (ii) If the common stock is quoted on The Nasdaq Stock Market (but not on the National Market thereof) or is regularly quoted by a recognized securities dealer but selling prices are not reported, the Fair Market Value of a share of common stock shall be the mean between the bid and asked prices for the common stock on the last market trading day prior to the day of determination, as reported in the Wall Street Journal or such other source as the Board deems reliable; (iii) In the absence of an established market for the common stock, the Fair Market Value shall be determined in good faith by the Board. 9. Notwithstanding the foregoing, the Fair Market Value of the common stock for an option granted on the Effective Date shall be the price per share at which shares of common stock are first sold to the public in the Company's initial public offering. 10. ADJUSTMENTS UPON CHANGES IN STOCK. (a) If any change is made in the stock subject to the Plan, or subject to any option granted under the Plan (through merger, consolidation, reorganization, recapitalization, reincorporation, stock dividend, dividend in property other than cash, stock split, liquidating dividend, combination of shares, exchange of shares, change in corporate structure or otherwise), the Plan and outstanding options will be appropriately adjusted in the class(es) and maximum number of shares subject to the Plan and the class(es) and number of shares and price per share of stock subject to outstanding options. (b) In the event of: (1) a dissolution, liquidation or sale of substantially all of the assets of the Company; (2) a merger or consolidation in which the Company is not the surviving corporation; (3) a reverse merger in which the Company is the surviving corporation but the shares of the Company's common stock outstanding immediately preceding the merger are converted by virtue of the merger into other property, whether in the form of securities, cash or otherwise; or (4) any other capital reorganization (including a sale of stock of the Company to a single purchaser or single group of affiliated purchasers) after which less than fifty percent (50%) of the outstanding voting shares of the new or continuing corporation are owned by shareholders of the Company immediately before such transaction, the time during which options outstanding under the Plan may be exercised shall be accelerated to permit the optionee to exercise all such 10. options in full prior to such event, and the options shall terminate if not exercised prior to such event. 11. AMENDMENT OF THE PLAN. (a) The Board at any time, and from time to time, may amend the Plan, PROVIDED, HOWEVER, that the Board shall not amend the plan more than once every six (6) months, with respect to the provisions of the Plan which relate to the amount, price and timing of grants, other than to comport with changes in the Code, the Employee Retirement Income Security Act, or applicable regulations or rulings thereunder. Except as provided in paragraph 10 relating to adjustments upon changes in stock, no amendment shall be effective unless approved by the stockholders of the Company within twelve (12) months before or after the adoption of the amendment, where the amendment will modify the Plan in any way if such modification requires stockholder approval in order for the Plan to comply with the requirements of Rule 16b-3 or Section 162(m) of the Internal Revenue Code. (b) Rights and obligations under any option granted before any amendment of the Plan shall not be impaired by such amendment unless (i) the Company requests the consent of the person to whom the option was granted and (ii) such person consents in writing. 12. TERMINATION OR SUSPENSION OF THE PLAN. (a) The Board may suspend or terminate the Plan at any time. No options may be granted under the Plan while the Plan is suspended or after it is terminated. 11. (b) Rights and obligations under any option granted while the Plan is in effect shall not be impaired by suspension or termination of the Plan, except with the consent of the person to whom the option was granted. (c) The Plan shall terminate upon the occurrence of any of the events described in Section 10(b) above. 13. EFFECTIVE DATE OF PLAN; CONDITIONS OF EXERCISE. (a) The Plan shall become effective upon the Effective Date, subject to the condition that the Plan is approved by the stockholders of the Company. (b) No option granted under the Plan shall be exercised or exercisable unless and until the condition of subparagraph 13(a) above has been met. 12. EX-10.11 20 1996 EMPLOYEE STOCK PURCHASE PLAN AVIRON 1996 EMPLOYEE STOCK PURCHASE PLAN ADOPTED MARCH 6, 1996 APPROVED BY STOCKHOLDERS _____________, 1996 1. PURPOSE. (a) The purpose of the 1996 Employee Stock Purchase Plan (the "Plan") is to provide a means by which employees of Aviron, a Delaware corporation (the "Company"), and its Affiliates, as defined in subparagraph 1(b), which are designated as provided in subparagraph 2(b), may be given an opportunity to purchase stock of the Company. (b) The word "Affiliate" as used in the Plan means any parent corporation or subsidiary corporation of the Company, as those terms are defined in Sections 424(e) and (f), respectively, of the Internal Revenue Code of 1986, as amended (the "Code"). (c) The Company, by means of the Plan, seeks to retain the services of its employees, to secure and retain the services of new employees, and to provide incentives for such persons to exert maximum efforts for the success of the Company. (d) The Company intends that the rights to purchase stock of the Company granted under the Plan be considered options issued under an "employee stock purchase plan" as that term is defined in Section 423(b) of the Code. 2. ADMINISTRATION. (a) The Plan shall be administered by the Board of Directors (the "Board") of the Company unless and until the Board delegates administration to a Committee, as provided in subparagraph 2(c). Whether or not the Board has delegated administration, the Board shall have the final power to determine all questions of policy and expediency that may arise in the administration of the Plan. (b) The Board shall have the power, subject to, and within the limitations of, the express provisions of the Plan: (i) To determine when and how rights to purchase stock of the Company shall be granted and the provisions of each offering of such rights (which need not be identical). 1. (ii) To designate from time to time which Affiliates of the Company shall be eligible to participate in the Plan. (iii) To construe and interpret the Plan and rights granted under it, and to establish, amend and revoke rules and regulations for its administration. The Board, in the exercise of this power, may correct any defect, omission or inconsistency in the Plan, in a manner and to the extent it shall deem necessary or expedient to make the Plan fully effective. (iv) To amend the Plan as provided in paragraph 13. (v) Generally, to exercise such powers and to perform such acts as the Board deems necessary or expedient to promote the best interests of the Company and its Affiliates and to carry out the intent that the Plan be treated as an "employee stock purchase plan" within the meaning of Section 423 of the Code. (c) The Board may delegate administration of the Plan to a Committee composed of not fewer than two (2) members of the Board (the "Committee"). If administration is delegated to a Committee, the Committee shall have, in connection with the administration of the Plan, the powers theretofore possessed by the Board, subject, however, to such resolutions, not inconsistent with the provisions of the Plan, as may be adopted from time to time by the Board. The Board may abolish the Committee at any time and revest in the Board the administration of the Plan. 3. SHARES SUBJECT TO THE PLAN. (a) Subject to the provisions of paragraph 12 relating to adjustments upon changes in stock, the stock that may be sold pursuant to rights granted under the Plan shall not exceed in the aggregate two hundred fifty thousand (250,000) shares of the Company's common stock (the "Common Stock") (after giving effect to the one-for-five reverse split of the Company's Common Stock approved in March, 1996). If any right granted under the Plan shall for any reason terminate without having been exercised, the Common Stock not purchased under such right shall again become available for the Plan. (b) The stock subject to the Plan may be unissued shares or reacquired shares, bought on the market or otherwise. 4. GRANT OF RIGHTS; OFFERING. The Board or the Committee may from time to time grant or provide for the grant of rights to purchase Common Stock of the Company under the Plan to eligible employees (an "Offering") on a date or dates (the "Offering Date(s)") selected by the Board or the Committee. Each Offering shall be in such form and shall contain such terms and conditions as the Board or the Committee shall deem appropriate, which shall comply with the requirements of Section 423(b)(5) of the Code that all employees granted rights to purchase stock under the Plan shall have the same 2. rights and privileges. The terms and conditions of an Offering shall be incorporated by reference into the Plan and treated as part of the Plan. The provisions of separate Offerings need not be identical, but each Offering shall include (through incorporation of the provisions of this Plan by reference in the document comprising the Offering or otherwise) the period during which the Offering shall be effective, which period shall not exceed twenty-seven (27) months beginning with the Offering Date, and the substance of the provisions contained in paragraphs 5 through 8, inclusive. 5. ELIGIBILITY. (a) Rights may be granted only to employees of the Company or, as the Board or the Committee may designate as provided in subparagraph 2(b), to employees of any Affiliate of the Company. Except as provided in subparagraph 5(b), an employee of the Company or any Affiliate shall not be eligible to be granted rights under the Plan, unless, on the Offering Date, such employee has been in the employ of the Company or any Affiliate for such continuous period preceding such grant as the Board or the Committee may require, but in no event shall the required period of continuous employment be greater than two (2) years. In addition, unless otherwise determined by the Board or the Committee and set forth in the terms of the applicable Offering, no employee of the Company or any Affiliate shall be eligible to be granted rights under the Plan, unless, on the Offering Date, such employee's customary employment with the Company or such Affiliate is for at least twenty (20) hours per week and at least five (5) months per calendar year. (b) The Board or the Committee may provide that, each person who, during the course of an Offering, first becomes an eligible employee of the Company or designated Affiliate will, on a date or dates specified in the Offering which coincides with the day on which such person becomes an eligible employee or occurs thereafter, receive a right under that Offering, which right shall thereafter be deemed to be a part of that Offering. Such right shall have the same characteristics as any rights originally granted under that Offering, as described herein, except that: (i) the date on which such right is granted shall be the "Offering Date" of such right for all purposes, including determination of the exercise price of such right; (ii) the period of the Offering with respect to such right shall begin on its Offering Date and end coincident with the end of such Offering; and (iii) the Board or the Committee may provide that if such person first becomes an eligible employee within a specified period of time before the end of the Offering, he or she will not receive any right under that Offering. (c) No employee shall be eligible for the grant of any rights under the Plan if, immediately after any such rights are granted, such employee owns stock possessing five percent 3. (5%) or more of the total combined voting power or value of all classes of stock of the Company or of any Affiliate. For purposes of this subparagraph 5(c), the rules of Section 424(d) of the Code shall apply in determining the stock ownership of any employee, and stock which such employee may purchase under all outstanding rights and options shall be treated as stock owned by such employee. (d) An eligible employee may be granted rights under the Plan only if such rights, together with any other rights granted under "employee stock purchase plans" of the Company and any Affiliates, as specified by Section 423(b)(8) of the Code, do not permit such employee's rights to purchase stock of the Company or any Affiliate to accrue at a rate which exceeds twenty five thousand dollars ($25,000) of fair market value of such stock (determined at the time such rights are granted) for each calendar year in which such rights are outstanding at any time. (e) Officers of the Company and any designated Affiliate shall be eligible to participate in Offerings under the Plan, provided, however, that the Board may provide in an Offering that certain employees who are highly compensated employees within the meaning of Section 423(b)(4)(D) of the Code shall not be eligible to participate. 6. RIGHTS; PURCHASE PRICE. (a) On each Offering Date, each eligible employee, pursuant to an Offering made under the Plan, shall be granted the right to purchase up to the number of shares of Common Stock of the Company purchasable with a percentage designated by the Board or the Committee not exceeding fifteen percent (15%) of such employee's Earnings (as defined in subparagraph 7(a)) during the period which begins on the Offering Date (or such later date as the Board or the Committee determines for a particular Offering) and ends on the date stated in the Offering, which date shall be no later than the end of the Offering. The Board or the Committee shall establish one or more dates during an Offering (the "Purchase Date(s)") on which rights granted under the Plan shall be exercised and purchases of Common Stock carried out in accordance with such Offering. (b) In connection with each Offering made under the Plan, the Board or the Committee may specify a maximum number of shares that may be purchased by any employee as well as a maximum aggregate number of shares that may be purchased by all eligible employees pursuant to such Offering. In addition, in connection with each Offering that contains more than one Purchase Date, the Board or the Committee may specify a maximum aggregate number of shares which may be purchased by all eligible employees on any given Purchase Date under the Offering. If the aggregate purchase of shares upon exercise of rights granted under the Offering would exceed any such maximum aggregate number, the Board or the Committee shall make a pro rata allocation of the shares available in as nearly a uniform manner as shall be practicable and as it shall deem to be equitable. 4. (c) The purchase price of stock acquired pursuant to rights granted under the Plan shall be not less than the lesser of: (i) an amount equal to eighty-five percent (85%) of the fair market value of the stock on the Offering Date; or (ii) an amount equal to eighty-five percent (85%) of the fair market value of the stock on the Purchase Date. 7. PARTICIPATION; WITHDRAWAL; TERMINATION. (a) An eligible employee may become a participant in the Plan pursuant to an Offering by delivering a participation agreement to the Company within the time specified in the Offering, in such form as the Company provides. Each such agreement shall authorize payroll deductions of up to the maximum percentage specified by the Board or the Committee of such employee's Earnings during the Offering. "Earnings" is defined as an employee's regular salary or wages (including amounts thereof elected to be deferred by the employee, that would otherwise have been paid, under any arrangement established by the Company that is intended to comply with Section 125, Section 401(k), Section 402(h) or Section 403(b) of the Code or that provides non-qualified deferred compensation), which shall include overtime pay, but shall exclude bonuses, commissions, incentive pay, profit sharing, other remuneration paid directly to the employee, the cost of employee benefits paid for by the Company or an Affiliate, education or tuition reimbursements, imputed income arising under any group insurance or benefit program, traveling expenses, business and moving expense reimbursements, income received in connection with stock options, contributions made by the Company or an Affiliate under any employee benefit plan, and similar items of compensation, or such other set of inclusions or exclusions as may be determined by the Board or the Committee. The payroll deductions made for each participant shall be credited to an account for such participant under the Plan and shall be deposited with the general funds of the Company. A participant may reduce (including to zero) or increase such payroll deductions, and an eligible employee may begin such payroll deductions, after the beginning of any Offering only as provided for in the Offering. A participant may make additional payments into his or her account only if specifically provided for in the Offering and only if the participant has not had the maximum amount withheld during the Offering. (b) At any time during an Offering, a participant may terminate his or her payroll deductions under the Plan and withdraw from the Offering by delivering to the Company a notice of withdrawal in such form as the Company provides. Such withdrawal may be elected at any time prior to the end of the Offering except as provided by the Board or the Committee in the Offering. Upon such withdrawal from the Offering by a participant, the Company shall distribute to such participant all of his or her accumulated payroll deductions (reduced to the extent, if any, such deductions have been used to acquire stock for the participant) under the Offering, without interest, and such participant's interest in that Offering shall be automatically terminated. A participant's withdrawal from an Offering will have no effect upon such participant's eligibility 5. to participate in any other Offerings under the Plan but such participant will be required to deliver a new participation agreement in order to participate in subsequent Offerings under the Plan. (c) Rights granted pursuant to any Offering under the Plan shall terminate immediately upon cessation of any participating employee's employment with the Company and any designated Affiliate, for any reason, and the Company shall distribute to such terminated employee all of his or her accumulated payroll deductions (reduced to the extent, if any, such deductions have been used to acquire stock for the terminated employee) under the Offering, without interest. (d) Rights granted under the Plan shall not be transferable by a participant otherwise than by will or the laws of descent and distribution, or by a beneficiary designation as provided in paragraph 14 and, otherwise during his or her lifetime, shall be exercisable only by the person to whom such rights are granted. 8. EXERCISE. (a) On each Purchase Date specified therefor in the relevant Offering, each participant's accumulated payroll deductions and other additional payments specifically provided for in the Offering (without any increase for interest) will be applied to the purchase of whole shares of stock of the Company, up to the maximum number of shares permitted pursuant to the terms of the Plan and the applicable Offering, at the purchase price specified in the Offering. No fractional shares shall be issued upon the exercise of rights granted under the Plan. The amount, if any, of accumulated payroll deductions remaining in each participant's account after the purchase of shares which is less than the amount required to purchase one share of stock on the final Purchase Date of an Offering shall be held in each such participant's account for the purchase of shares under the next Offering under the Plan, unless such participant withdraws from such next Offering, as provided in subparagraph 7(b), or is no longer eligible to be granted rights under the Plan, as provided in paragraph 5, in which case such amount shall be distributed to the participant after such final Purchase Date, without interest. The amount, if any, of accumulated payroll deductions remaining in any participant's account after the purchase of shares which is equal to the amount required to purchase whole shares of stock on the final Purchase Date of an Offering shall be distributed in full to the participant after such Purchase Date, without interest. (b) No rights granted under the Plan may be exercised to any extent unless the shares to be issued upon such exercise under the Plan (including rights granted thereunder) are covered by an effective registration statement pursuant to the Securities Act of 1933, as amended (the "Securities Act") and the Plan is in material compliance with all applicable state, foreign and other securities and other laws applicable to the Plan. If on a Purchase Date in any Offering hereunder the Plan is not so registered or in such compliance, no rights granted under the Plan or any Offering shall be exercised on such Purchase Date, and the Purchase Date shall be delayed until the Plan is subject to such an effective registration statement and such compliance, except that the Purchase Date shall not be delayed more than twelve (12) months and the Purchase Date shall in no event be more than twenty-seven (27) months from the Offering Date. If on the Purchase Date 6. of any Offering hereunder, as delayed to the maximum extent permissible, the Plan is not registered and in such compliance, no rights granted under the Plan or any Offering shall be exercised and all payroll deductions accumulated during the Offering (reduced to the extent, if any, such deductions have been used to acquire stock) shall be distributed to the participants, without interest. 9. COVENANTS OF THE COMPANY. (a) During the terms of the rights granted under the Plan, the Company shall keep available at all times the number of shares of stock required to satisfy such rights. (b) The Company shall seek to obtain from each federal, state, foreign or other regulatory commission or agency having jurisdiction over the Plan such authority as may be required to issue and sell shares of stock upon exercise of the rights granted under the Plan. If, after reasonable efforts, the Company is unable to obtain from any such regulatory commission or agency the authority which counsel for the Company deems necessary for the lawful issuance and sale of stock under the Plan, the Company shall be relieved from any liability for failure to issue and sell stock upon exercise of such rights unless and until such authority is obtained. 10. USE OF PROCEEDS FROM STOCK. Proceeds from the sale of stock pursuant to rights granted under the Plan shall constitute general funds of the Company. 11. RIGHTS AS A STOCKHOLDER. A participant shall not be deemed to be the holder of, or to have any of the rights of a holder with respect to, any shares subject to rights granted under the Plan unless and until the participant's shareholdings acquired upon exercise of rights under the Plan are recorded in the books of the Company. 12. ADJUSTMENTS UPON CHANGES IN STOCK. (a) If any change is made in the stock subject to the Plan, or subject to any rights granted under the Plan (through merger, consolidation, reorganization, recapitalization, reincorporation, stock dividend, dividend in property other than cash, stock split, liquidating dividend, combination of shares, exchange of shares, change in corporate structure or other transaction not involving the receipt of consideration by the Company), the Plan and outstanding rights will be appropriately adjusted in the class(es) and maximum number of shares subject to the Plan and the class(es) and number of shares and price per share of stock subject to outstanding rights. Such adjustments shall be made by the Board or the Committee, the determination of which shall be final, binding and conclusive. (The conversion of any convertible securities of the Company shall not be treated as a "transaction not involving the receipt of consideration by the 7. Company.") (b) In the event of: (1) a dissolution or liquidation of the Company; (2) a merger or consolidation in which the Company is not the surviving corporation; (3) a reverse merger in which the Company is the surviving corporation but the shares of the Company's Common Stock outstanding immediately preceding the merger are converted by virtue of the merger into other property, whether in the form of securities, cash or otherwise; or (4) the acquisition by any person, entity or group within the meaning of Section 13(d) or 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") or any comparable successor provisions (excluding any employee benefit plan, or related trust, sponsored or maintained by the Company or any Affiliate of the Company) of the beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act, or comparable successor rule) of securities of the Company representing at least fifty percent (50%) of the combined voting power entitled to vote in the election of directors, then, as determined by the Board in its sole discretion (i) any surviving or acquiring corporation may assume outstanding rights or substitute similar rights for those under the Plan, (ii) such rights may continue in full force and effect, or (iii) participants' accumulated payroll deductions may be used to purchase Common Stock immediately prior to the transaction described above and the participants' rights under the ongoing Offering terminated. 13. AMENDMENT OF THE PLAN. (a) The Board at any time, and from time to time, may amend the Plan. However, except as provided in paragraph 12 relating to adjustments upon changes in stock, no amendment shall be effective unless approved by the stockholders of the Company within twelve (12) months before or after the adoption of the amendment, where the amendment will: (i) Increase the number of shares reserved for rights under the Plan; (ii) Modify the provisions as to eligibility for participation in the Plan (to the extent such modification requires stockholder approval in order for the Plan to obtain employee stock purchase plan treatment under Section 423 of the Code or to comply with the requirements of Rule 16b-3 promulgated under the Securities Exchange Act of 1934, as amended ("Rule 16b-3")); or (iii) Modify the Plan in any other way if such modification requires stockholder approval in order for the Plan to obtain employee stock purchase plan treatment under Section 423 of the Code or to comply with the requirements of Rule 16b-3. It is expressly contemplated that the Board may amend the Plan in any respect the Board deems necessary or advisable to provide eligible employees with the maximum benefits provided or to be provided under the provisions of the Code and the regulations promulgated thereunder relating to employee stock purchase plans and/or to bring the Plan and/or rights granted under it into compliance therewith. 8. (b) Rights and obligations under any rights granted before amendment of the Plan shall not be impaired by any amendment of the Plan, except with the consent of the person to whom such rights were granted, or except as necessary to comply with any laws or governmental regulations, or except as necessary to ensure that the Plan and/or rights granted under the Plan comply with the requirements of Section 423 of the Code. 14. DESIGNATION OF BENEFICIARY. (a) A participant may file a written designation of a beneficiary who is to receive any shares and cash, if any, from the participant's account under the Plan in the event of such participant's death subsequent to the end of an Offering but prior to delivery to the participant of such shares and cash. In addition, a participant may file a written designation of a beneficiary who is to receive any cash from the participant's account under the Plan in the event of such participant's death during an Offering. (b) Such designation of beneficiary may be changed by the participant at any time by written notice. In the event of the death of a participant and in the absence of a beneficiary validly designated under the Plan who is living at the time of such participant's death, the Company shall deliver such shares and/or cash to the executor or administrator of the estate of the participant, or if no such executor or administrator has been appointed (to the knowledge of the Company), the Company, in its sole discretion, may deliver such shares and/or cash to the spouse or to any one or more dependents or relatives of the participant, or if no spouse, dependent or relative is known to the Company, then to such other person as the Company may designate. 15. TERMINATION OR SUSPENSION OF THE PLAN. (a) The Board in its discretion, may suspend or terminate the Plan at any time. No rights may be granted under the Plan while the Plan is suspended or after it is terminated. (b) Rights and obligations under any rights granted while the Plan is in effect shall not be impaired by suspension or termination of the Plan, except as expressly provided in the Plan or with the consent of the person to whom such rights were granted, or except as necessary to comply with any laws or governmental regulation, or except as necessary to ensure that the Plan and/or rights granted under the Plan comply with the requirements of Section 423 of the Code. 16. EFFECTIVE DATE OF PLAN. The Plan shall become effective on the same day that the Company's initial public offering of shares of common stock becomes effective (the "Effective Date"), but no rights granted under 9. the Plan shall be exercised unless and until the Plan has been approved by the stockholders of the Company within twelve (12) months before or after the date the Plan is adopted by the Board or the Committee, which date may be prior to the Effective Date. 10. EX-10.12 21 VANNI BUSINESS PARK INDUSTRIAL LEASE AVIRON VANNI BUSINESS PARK INDUSTRIAL LEASE ARTICLE I PARTIES THIS Lease, dated, for reference purposes only, August 29, 1995, is made by and between the Vanni Business Park General) Partnership ("Lessor") and Aviron, a California corporation. ("Lessee") ARTICLE II PREMISES Lessor hereby leases to Lessee and Lessee leases from Lessor for the term, at the rental, and upon all of the conditions set forth herein, that certain real property situated in the County of Santa Clara, State of California, commonly known as 297 North Bernardo Avenue, Mountain View, California 94043, and more particularly described in the site plan prepared by Dennis Kobza & Associates, A.I.A., marked Exhibit "A" which is attached hereto and incorporated herein. Said real property, including the land and all improvements therein, is called "the Premises". ARTICLE III TERM SECTION 3.01. TERM. The team of this lease shall be for ten (10) years, commencing on November 1, 1995 ("Commencement Date"). SECTION 3.02. OPTION TO EXTEND. (a) Lessee is given two (2) options to extend the Lease Term for five (5) year periods each (the "Extended Terms), following expiration of the initial Lease Term, which options may be exercised only by written notice (the "Option Notice") from Lessee to Lessor given not less than one hundred eighty (180) days prior to the end of the initial Lease Term, or not less than one hundred eighty (180) days prior to the end of the then expiring Extended Term; provided, however, if Lessee is in material default on the date of giving the Option Notice, the Option Notice shall be totally ineffective, or if Lessee is in material default on the date an Extended Term is to commence, such Extended Term shall not commence and this Lease shall expire at the end of the initial Lease Term or at the end of the then expiring Extended Term. In the event of an Extended Term, the Extended Term shall be subject to all the terms and conditions of this Lease excepting rent which shall be at ninety-five percent (95%) of the then fair market rental value of the Premises, as determined under subparagraph (b) below, but in no event less than the monthly rent prevailing on the last month of the then expiring initial Lease Term or Extended Term. (b) The parties shall agree on the fair market rental value of the Premises for each respective Extended Term, including fair market periodic adjustments thereto, during the first thirty (30) days after the exercise by Lessee of an option to extend the Lease Tenn. The fair market rental determination shall not take into account the improvements to the Premises installed or constructed at Lessee's sole expense. If the parties are able to agree on the fair market rental value for the Extended Term, (including periodic Adjustments thereto), then such agreed value shall be the fair market rental value for purposes of determining the rent for the Extended Term. In the event the parties are unable to agree on the fair market rental value for the Premises (including periodic adjustments) within that time, then at Lessee's written request, within ten (10) days of the expiration of that thirty (30) day period, each party shall separately designate an appraiser to make this determination. Within five (5) business days of their appointment, the two designated appraisers shall jointly designate a third appraiser. The failure of either party to appoint an appraiser within the time allowed shall be deemed equivalent to appointing the appraiser appointed by the other party. No person shall be appointed or designated an appraiser unless he or she is then a member 1 of MAI. Appraisal shall be on the basis of the Premises "as is" except for improvements and fixtures which were constructed at Lessee expense, or are the sole property of Lessee. If, within ten (10) business days after the appointment of all appraisers, a majority of the appraisers concur on the value of the then current fair market rental value for the Premises, including fair market periodic adjustments thereto, that appraisal shall be the accepted fair market rental value. If a majority of the appraisers do not concur within that period, the determination of the appraiser whose appraisal is neither highest nor lowest shall be the accepted fair market rental value. The parties shall share the appraisal expenses equally. SECTION 3.03. DELAY IN ACCESS. The parties agree that if for any reason Lessor cannot deliver access to the Premises to Lessee for the purpose of commencing the Tenant Improvements on or before November 1, 1995, such failure shall not constitute a breach of this agreement by Lessor. Lessee shall not be obligated to pay rent, nor shall the Lease Term commence until access to the Premises is tendered to Lessee. SECTION 3.04. EARLY POSSESSION. If Lessee occupies the Premises prior to the Commencement Date, such occupancy shall be subject to all provisions hereof, and Lessee shall pay rent for such period at the initial monthly rates set forth below; provided, however, that Lessee may enter the Premises thirty (30) days prior to the Commencement Date solely for the purpose of installing fixtures or laboratory equipment or constructing tenant improvements without being required to pay rent. ARTICLE IV RENT: SPECIAL NET LEASE SECTION 4.01. RENT. The first month's rent shall be due and payable upon execution of this Lease by Lessee. From and after the Commencement Date, Lessee shall pay to Lessor rent for Premises in advance, on the first day of each month based on the following schedule of rents: Rent Per Square Monthly Months Square Foot Footage Base Rent ------ ----------- ------- --------- 01-12 1.35 "NNN" 42,800 sq. ft. $57,780.00 13-24 1.35 "NNN" 52,800 sq. ft. $71,280.00 25-48 1.45 "NNN" 52,800 sq. ft. $76,560.00 49-72 1.50 "NNN" 52,800 sq. ft. $79,200.00 73-96 1.60 "NNN" 52,800 sq. ft. $84,480.00 97-120 1.65 "NNN" 52,800 sq. ft. $87,120.00 Rent for any period during the term hereof which is for less than one month shall be a pro rata portion of the monthly installment. Rent shall be payable in lawful money of the United States to Lessor at the address stated herein or to such other persons or at such other places as Lessor may designate in writing. SECTION 4.02. SPECIAL NET LEASE. This Lease is what is commonly called a "Net, Net, Net Lease", it being understood that the Lessor shall receive the rent set forth in Section 4.01 free and clear of any and all other impositions, taxes, liens, charges or expenses of any nature except as otherwise provided in this agreement. In addition to the rent reserved by Section 4.01, Lessee shall pay to the parties respectively entitled thereto all insurance premiums, taxes, assessments, operating charges, management fees, maintenance charges, and any other charges, costs and expenses which arise or may be contemplated under any provisions of this Lease for the entire Premises during the term hereof. All of such charges, costs and expenses shall constitute additional rent, and upon the failure of Lessee to pay any of such costs, charges or expenses, Lessor shall have the same rights and remedies as otherwise provided in this Lease for the failure of Lessee to pay rent. It is the intention of the parties hereto that this Lease shall not be terminable for any reason by the Lessee, and that Lessee shall in no event be entitled to any abatement of or reduction in rent payable under this Lease, except as herein expressly provided. Any present or future law to the contrary shall not alter this agreement of the parties. ARTICLE V 2 - SECURITY DEPOSIT Lessee shall deposit with Lessor, upon execution of this Lease, $87,120.00 as security for Lessee's faithful performance of Lessee's obligations hereunder. If Lessee fails to pay rent or other charges due hereunder, or otherwise defaults with respect to any provision of this Lease, Lessor may, after the expiration of any applicable period of curing such default as set forth herein, without waiving or releasing Lessee from any obligation under this Lease, and without waiving Lessor's right to treat such failure as a default hereof, use, apply, or retain all or any portion of said deposit for the payment of any rent or other charge in default or for the payment of any other sum to which Lessor may become obligated by reason of Lessee's default, or to compensate Lessor for any loss or damage which Lessor may suffer thereby. If Lessor so uses or applies all or any portion of said deposit, Lessee shall within ten (10) days after written demand therefor deposit cash with Lessor in an amount sufficient to restore said deposit to the full amount hereinabove stated and Lessee's failure to do so shall be a material breach of this Lease. If Lessee performs all of Lessee's obligations hereunder, said deposit shall be returned to Lessee (or, at Lessee's option, to the last assignee, if any, of Lessee's interest hereunder) at the expiration of the term hereof, including extension, and after Lessee has vacated the Premises. No trust relationship is created herein between Lessor and Lessee with respect to said security deposit, and Lessor may commingle it, use it in ordinary business, transfer or assign it, or use it in any combination of those ways. In the event of termination of Lessor's interest in this Lease, Lessor shall transfer said deposit to Lessor's successor in interest, whereupon if such successor acknowledges receipt thereof and assumes all of Lessor's obligations under this Lease, Lessee agrees to release Lessor from all liability for the return of such deposit or the accounting therefor. ARTICLE VI USE SECTION 6.01. USE. The Premises shall be used and occupied for offices, warehouse, biomedical laboratory research and development, assembly, wholesale sales, and any other legal use which is otherwise in compliance with the reasonable rules and regulations that may be imposed by Lessor from time to time on the business park. Lessor represents, but does not warrant, that these general uses are allowable, but that Lessee should consult and confirm with any and all applicable governmental agencies that any specific use of the Premises is allowable. Lessee shall not use nor permit the use of the Premises in any manner that will create waste or a nuisance or unreasonably disturb any other tenants. This Lease does not grant to Lessee any exclusive-use rights that would prevent other tenants or lessees from conducting businesses or operations within the business park similar to the business or operations of Lessee. SECTION 6.02. COMPLIANCE WITH LAW. (a) Lessor warrants to Lessee that the Premises, in its state existing on the Commencement Date, does not violate any laws, or permits, licenses, or covenants or restrictions of record, or any applicable building code, regulation or ordinance in effect on such Commencement Date. (b) Except as provided in paragraph 6.02(a) or elsewhere in this Lease, Lessee shall, at Lessee's expense, comply promptly with all applicable statutes, ordinances, rules, regulations, orders, covenants, and restrictions of record in effect during the term or any part of the term hereof, regulating the use by Lessee of the Premises. Any Americans with Disabilities Act (ADA) requirements resulting from the Lessee's use of the Premises shall be the responsibility of Lessee. SECTION 6.03. CONDITION OF PREMISES. (a) Lessor shall deliver the Premises to Lessee, for the purpose of constructing Lessee's tenant improvements, in an "as is" condition on the Lease Commencement Date, except that the Premises shall be clean and free of debris and toxic and radioactive materials. Prior to the Commencement Date, Lessor shall release to Lessee certain previously prepared reports, as requested by Lessee, relating to the Premises, including a copy of the certified closure report from 3 - the City of Mountain View Fire Department. Such report shall include a statement confirming that radioactive materials previously existing on the premises, if any, have been removed to the extent that the Premises conforms, as of the date of the report, to California state and City regulatory requirements governing the allowable amounts of such materials on the Premises. All existing laboratory fixtures attached to the Premises, including cold rooms, casework, vented fume hoods, and DI RO water system, shall remain in place on the Premises, but shall not become the property of Lessee. Lessor further warrants to Lessee that, to the best of Lessor's knowledge, all HVAC, electrical, roof, and plumbing systems are in good and working condition, and that the Premises are free from any outstanding litigation, environmental contamination, and code violations. In the event that it is determined that any of these warranties have been violated as of the Commencement Date, then it shall be the obligation of Lessor, after receipt of written notice from Lessee setting forth with specificity the nature of the violation, to promptly, at Lessor's sole cost, rectify such violation. Lessee's failure to give such written notice to Lessor within ninety (90) days of the Lease Commencement Date, shall cause the conclusive presumption that Lessor has complied with all of Lessor's obligations hereunder. (b) Except as otherwise provided in this Lease, Lessee hereby accepts the Premises in their condition existing as of the Lease Commencement Date, subject to all laws governing and regulating the use of the Premises, and accepts this Lease subject thereto. Lessee acknowledges that, except as expressly set forth herein, neither Lessor nor Lessor's agent has made any representation or warranty as to the present or future suitability of the Premises for the conduct of Lessee's business. ARTICLE VII HAZARDOUS OR TOXIC MATERIALS Lessee shall not emit, dump, dispose, or release on the Premises any Toxic Materials, and Lessee shall not allow or permit any agent, vendor, or other entity acting on Lessee's behalf to emit, dump, dispose, or release on the Premises, any Toxic Materials. Lessee shall not bring, use, or store on the Premises, or emit, dump, dispose, or release from the Premises, any Toxic Materials in violation of any laws, regulations, ordinances, or statutes which are now in existence or which may be enacted in the future. Lessee shall remain in full and complete compliance with all laws, regulations, ordinances, and statutes with respect to Toxic Materials, and Lessee shall install and keep in good working order any monitoring devices that are necessary to insure Lessee's full and complete compliance therewith. Lessee shall indemnify and hold Lessor harmless from any claims, liabilities, costs, or expenses incurred or suffered by Lessor arising from Lessee's bringing, using, emitting, dumping, disposing, or releasing upon the Premises, or generating or creating at or emitting, dumping, disposing, or releasing from the Premises, any Toxic Materials, or arising from the bringing, using, emitting, dumping, disposing, or releasing upon the Premises, or generating or creating at or emitting, dumping, disposing, or releasing from the Premises, any Toxic Materials by any agent, vendor, or other entity acting on Lessee's behalf. Lessee's indemnification and hold harmless obligations as set forth in this Article VII above include, without limitation, all of the following: (i) claims, liabilities, costs or expenses resulting from or based upon administrative, judicial (civil or criminal), or other action, legal or equitable, brought by any private or public person under common law or any Federal, State, County or Municipal law, ordinance or regulation, (ii) claims, liabilities, costs, or expenses pertaining to the cleanup or containment of Toxic Materials, the identification of the pollutants in the Toxic Materials, the identification of the scope of any environmental contamination, the removal of pollutants from soils, the provision of an alternative public drinking water source, or the long term monitoring of ground water and surface waters, and (iii) all costs of defending such claims. Lessee shall comply, at its sole cost, with all laws pertaining to such Toxic Materials. Lessee's hold harmless and indemnity obligations hereunder shall survive the expiration or termination of this Lease. For the purposes of this Article VII, "Toxic Materials" includes, without limitation, any toxic or hazardous gaseous, liquid, or solid materials or waste, 4 - or any material or substance having characteristics of ignitability, corrosivity, reactivity, or extraction procedure toxicity or substances or materials which are listed on any of the Environmental Protection Agency's lists of hazardous wastes or which are identified in Sections 66680 through 66685 of Title 22 of the California Code of Regulations as the same may be amended from time to time. Except as may be disclosed in the hazardous materials report delivered to Lessee by Lessor, to the best knowledge of Lessor, there are no Toxic Materials present on or about the Premises and no action, proceeding, or claim is pending or threatened concerning the Premises concerning any Toxic Material or pursuant to any environmental law. Lessor shall indemnify Lessee and hold Lessee harmless from any claims, liabilities, costs, or expenses incurred or suffered by Lessee arising from the existence of Toxic Materials on the Premises prior to or on the Commencement Date. ARTICLE VIII MAINTENANCE, REPAIRS AND ALTERATIONS SECTION 8.01. MAINTENANCE - PREMISES. Throughout the term, Lessee agrees to keep and maintain all improvements and appurtenances in or serving the Premises, including all sewer connections, plumbing, heating and cooling appliances, and wiring, in the same order, condition and repair as they are in on the Commencement Date, or may be put in during the term, reasonable use and wear excepted. Lessee hereby expressly waives the provisions of any law permitting repairs by a tenant at the expense of a landlord, including, without limitation, all rights of Lessee under Sections 1941 and 1942 of the California Civil Code. Lessee agrees to keep the Premises clean and in sanitary condition as required by the health, sanitary and police ordinances and regulations of any political subdivision having jurisdiction. Lessee further agrees to keep the interior of the Premises, such as the windows, floors, walls, doors, showcases and fixtures clean and neat in appearance and to remove all trash and debris which may be found in or around the Premises. If Lessee refuses or neglects to commence such repairs and/or maintenance required under this agreement or does not diligently prosecute same to completion within thirty (30) days of written notice thereof, then Lessor may enter the Premises and cause such repairs and/or maintenance to be made. Lessee agrees that upon demand, it shall pay to Lessor the cost of any such repairs, together with accrued interest from the date of payment at the prime commercial lending rate then in effect at Bank of America. Notwithstanding anything to the contrary above, if Lessee fails to maintain the Premises according to the Lease terms, Lessor may elect to enter into a maintenance contract with a third party for the provision of all or a part of Lessee's maintenance obligations as set forth in this Paragraph. Upon such election, Lessee shall be relieved from its obligations to perform only those maintenance obligations covered by the maintenance contract, and Lessee shall bear its pro rata share, as set forth in Paragraph 8.02 below, of the costs of such maintenance contract which shall be paid in advance on a monthly basis with Lessee's rent payments. SECTION 8.02. MAINTENANCE - COMMON AREAS. Lessor shall be responsible for maintaining in a safe, good, and clean condition, the common areas, structure and roof of the Premises and the common areas of the business park as a whole. Lessee shall have the obligation to notify Lessor, in writing, of any repairs or maintenance to the common areas, structure, or roof which may be required, and Lessor shall have a reasonable time to make such repairs, provided that Lessor promptly commences such repairs and diligently prosecutes the same to completion. Lessee shall pay to Lessor, as additional rent, in the manner and at the time provided below, Lessee's proportionate share, as defined below, of all costs and expenses incurred by Lessor in the operation and maintenance of the common areas of the business park during the term of this Lease. Such costs and expenses shall include, without limiting the generality of the foregoing, all maintenance, pest control, security, gardening, landscaping, cost of public liability, property damage, vandalism and malicious mischief, earthquake, and other insurance deemed necessary by the Landlord, real property taxes, property management costs, including a management fee equal to three percent (3%) of the monthly rent, painting, lighting, cleaning, trash removal, depreciation of 5 - equipment, fireprotection, and similar items. Lessee's proportionate share of such common area expenses shall be 21.7% which is based upon the square footage of 52,800 square feet for the Premises and the total square footage of the business park which is 243,364 square feet. Lessor shall bill Lessee monthly for Lessee's proportionate share of such common area costs, which proportionate share shall be based upon the previous month's actual costs and expenses. Lessee shall pay such proportionate share within 15 days of receipt of said billing statement from Lessor. Lessor agrees to make its books and records pertaining to the common area costs available for Lessee's inspection upon request. If any of Lessee's repair obligations under section 8.01 or reimbursement obligations under section 8.02 would require Lessee to pay all or any portion of any charge which should be treated as a capital improvement under generally accepted accounting principles, then Lessee shall pay that portion of the cost, or if pursuant to this Section 8.02 then Lessee's proportionate share of that portion of the cost, of such capital improvement determined by multiplying such cost by a fraction, the numerator of which is the number of years and/or fractions of years remaining in the lease term, including extensions, at the time the capital improvement project commences, and the denominator of which is the useful life of such capital improvement. If Lessee does not exercise its option to extend the lease term under Section 3.02, then the numerator used to determine Lessee's proportionate share shall be deemed changed retroactively to reflect only the lease term without extensions and Lessor shall refund to Lessee the amount called for by such adjustment. SECTION 8.03. ALTERATIONS AND ADDITIONS. No alterations or additions shall be made to the Premises by Lessee without the prior written consent of Lessor which Lessor will not unreasonably withhold. Lessee may make nonstructural alterations not exceeding Twenty-Five Thousand Dollars ($25,000.00) without the approval of Lessor if such alterations meet all applicable codes, laws, and ordinances. As a condition to giving its consent, Lessor may require that Lessee agree to remove any such alterations or improvements at the expiration of the term. All structural changes, alterations, or additions to be made to the Premises shall be under the supervision of a competent architect or competent licensed structural engineer and made in accordance with plans and specifications which have been furnished to and approved by Lessor prior to commencement of work, which approval shall not be unreasonably withheld. If the written consent of Lessor to any proposed alterations by Lessee shall have been obtained, Lessee agrees to advise Lessor in writing of the date upon which such alterations will commence in order to permit Lessor to post a notice of non-responsibility. All such alterations, changes and additions shall be constructed in good and workmanlike manner in accordance with all ordinances and laws relating thereto. Upon request, Lessor shall advise Lessee in writing whether Lessor reserves the right to require Lessee to remove any alterations to the Premises upon termination of the Lease. Except for alterations that cannot be removed without structural injury to the Premises, at any time Lessee may remove any alterations or fixtures installed by Lessee from the Premises provided that Lessee repairs all damages occasioned by such removal. SECTION 8.04. NO TENANT IMPROVEMENT ALLOWANCE. Lessor shall not provide any tenant improvement allowance under this Lease. SECTION 8.05. PLUMBING. Lessee shall not use the plumbing facilities for any purpose other than that for which they were constructed. The expense of any breakage, stoppage or other damage relating to the plumbing and resulting from the introduction by Lessee, its agents, employees, or invitees of foreign substances into the plumbing facilities shall be borne by Lessee. ARTICLE IX INSURANCE SECTION 9.01. PROPERTY/RENTAL INSURANCE-- PREMISES. During the term, Lessor shall keep the Premises insured against loss or damage by fire and those 6 - risks normally included in the term "all risk" including (a) flood coverage, (b) earthquake coverage at the election of Lessor, (c) coverage for loss of rents (provided that notwithstanding anything set forth herein to the contrary rent shall abate at least to the extent of any rent insurance received by Lessor) and (d) boiler and machinery coverage if the Lessor reasonably deems such coverage necessary. Any deductibles shall be paid by Lessor if the deductible arises from damage solely to the Premises. The amount of such insurance shall be not less than one hundred percent (100%) of the replacement value of the Premises. Any recovery received from said insurance policy shall be paid to Lessor. Lessee, in addition to the rent and other charges provided herein, agrees to pay to Lessor its pro rata share of the premiums for all such insurance, which pro rata share is identical to that provided in Section 8.02, above. The insurance premiums shall be paid in accordance with Article IV, within thirty (30) days of Lessee's receipt of a copy of Lessor's statement therefor. SECTION 9.02. PROPERTY INSURANCE--FIXTURES AND INVENTORY. During the term, Lessee shall, at its sole expense, maintain insurance with "all risk" coverage on any fixtures, leasehold improvements, furnishings, merchandise, equipment, or personal property in or on the Premises, whether in place as of the date hereof or installed hereafter, for the full replacement value thereof, and Lessor shall not have any responsibility nor pay any costs for maintaining any types of such insurance. Any deductibles shall be paid by Lessee. SECTION 9.03. LESSOR'S LIABILITY INSURANCE. During the term, Lessor may maintain a policy or policies of comprehensive general liability insurance insuring Lessor and Lessee (and such others as designated by Lessor) against liability for bodily injury, death and property damage on or about the Premises or the common area of the business park, with combined single limit coverage of not less than Two Million Dollars ($2,000,000). Lessee, in addition to the rent and other charges provided herein, agrees to pay to Lessor its pro rata share of the premiums for all such insurance, which pro rata share is identical to that provided in Section 8.02, above. The insurance premiums shall be paid in accordance with Article IV, within thirty (30) days of Lessee's receipt of a copy of Lessor's statement therefor. SECTION 9.04. LESSEE'S LIABILITY INSURANCE. During the term, Lessee shall, at its sole expense, maintain for the mutual benefit of Lessor and Lessee, comprehensive general liability and property damage insurance against claims for bodily injury, death or property damage occurring in or about the Premises or arising out of the use or occupancy of the Premises, with combined single limit coverage of not less than Two Million Dollars ($2,000,000). The limits of such insurance shall not limit the liability of Lessee. Lessee shall furnish to Lessor prior to the Commencement Date, and at least thirty (30) days prior to the expiration date of any policy, certificates indicating that the liability insurance required by Lessee above is in full force and effect; that Lessor has been named as an additional insured; and that all such policies will not be cancelled unless thirty (30) days' prior written notice of the proposed cancellation has been given to Lessor. The insurance shall be with insurers approved by Lessor and with policies in form satisfactory to Lessor, provided however, that such approval shall not be unreasonably withheld. Said policies shall provide that Lessor, although an additional insured, may recover for loss covered by such insurance suffered by Lessor by reason of Lessee's negligence and shall include a broad form liability endorsement. SECTION 9.05. WAIVER OF SUBROGATION. Lessor hereby releases Lessee, and Lessee hereby releases Lessor, and their respective officers, agents, employees and servants, from any and all claims or demands of damages, loss, expense, or injury to the Premises, or to the furnishings and fixtures and equipment, or inventory or other property of either Lessor or Lessee in, or about or upon the Premises, or claims for bodily injury or death which is caused by or results from perils, events or happenings which are the subject of insurance and carried by the respective parties and in force or required to be in force pursuant to this Article IX at the time of any such loss; provided, however, that such waiver shall be effective only to the extent permitted by the insurance covering such loss and to the extent such insurance is not prejudiced thereby. Each party shall cause each insurance policy obtained by it to provide that the insurance company waives all right of recovery by way of subrogation against either party in connection with any damage covered by any policy. 7 - SECTION 9.06. INDEMNIFICATION. Except in the case of Lessor's own acts or omission, Lessee will indemnify Lessor and save it harmless from and against any and all claims, actions, damages, liability and expense in connection with loss of life, personal injury and/or damage to property arising from or out of any occurrence in, upon or at the Premises (other than those arising from the construction of the Premises or Building), or the occupancy or use by Lessee of the Premises or any part hereof, or caused wholly or in part by acts or omissions of Lessee, its agents, contractors, employees, servants, licensees, or concessionaires or by anyone permitted to be on the Premises by Lessee. In case Lessor shall be made a party to any such litigation commenced by or against Lessee, then Lessee shall protect and hold Lessor harmless from all claims, liabilities, costs and expenses, and shall pay all costs, expenses and reasonable legal fees incurred by Lessor in connection with such litigation. SECTION 9.07. PLATE GLASS REPLACEMENT. Lessee shall replace at its sole expense, any and all plate glass and other glass in and about the Premises which is damaged or broken by vandalism. If any plate glass or other glass in and about the Premises is damaged or broken by causes other than vandalism, then Lessor shall replace the same and Lessee shall reimburse Lessor an amount equal to Lessor's cost of replacement, provided that such amount shall not exceed the deductible then in effect on Lessor's insurance policy, if any, covering the damaged glass. Nothing herein shall be construed to require Lessor to carry plate glass insurance. SECTION 9.08. WORKER'S COMPENSATION INSURANCE. Lessee shall, at its sole expense, maintain and keep in force during the term a policy or policies of Worker's Compensation insurance or any other employee benefit insurance sufficient to comply with all applicable laws, statutes, ordinances and governmental rules, regulations or requirements. ARTICLE X DAMAGE OR DESTRUCTION SECTION 10.01. RIGHT TO TERMINATE ON DESTRUCTION OF PREMISES. Lessor and Lessee shall have the right to terminate this Lease if, during the term, the Premises are damaged to an extent exceeding fifty percent (50%) of the then reconstruction cost of the Premises as a whole. Lessor and Lessee shall also have the right to terminate this Lease if any portion of the Premises is damaged by a peril not required to be insured hereunder. In either case, Lessor and Lessee may elect to terminate as provided above by written notice to Lessee or Lessor delivered within thirty (30) days of the happening of such damage. SECTION 10.02. REPAIRS BY LESSOR. If Lessor and Lessee shall not elect to terminate this Lease pursuant to Section 10.01, Lessor shall, immediately upon receipt of insurance proceeds paid in connection with such casualty, but in no event later than one hundred twenty (120) days after such damage has occurred, proceed to repair or rebuild the Premises, on the same plan and design as existed immediately before such damage or destruction occurred and will proceed expeditiously to complete such restoration, subject to such delays as may be reasonably attributable to governmental restrictions or failure to obtain materials or labor, or other causes beyond the control of Lessor. Lessee shall be liable for the repair and replacement of all fixtures, leasehold improvements, furnishings, merchandise, equipment and personal property as provided in Section 9.02. SECTION 10.03. REDUCTION OF RENT DURING REPAIRS. In the event Lessee is able to continue to conduct its business during the making of repairs, the rent then prevailing will be equitably reduced in the proportion that the square footage of the unusable part of the Premises bears to the square footage of the whole thereof for the period that repairs are being made. No rent shall be payable while the Premises are wholly unusable due to casualty damage. SECTION 10.04. ARBITRATION. Any controversy or claim arising out of or relating to this Article shall be settled by arbitration in accordance with the rules of the American Arbitration Association as then in effect, and judgment upon the award rendered by the arbitration may be entered in any court having jurisdiction. The expenses of arbitration shall be borne by the parties as allocated by the arbitrators. The party desiring arbitration shall serve notice upon the other party, together with designation of the first party's arbitrator. 8 - SECTION 10.05. LESSOR'S OVERRIDING RIGHT TO TERMINATE. Notwithstanding anything to the contrary herein, during the last twelve (12) months of the Lease Term and during the last 12 months of an Extended Term, if any, if the discounted present value of the rent due hereunder for the balance of the term, using as the discount rate the prime commercial lending rate in effect at the Bank of America as of the date Lessor is to commence repairs pursuant to Section 10.02 hereof, is less than the cost of repairing the damage to the Premises, Lessor may at its option terminate this lease upon thirty (30) days' written notice. ARTICLE XI REAL PROPERTY TAXES SECTION 11.01. PAYMENT OF TAXES. Lessee shall pay the real property tax, as defined in Section 11.02, applicable to the Premises during the term of this Lease. All such payments shall be made at least ten (10) days prior to the delinquency date of such payment. If any such taxes paid by Lessee shall cover any period of time prior to or after the expiration of the term hereof, Lessor shall pay such taxes and Lessee shall reimburse Lessor therefor. Lessee's share of such taxes shall be equitably prorated to cover only the period of time within the tax fiscal year during which this Lease shall be in effect, and Lessor shall reimburse Lessee to the extent required. If Lessee shall fail to pay any such taxes, Lessor shall have the right to pay the same, in which case Lessee shall repay such amount to Lessor with Lessee's next rent installment together with interest at the prime commercial lending rate then in effect at the Bank of America. SECTION 11.02. DEFINITION OF "REAL PROPERTY TAX". As used herein, the term "real property tax" shall include any form of real estate tax or assessment, general, special, supplemental, ordinary or extraordinary, and any license fee, commercial rental tax, improvement bond or bonds, levy or tax (other than inheritance, personal income, corporate, franchise or estate taxes) imposed on the Premises by any authority having the direct or indirect power to tax, including any improvement district thereof, as against any legal or equitable interest of Lessor in the Premises or in the real property of which the Premises are a part, as against Lessor's right to rent or other income therefrom, and as against Lessor's business of leasing the Premises. SECTION 11.03. JOINT ASSESSMENT. If the Premises are not separately assessed, Lessee's liability shall be an equitable proportion of the real property taxes for all of the land and improvements included within the tax parcel assessed, such proportion to be determined by Lessor in accordance with Lessee's proportionate share of the total square footage of the business park. Lessee shall reimburse Lessor said proportionate amount at least ten (10) days prior to the delinquency date of the real property tax. SECTION 11.04. PERSONAL PROPERTY TAXES. (a) Lessee shall pay prior to delinquency all taxes assessed against and levied upon trade fixtures, furnishings, equipment and all other personal property of Lessee contained in the Premises or elsewhere. When possible, Lessee shall cause said trade fixtures, furnishings, equipment and all other personal property to be assessed and billed separately from the real property of Lessor. (b) If any of Lessee's said personal property shall be assessed with Lessor's real property, Lessee shall pay Lessor the taxes attributable to Lessee within 10 days after receipt of a written statement setting forth the taxes applicable to Lessee's property. (c) If Lessee shall fail to pay any such taxes, Lessor shall have the right to pay the same, in which case Lessee shall repay such amount to Lessor with Lessee's next rent installment together with interest at the prime commercial lending rate then charged by the Bank of America. ARTICLE XII UTILITIES AND JANITORIAL Lessee shall pay prior to delinquency throughout the term the cost of water, gas, heating, cooling, sewer, telephone, electricity, garbage, air 9 - conditioning and ventilation, janitorial service, and all other materials and utilities supplied to the Premises. If any such services are not separately metered to Lessee, Lessee shall pay its proportionate share of all charges which are jointly metered, the determination to be made by Lessor in good faith, and payment to be made by Lessee within fifteen (15) days of receipt of the statement for such charges. ARTICLE XIII ASSIGNMENT AND SUBLETTING SECTION 13.01. LESSOR'S CONSENT REQUIRED. Except as provided in Section 13.02, below, Lessee shall not voluntarily or by operation of law assign, transfer, mortgage, sublet, or otherwise transfer or encumber all or any part of Lessee's interest in this lease or in the Promises, without Lessor's prior written consent which Lessor shall not unreasonably withhold. Lessee must make such request to Lessor in writing and by certified mail. Lessor shall respond to Lessee's request for consent hereunder within twenty (20) days after Lessee's request and any attempted assignment, transfer, mortgage, encumbrance, or subletting without such consent shall be void, and shall constitute a breach of this lease. If Lessor does not respond within such twenty (20) days, Lessee's request shall be deemed approved. SECTION 13.02. LESSEE AFFILIATE. Lessee may assign or sublet the Premises, or any portion thereof, to any corporation which controls, is controlled by, or is under common control with Lessee, or to any corporation resulting from the merger or consolidation with Lessee, or to any person or entity which acquires all, or substantially all of the assets of Lessee as a going concern of the business that is being conducted on the Premises, without the consent of Lessor, provided that said assignee assumes, in full, the obligations of Lessee under this Lease. Any such assignment shall not, in any way, affect or limit the liability of Lessee under the terms of this Lease. SECTION 13.03. NO RELEASE OF LESSEE. Regardless of Lessor's consent, no subletting or assignment shall release Lessee of Lessee's obligation or alter the primary liability of Lessee to pay the rent and to perform all other obligations to be performed by Lessee hereunder. The acceptance of rent by Lessor from any other person shall not be deemed consent to any subsequent assignment or subletting. In the event of default by any assignee of Lessee or any successor of Lessee, in the performance of any of the terms hereof, Lessor may proceed directly against Lessee without the necessity of exhausting remedies against said assignee. SECTION 13.04. ATTORNEYS' FEES. In the event Lessee shall assign or sublet the Premises or request the consent of Lessor to any assignment or subletting or if Lessee shall request the consent of Lessor for any act Lessee proposes to do then Lessee shall pay Lessor's reasonable attorneys' fees incurred in connection therewith. SECTION 13.05. EXCESS RENT. In the event Lessor shall consent to a sublease or an assignment under the lease, Lessee shall pay to Lessor with its regularly scheduled rent payments fifty percent (50%) of all sums collected by Lessee from a sublessee or assignee which are in excess of (i) the rent then owing pursuant to Article IV above for such space, (ii) the present market rental premium, if any, for all tenant improvements for such space paid by Lessee, and (iii) all leasing commissions, reasonable attorneys' fees and other costs, reasonable expenses and liabilities incurred by Lessee in connection with the sublet or assignment. Lessor shall not share compensation received by Lessee for the sale of its trade fixtures, goodwill, stock, or property other than the Lease. SECTION 13.06. NO IMPAIRMENT OF SECURITY. Lessee's written request to Lessor for consent to an assignment or subletting shall be accompanied by (a) the name and legal composition of the proposed sublessee; (b) the nature of the proposed sublessee's business to be carried on in the Premises; (c) the terms and provisions of the proposed sublease; and (d) such financial and other reasonable information as Lessor may request concerning the proposed sublessee. Lessor's consent shall not be deemed unreasonably withheld if consent is denied because the prospective sublessee or assignee will impair Lessor's security. 10 -- ARTICLE XIV DEFAULTS; REMEDIES SECTION 14.01. DEFAULTS. The occurrence of any one or more of the following events shall constitute a material default and breach of this Lease by Lessee: (a) The abandonment of the Premises by Lessee; (b) The failure by Lessee to make any payment of rent or any other payment required to be made by Lessee hereunder, as and when due, where such failure shall continue for a period of five (5) days after written notice hereof from Lessor to Lessee. In the event that Lessor serves Lessee with a Notice to Pay Rent or Quit pursuant to applicable Unlawful Detainer statutes such Notice to Pay Rent or Quit shall also constitute the notice required by this Section; (c) The failure by Lessee to observe or perform any of the covenants, conditions or provisions of this Lease to be observed or performed by Lessee, other than described in paragraph (b) above, where such failure shall continue for a period of 10 days after written notice hereof from Lessor to Lessee; provided, however, that if the nature of Lessee's default is such that more than 10 days are reasonably required for its cure, then Lessee shall not be deemed to be in default if Lessee commences such cure within said 10 day period and thereafter diligently prosecutes such cure to completion; (d) (i) The making by Lessee of any general arrangement or assignment for the benefit of creditors; (ii) Lessee becomes a "debtor" as defined in 11 U.S.C. Section 101 or any successor statute thereto; (iii) the taking or suffering of any action by Lessee under any insolvency or bankruptcy act; (iv) the appointment of a trustee or receiver to take possession of substantially all of Lessee's assets located at the Premises or of Lessee's interest in this Lease, or (v) the attachment, execution or other judicial seizure of substantially all of Lessee's assets located at the Premises or of Lessee's interest in this Lease. Provided, however, in the event that any provisions of this Section 14.01(d) is contrary to any applicable law, such provision shall be of no force or effect; (e) The discovery by Lessor that any financial statement given to Lessor by Lessee, any assignee of Lessee, any successor in interest of Lessee or any guarantor of Lessee's obligation hereunder, and any of them, was materially false. SECTION 14.02. REMEDIES. In the event of any such material default or breach by Lessee, Lessor may at any time thereafter, with or without notice or demand and without limiting Lessor in the exercise of any right or remedy which Lessor may have by reason of such default or breach: (a) Terminate Lessee's right to possession of the Premises by any lawful means, in which case this Lease shall terminate and Lessee shall immediately surrender possession of the Premises to Lessor. In such event Lessor shall be entitled to recover from Lessee all damages incurred by Lessor by reason of Lessee's default including, but not limited to, the cost of recovering possession of the Premises and reasonable attorney's fees related thereto; the worth at the time of award determined by the court having jurisdiction thereof of the amount by which the unpaid rent for the balance of the term after the time of such award exceeds the amount of such rental loss for the same period that Lessee proves could be reasonably avoided. (b) Maintain Lessee's right to possession in which case this Lease shall continue in effect whether or not Lessee shall have abandoned the Premises. In such event Lessor shall be entitled to enforce all of Lessor's rights and remedies under this Lease, including the right to recover the rent as it becomes due hereunder. (c) Pursue any other remedy now or hereafter available to Lessor under the laws or judicial decisions of the State of California. Unpaid installments of rent and other unpaid monetary obligations of Lessee under the terms of this Lease shall bear interest from the date due at the prime rate then charged by Bank of America. 11 -- SECTION 14.03. DEFAULT BY LESSOR. Lessor shall not be in default unless Lessor fails to perform obligations required of Lessor within a reasonable time, but in no event later than thirty (30) days after written notice by Lessee to Lessor and to the holder of any first mortgage or deed of trust covering the Premises whose name and address shall have theretofore been furnished to Lessee in writing, specifying wherein Lessor has failed to perform such obligation; provided, however, that if the nature of Lessor's obligation is such that more than thirty (30) days are required for performance then Lessor shall not be in default if Lessor commences performance within such 30-day period and thereafter diligently prosecutes the same to completion. In the event Lessor does not commence performance within the thirty (30) day period provided herein, or does not diligently prosecute the same to completion, Lessee may perform such obligation and will be reimbursed for its expenses by Lessor together with interest thereon at the prime commercial lending rate then charged by the Bank of America, provided, however, that if the parties are in dispute as to what constitutes Lessor's obligations under this agreement, any such dispute shall be resolved by arbitration in a manner identical to that provided in Section 10.04 above. Nothing herein shall be deemed applicable in the event of Lessor's delay in delivery of the Premises. In that situation, all rights and remedies shall be determined under Section 3.03 above. SECTION 14.04. LATE CHARGES. Lessee hereby acknowledges that late payment by Lessee to Lessor of rent and other sums due hereunder will cause Lessor to incur costs not contemplated by this Lease, the exact amount of which will be extremely difficult to ascertain, Such costs include, but are not limited to, processing and accounting charges, and late charges which may be imposed on Lessor by the terms of any mortgage or trust deed covering the Premises. Accordingly, if any installment of rent or any other sum due from Lessee shall not be received by Lessor or Lessor's designated agent within three (3) business days after Lessee's receipt of written notice, by first class mail, that such amount is due and owing, Lessee shall pay to Lessor a late charge equal to 10% of such overdue amount. The parties hereby agree that such late charge represents a fair and reasonable estimate of the costs Lessor will incur by reason of late payment by Lessee. Acceptance of any such late charge by Lessor shall in no event constitute a waiver of Lessee's default with respect to such overdue amount, nor prevent Lessor from exercising any of the other rights and remedies granted hereunder. In the event that a late charge is payable hereunder, whether or not collected, for three (3) consecutive installments of rent, then rent shall automatically become due and payable quarterly in advance, rather than monthly, notwithstanding section 4.01 or any other provision of this Lease to the contrary. SECTION 14.05. IMPOUNDS. In the event that a late charge is payable hereunder, whether or not collected, for three (3) installments of rent or any other monetary obligation of Lessee under the terms of this Lease within a twelve (12) month period, Lessee shall pay to Lessor, if Lessor shall so request, in addition to any other payments required under this Lease, a monthly advance installment, payable at the same time as the monthly rent, as estimated by Lessor, for real property tax and insurance expenses on the Premises which are payable by Lessee under the terms of this Lease. Such fund shall be established to insure payment when due, before delinquency, of any or all such real property taxes and insurance premiums. If the amounts paid to Lessor by Lessee under the provisions of this paragraph are insufficient to discharge the obligations of Lessee to pay such real property taxes and insurance premiums as the same become due, Lessee shall pay to Lessor, within three (3) business days after Lessor's demand, such additional sums necessary to pay such obligations. All moneys paid to Lessor under this paragraph may be intermingled with other moneys of Lessor and shall not bear interest. In the event of a default in the obligations of Lessee to perform under this Lease, then any balance remaining from funds paid to Lessor under the provisions of this paragraph may, at the option of Lessor, be applied to the payment of any monetary default of Lessee in lieu of being applied to the payment of real property tax and insurance premiums. ARTICLE XV CONDEMNATION OF PREMISES. SECTION 15.01. TOTAL CONDEMNATION. If the entire Premises, whether by exercise of governmental power or the sale or transfer by Lessor to any condemnor 12 -- under threat of condemnation or while proceedings for condemnation are pending, at any time during the term, shall be taken by condemnation such that there does not remain a portion suitable for occupation, this Lease shall then terminate as of the date transfer of possession is required. Upon such condemnation, all rent shall be paid up to the date transfer of possession is required, and Lessee shall have no claim against Lessor for the value of the unexpired term of this Lease. SECTION 15.02. PARTIAL CONDEMNATION. If any portion of the Premises is taken by condemnation during the term, whether by exercise of governmental power or the sale or transfer by Lessor to a condemnor under threat of condemnation or while proceedings for condemnation are pending, this Lease shall remain in full force and effect except that in the event a partial taking leaves the Premises unfit for normal and proper conduct of the business of Lessee, as reasonably determined by Lessee, then Lessee shall have the right to terminate this Lease effective upon the date transfer of possession is required. Moreover, Lessor and Lessee shall have the right to terminate this Lease effective on the date transfer of possession in required if more than thirty-three percent (33%) of the total square footage of the Premises is taken by condemnation. Lessee and Lessor may elect to exercise their respective rights to terminate this Lease pursuant to this Section by serving written notice to the other within one hundred twenty (120) days of their receipt of notice of condemnation. All rent shall be paid up to the date of termination, and Lessee shall have no claim against Lessor for the Lease value of any unexpired term of this Lease. If this Lease shall not be cancelled, the rent after such partial taking shall be that percentage of the adjusted base rent specified herein, equal to the percentage which the square footage of the untaken part of the Premises, immediately after the taking, bears to the square footage of the entire Premises immediately before the taking. Any sums owing hereunder which are calculated on the basis of Lessee's pro rata share (as set forth in Section 8.02) shall also be adjusted to reflect the decreased square footage of the Premises due to the condemnation. During the last twelve (12) months of the Lease Term and during the last 12 months of the Extended Term, if any, if Lessee's continued use of the Premises requires alterations and repair by reason of a partial taking, all such alterations and repair shall be made by Lessee at Lessee's expense. SECTION 15.03. AWARD TO LESSEE. In the event of any condemnation, whether total or partial, Lessee shall have the right to claim and recover from the condemning authority such compensation as may be separately awarded or recoverable by Lessee for loss of its business fixtures, or equipment belonging to Lessee immediately prior to the condemnation or for the interruption of Lessee's business, or its moving costs. The balance of any condemnation award shall belong to Lessor and Lessee shall have no further right to recover from Lessor or the condemning authority for any additional claims arising out of such taking. ARTICLE XVI ENTRY BY LESSOR Lessee shall permit Lessor and its agent to enter the Premises at all reasonable times for any of the following purposes: to inspect the Premises; to maintain the building in which the Premises are located; to make such repairs, alterations, and additions to the Premises as Lessor is obligated to make or may make as a result of normal maintenance and repair; to show the Premises and post "To Lease" signs for the purposes of reletting during the last ninety (90) days of the term; to show the Premises as part of a prospective sale by Lessor or to post notices of non-responsibility. Lessor shall give Lessee twenty-four hours prior notice before entering the Premises, except in the case of an emergency, where no notice is required. Lessor shall have such right of entry without any rebate of rent to Lessee for any loss of occupancy or quiet enjoyment of the Premises thereby occasioned. ARTICLE XVII ESTOPPEL CERTIFICATE (a) Lessee shall at any time upon not less than fifteen (15) days' prior written notice from Lessor execute, acknowledge and deliver to Lessor a statement in writing (i) certifying that this Lease is unmodified and in full force and effect (or, if modified, stating the nature of such modification and certifying that this Lease, as so modified, is in full force and effect) and the date to 13 -- which the rent and other charges are paid in advance, if any, and (ii) acknowledging that there are not, to Lessee's knowledge, any uncured defaults on the part of Lessor hereunder, or specifying such defaults if any are claimed. Any such statement may be conclusively relied upon by any prospective purchaser or encumbrancer of the Premises. (b) Lessee's failure to deliver such statement within such time shall be conclusive upon Lessee (i) that this Lease is in full force and effect, without modification except as may be represented by Lessor, (ii) that there are no uncured defaults in Lessor's performance, and (iii) that not more than one month's rent has been paid in advance; or such failure may be considered by Lessor as a default by Lessee under this Lease. ARTICLE XVIII LESSOR'S LIABILITY The term "Lessor" as used herein shall mean only the owner or owners at the time in question of the fee title or a Lessee's interest in a ground lease of the Premises. In the event of any transfer of such title or interest, and provided such successor assumes all obligations of Lessor hereunder, Lessor herein named (and in case of any subsequent transfers then the grantor) shall be relieved from and after the date of such transfer of all liability as respects Lessor's obligations thereafter to be performed, provided that any funds in the hands of Lessor or the then grantor at the time of such transfer, in which Lessee has an interest, shall be delivered to the grantee. The obligations contained in this Lease to be performed by Lessor shall, subject as aforesaid, be binding on Lessor's successors and assigns, only during their respective periods of ownership. Notwithstanding any such transfer of ownership, the Lease shall remain in full force and effect unless terminated as otherwise provided in this Lease. ARTICLE XIX EXPIRATION ON TERMINATION SECTION 19.01. SURRENDER OF POSSESSION. Lessee agrees to deliver up and surrender to Lessor possession of the Premises and all improvements thereon, in as good order and condition as when possession was taken by Lessee, excepting only ordinary wear and tear or any permitted alterations. Upon termination of this Lease, Lessor may reenter the Premises and remove all persons and property therefrom. If Lessee shall fail to remove any effects which it is entitled to remove from the Premises upon the termination of this Lease, for any cause whatsoever, Lessor, at its option, may remove the same and store or dispose of them, and Lessee agrees to pay to Lessor on demand any and all reasonable expenses incurred in such removal and in making the Premises free from all dirt, litter, and debris, including all storage and insurance charges. If the Premises are not surrendered at the end of the Term, Lessee shall indemnify Lessor against loss or liability resulting from delay by Lessee in so surrendering the Premises, including, without limitation, actual damages for lost rents. SECTION 19.02. HOLDING OVER. If Lessee, with or without Lessor's consent, remains in possession of the Premises after expiration of the term and if Lessor and Lessee have not executed an express written agreement as to such holding over, then such occupancy shall be a tenancy from month to month, at a monthly rental equivalent to 200% of the monthly rental in effect immediately prior to such expiration if the remainder in possession is without Lessor's consent, and at a monthly rental equivalent to 125% of the monthly rental in effect immediately prior to such expiration if the remainder in possession is with Lessor's consent, such payments to be made as herein provided. In the event of such holding over all of the terms of this Lease including the payment of all charges owing hereunder other than rent shall remain in force and effect on said month to month basis. ARTICLE XX RIGHT OF FIRST NOTICE While this Lease is in full force and effect with no default by the Lessee, 14 -- and subject to any prior rights granted to any other party, Lessee shall have the right to first notice of the availability of any space located in the buildings at 319 and 329 North Bernardo Avenue, Mountain View, California, if such space becomes vacant at any time or from time to time during the Lease Term. In the event that such space becomes available for lease, Lessor shall notify Lessee of such availability. If Lessee, within five (5) business days after receipt of Lessor's notice, indicates in writing Lessee's agreement to lease such space on the same terms and conditions as set forth in this Lease, and Lessee agrees to timely commence rental payments for such space, then Lessor shall lease such space to Lessee on the same terms stated in this Lease. If Lessee does not indicate its agreement in writing within five (5) business days of receipt of the notice from Lessor, then Lessor shall have the right to lease the space or any part thereof to any third party, and Lessee shall have no other rights in or to said space. ARTICLE XXI MISCELLANEOUS PROVISIONS SECTION 21.01. SEVERABILITY. The invalidity of any provision of this Lease as determined by a court of competent jurisdiction, shall in no way affect the validity of any other provision hereof. SECTION 21.02. INTEREST ON PAST-DUE OBLIGATIONS. Except as expressly herein provided, any amount due to either Lessor or Lessee not paid when due shall bear interest at the prime commercial lending rate then in effect at Bank of America. Payment of such interest shall not excuse or cure any default by either Lessor or Lessee under this Lease. SECTION 21.03. TIME OF ESSENCE. Time is of the essence in the performance of all obligations under this Lease. SECTION 21.04. ADDITIONAL RENT. Any monetary obligations of Lessee to Lessor under the terms of this Lease shall be deemed to be rent. SECTION 21.05. INCORPORATION OF PRIOR AGREEMENTS: AMENDMENTS. This Lease contains all agreements of the parties with respect to any matter mentioned herein. No prior agreement or understanding pertaining to any such matter shall be effective. This Lease may be modified in writing only, signed by the parties in interest at the time of the modification. Except as otherwise stated in this Lease, Lessee hereby acknowledges that neither the Lessor nor any employees or agents of the Lessor has made any oral or written warranties or representations to Lessee relative to the condition or use by Lessee of said Premises and Lessee acknowledges that Lessee assumes all responsibility regarding the Occupational Safety Health Act, the legal use and adaptability of the Premises and the compliance thereof with all applicable laws and regulations in effect during the term of this Lease except as otherwise specifically stated in this Lease. SECTION 21.06. NOTICES. Any notice required or permitted to be given hereunder shall be in writing and may be given by personal delivery or by facsimile, Federal Express, or certified mail, and if given personally or by mail, shall be deemed sufficiently given if addressed to Lessee or to Lessor at the address noted below the signature of the respective parties, as the case may be. Either party may by notice to the other specify a different address for notice purposes. A copy of all notices required or permitted to be given to Lessor hereunder shall be concurrently transmitted to such party or parties at such addresses as Lessor may from time to time hereafter designate by notice to Lessee. Notice shall be considered effective either 72 hours after mailing or upon actual receipt, whichever is earlier. SECTION 21.07. WAIVERS. No waiver by Lessor of any provision hereof shall be deemed a waiver of any other provision hereof or of any subsequent breach by Lessee of the same or any other provisions. Lessor's consent to, or approval of, any act shall not be deemed to render unnecessary the obtaining of Lessor's consent to or approval of any subsequent act by Lessee. The acceptance of rent hereunder by Lessor shall not be a waiver of any preceding breach by Lessee of any provision hereof, other than the failure of Lessee to pay the particular rent so accepted, regardless of Lessor's knowledge of such preceding breach at the time of acceptance of such rent. 15 -- SECTION 21.08. RECORDING. Either Lessor or Lessee shall, upon request of the other, execute, acknowledge and deliver to the other a "short form" memorandum of this Lease for recording purposes. SECTION 21.09. CUMULATIVE REMEDIES. No remedy or election hereunder shall be deemed exclusive but shall, wherever possible, be cumulative with all other remedies at law or in equity. SECTION 21.10. COVENANTS AND CONDITIONS. Each provision of this Lease performable by Lessee or Lessor shall be deemed both a covenant and a condition. SECTION 21.11. BINDING EFFECT, CHOICE OF LAW: VENUE. Subject to any provisions hereof restricting assignment or subletting by Lessee and subject to the provisions of Article XVIII, this Lease shall bind the parties, their personal representatives, successors and assigns. This Lease shall be governed by the laws of the State of California. Venue for any action or proceeding brought to enforce or defend this agreement, and for any other purpose hereunder, shall be Santa Clara County. SECTION 21.12. SUBORDINATION OF LEASEHOLD. Lessee agrees that this Lease is and shall be, at all times, subject and subordinate to the lien of any mortgage or other encumbrances which Lessor may create against the Premises including all renewals, replacements and extensions thereof; provided, however, that regardless of any default under any such mortgage or encumbrance or any sale of the Premises under such mortgage, so long as Lessee performs all covenants and conditions of this Lease and continues to make all payments hereunder, this Lease and Lessee's possession and rights hereunder shall not be disturbed by the mortgagee or anyone claiming under or through such mortgagee. Any future subordination to which this Lease is subject shall be accompanied by a nondisturbance agreement in favor of Lessee which recognizes the terms and conditions of the Lease. Lessor agrees to request from the current lender a nondisturbance agreement in favor of Lessee. SECTION 21.13. ATTORNEYS' FEES. If either party herein brings an action to enforce the terms hereof or declare rights hereunder, the prevailing party in any such action, on trial or appeal, shall be entitled to reasonable attorneys' fees to be paid by the losing party as fixed by the Court. SECTION 21.14. AUCTIONS. Lessee shall not conduct, nor permit to be conducted, either voluntarily or involuntarily, any auction upon the Premises without first having obtained Lessor's prior written consent. Notwithstanding anything to the contrary in this Lease, Lessor shall not be obligated to exercise any standard of reasonableness in determining whether to grant such consent. SECTION 21.15. SIGNS. Lessee shall not place any sign upon the Premises without Lessor's prior written consent, which consent shall not be unreasonably withheld. SECTION 21.16. VOLUNTARY SURRENDER OR MERGER. The voluntary or other surrender of this Lease by Lessee, or a mutual cancellation thereof, or a termination by Lessor, shall not work a merger, and shall, at the option of Lessor, terminate all or any existing subtenancies or may, at the option of Lessor, operate as an assignment to Lessor of any or all of such subtenancies. SECTION 21.17. GUARANTOR. In the event that there is a guarantor of this Lease, said guarantor shall have the same obligations as Lessee under this Lease. SECTION 21.18. QUIET POSSESSION. Upon Lessee paying the rent for the Premises and observing and performing all of the covenants, conditions and provisions on Lessee's part to be observed and performed hereunder, Lessee shall have quiet possession of the Premises for the entire term hereof subject to all of the provisions of this Lease, The individuals executing this Lease on behalf of Lessor represent and warrant to Lessee that they are fully authorized and legally capable of executing this Lease on behalf of Lessor and that such execution is binding upon all parties holding an ownership interest in the Premises. SECTION 21.19. RULES AND REGULATIONS. Lessee agrees that it will abide by, keep and observe all reasonable rules and regulations which Lessor may make from time to time for the management, safety, care and cleanliness of the 16 -- building and grounds, the parking of vehicles and the preservation of good order therein as well as for the convenience of other occupants and tenants of the building. Lessor shall give Lessee fifteen (15) days' notice to cure Lessee's violations of such rules and regulations of Lessor, and the continued violations of any such rules and regulations shall be deemed a material breach of this Lease. Lessee, however, shall not be bound by any future rules or regulations, unless it shall approve same, which approval shall not be unreasonably withheld. SECTION 21.20. EASEMENTS. Lessor reserves to itself the right, from time to time, at Lessor's sole cost to grant such easements, rights and dedications that Lessor deems necessary or desirable, and to cause the recordation of Parcel Maps and restrictions, so long as such easements, rights, dedications, Maps and restrictions do not unreasonably interfere with the use of the Premises by Lessee nor increase Lessee's obligations hereunder nor decrease Lessee's rights hereunder. Lessee shall sign any of the aforementioned documents upon fifteen (15) days written notice of Lessor and failure to do so shall constitute a material breach of this Lease. SECTION 21.21. CORPORATE AUTHORITY. Each individual executing this Lease on behalf of a corporation represents and warrants that he is duly authorized to execute and deliver this Lease on behalf of the corporation in accordance with a duly adopted resolution of the Board of Directors of the corporation, and that this Lease is binding upon said corporation in accordance with its terms. SECTION 21.22. DELAYS FOR CAUSE. In any case where either party hereto is required to do any act, delays caused by or resulting from Acts of God, war, civil commotion, fire, flood or other casualty, labor difficulties, shortages of labor, materials or equipment, government regulations, unusually severe weather, or other causes beyond such party's reasonable control shall not be counted in determining the time during which work shall be completed, whether such time be designated by a fixed date, a fixed time or "a reasonable time", and such time shall be deemed to be extended by the period of such delay. SECTION 21.23. SQUARE FOOTAGE. The parties agree that the leased Premise is approximately 52,800 square feet, said square footage being measured from the face of the outside (concrete) walls and includes the covered docks and entry ways. LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND PROVISION CONTAINED HEREIN AND, BY EXECUTION OF THIS LEASE, SHOW THEIR INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE TIME THIS LEASE IS EXECUTED THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE PREMISES. The Parties hereto have executed this Lease at the place and on the date specified below. Executed at Watsonville, California, on September 15, 1995. Lessor: Address: VANNI BUSINESS PARK GENERAL c/o Jay Paul Company PARTNERSHIP 1093 South Green Valley Road Watsonville, CA 95076 By: /s/ Jay Paul --------------------------- Jay Paul, General Partner Lessee: AVIRON, 1450 Rollins Road a California Corporation --------------------------- Burlingame, CA 94010 --------------------------- BY: /s/ Francis R. Cano --------------------------- Francis R. Cano, President 17 -- EX-11.1 22 STATEMENT OF COMPUTATION OF NET LOSS PER SHARE EXHIBIT 11.1 STATEMENT OF COMPUTATION OF NET LOSS PER SHARE
THREE MONTHS ENDED YEAR ENDED DECEMBER 31, MARCH 31, ----------------------------------------- -------------------------- 1993 1994 1995 1995 1996 ------------ ------------ ------------- ------------ ------------ Net loss....................................... $ (3,772,000) $ (6,502,000) $ (11,403,000) $ (3,757,000) $ (3,736,000) ------------ ------------ ------------- ------------ ------------ ------------ ------------ ------------- ------------ ------------ Weighted average shares of Common Stock outstanding: 673,007 687,474 697,288 696,645 697,520 Shares related to staff accounting bulletin topic 4D: Stock options and warrants................... 270,351 270,351 270,351 270,351 270,351 Common Stock................................. 421,503 421,503 421,503 421,503 421,503 Convertible Preferred Stock (Series C)....... 3,235,579 3,235,579 3,235,579 3,235,579 3,235,579 ------------ ------------ ------------- ------------ ------------ Shares used in computing net loss per share.... 4,600,440 4,614,907 4,624,721 4,624,078 4,624,953 ------------ ------------ ------------- ------------ ------------ ------------ ------------ ------------- ------------ ------------ Net loss per share............................. $ (0.82) $ (1.41) $ (2.47) $ (0.81) $ (0.81) ------------ ------------ ------------- ------------ ------------ ------------ ------------ ------------- ------------ ------------ Calculation of shares outstanding for computing pro forma net loss per share: Shares used in computing net loss per share................................... 4,600,440 4,614,907 4,624,721 4,624,078 4,624,953 Adjusted to reflect the effect of the assumed conversion of Preferred Stock from the date of issuance (1)............................. 2,096,014 4,333,333 4,557,921 4,437,447 4,598,080 ------------ ------------ ------------- ------------ ------------ Shares used in computing pro forma net loss per share......................................... 6,696,454 8,948,240 9,182,642 9,061,525 9,223,033 ------------ ------------ ------------- ------------ ------------ ------------ ------------ ------------- ------------ ------------ Pro forma net loss per share................... $ (0.56) $ (0.73) $ (1.24) $ (0.41) $ (0.41) ------------ ------------ ------------- ------------ ------------ ------------ ------------ ------------- ------------ ------------
- --------------------- (1) Series A and B shares EX-23.1 23 CONSENT OF ERNST & YOUNG LLP EXHIBIT 23.1 CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS We consent to the reference to our firm under the captions "Selected Financial Data" and "Experts" and to the use of our report dated January 26, 1996 (except as to the first paragraph of Note 1 and Note 10 as to which the date is May 30, 1996), in the Registration Statement (Form S-1) and related Prospectus of Aviron for the registration of 3,450,000 shares of its Common Stock. /s/ Ernst & Young LLP ERNST & YOUNG LLP Palo Alto, California June 4, 1996 EX-27.1 24 FDS EXH. 27.1
5 1,000 12-MOS 3-MOS DEC-31-1995 DEC-31-1996 JAN-01-1995 JAN-01-1996 DEC-31-1995 MAR-31-1996 11,532 10,000 0 0 0 0 0 0 0 0 18,498 15,367 1,987 2,638 712 822 19,878 17,275 1,723 2,563 0 0 0 0 39,844 40,028 317 1,579 (22,624) (27,440) 19,878 17,275 0 0 1,707 188 0 0 0 0 13,472 4,107 0 0 158 37 (11,403) (3,736) 0 0 (11,403) (3,736) 0 0 0 0 0 0 (11,403) (3,736) (1.24) (0.41) (1.24) (0.41)
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