<PAGE>   1
 
      AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 31, 1996
                                                    REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
 
                                    FORM S-3
 
                             REGISTRATION STATEMENT
                                     UNDER
                           THE SECURITIES ACT OF 1933
 
                                  VIVUS, INC.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
 

<TABLE>
<S>                               <C>                               <C>
       CALIFORNIA (PRIOR TO                      2834                           94-3136179
          REINCORPORATION)           (PRIMARY STANDARD INDUSTRIAL            (I.R.S. EMPLOYER
       DELAWARE (FOLLOWING           CLASSIFICATION CODE NUMBER)          IDENTIFICATION NUMBER)
         REINCORPORATION)
 (STATE OF OTHER JURISDICTION OF
  INCORPORATION OR ORGANIZATION)
</TABLE>

 
                              545 MIDDLEFIELD ROAD
                                   SUITE 200
                          MENLO PARK, CALIFORNIA 94025
                                 (415) 325-5511
         (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
            AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
                            ------------------------
 
                                LELAND F. WILSON
                     PRESIDENT AND CHIEF EXECUTIVE OFFICER
                                  VIVUS, INC.
                              545 MIDDLEFIELD ROAD
                                   SUITE 200
                          MENLO PARK, CALIFORNIA 94025
                                 (415) 325-5511
 (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
                             OF AGENT FOR SERVICE)
                            ------------------------
 
                                   Copies to:
 

<TABLE>
<S>                                                     <C>
                 MARIO M. ROSATI, ESQ.                                    SCOTT T. SMITH, ESQ.
                ROBERT D. BROWNELL, ESQ.                               KATHARINE A. MARTIN, ESQ.
            WILSON SONSINI GOODRICH & ROSATI                         PILLSBURY MADISON & SUTRO LLP
                PROFESSIONAL CORPORATION                                  2700 SAND HILL ROAD
                   650 PAGE MILL ROAD                                 MENLO PARK, CALIFORNIA 94025
              PALO ALTO, CALIFORNIA 94304                                    (415) 233-4500
                     (415) 493-9300
</TABLE>

 
                            ------------------------
 
        APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
                            ------------------------
 
    If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box.  / /
 
    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, other than securities offered only in connection with dividend or interest
reinvestment plans, please 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, please check the following box and list the Securities
Act registration statement number of the earlier 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
 

<TABLE>
<S>                                          <C>               <C>               <C>               <C>
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
                                                                   PROPOSED          PROPOSED
                                                                    MAXIMUM           MAXIMUM
           TITLE OF EACH CLASS OF              AMOUNT TO BE     OFFERING PRICE       AGGREGATE         AMOUNT OF
        SECURITIES TO BE REGISTERED             REGISTERED       PER SHARE(1)    OFFERING PRICE(1) REGISTRATION FEE
- --------------------------------------------------------------------------------------------------------------------
Common Stock, .001 par value(2).............   2,300,000(3)         $30.00          $69,000,000         $23,800
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
</TABLE>

 
(1) Estimated solely for the purpose of calculating the amount of the
    registration fee pursuant to Rule 457(c).
 
(2) One Preferred Share Purchase Right is attached to each share of Common Stock
    and is issued without receipt of additional compensation.
 
(3) Includes 300,000 shares that the Underwriters have the option to purchase to
    cover over-allotments, if any.
                            ------------------------
 
    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 WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
 
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

<PAGE>   2
 
     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,
                   PRELIMINARY PROSPECTUS DATED JUNE 3, 1996
 
                                2,000,000 SHARES
 
                                      LOGO
                                  COMMON STOCK
                            ------------------------
 
      All of the shares of Common Stock offered hereby are being offered by
VIVUS, Inc. ("VIVUS"
or the "Company").
 
     The Common Stock is quoted on the Nasdaq National Market under the symbol
"VVUS." On May 30, 1996, the last reported sale price of the Common Stock, as
reported on the Nasdaq National Market, was $30.25 per share. See "Price Range
of Common Stock."
 
      THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" AT PAGE 5.
 
                            ------------------------
 
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
   EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
     SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
       COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
         PROSPECTUS. ANY REPRESENTATION TO
                        THE CONTRARY IS A CRIMINAL OFFENSE.
 

<TABLE>
<S>                          <C>                 <C>                 <C>
 
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
                                                    Underwriting
                                  Price to          Discounts and        Proceeds to
                                   Public          Commissions(1)        Company(2)
- ----------------------------------------------------------------------------------------
Per Share...................          $                   $                   $
- ----------------------------------------------------------------------------------------
Total.......................          $                   $                   $
- ----------------------------------------------------------------------------------------
Total Assuming Full Exercise
  of Over-Allotment
  Option(3).................          $                   $                   $
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
</TABLE>

 
(1) See "Underwriting".
(2) Before deducting expenses estimated at $500,000, which are payable by the
    Company.
(3) Assuming exercise in full of the 30-day option granted by the Company to the
    Underwriters to purchase up to 300,000 additional shares, on the same terms,
    solely to cover over-allotments. See "Underwriting."
 
                            ------------------------
 
     The shares of Common Stock are offered by the Underwriters, subject to
prior sale, when, as and if delivered to and accepted by the Underwriters, and
subject to their right to reject orders in whole or in part. It is expected that
the delivery of the Common Stock will be made in New York City on or about
               , 1996.
 
                            ------------------------
 
PAINEWEBBER INCORPORATED
 
                                                        INVEMED ASSOCIATES, INC.
                            ------------------------
                THE DATE OF THIS PROSPECTUS IS           , 1996

<PAGE>   3
 
                                    ARTWORK
 
     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 STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
 
     IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS (IF ANY) OR THEIR RESPECTIVE AFFILIATES MAY ENGAGE IN PASSIVE MARKET
MAKING TRANSACTIONS IN THE COMMON STOCK OF THE COMPANY ON THE NASDAQ NATIONAL
MARKET IN ACCORDANCE WITH RULE 10B-6A UNDER THE SECURITIES EXCHANGE ACT OF 1934.
SEE "UNDERWRITING."
 
                                        2

<PAGE>   4
 
                               PROSPECTUS SUMMARY
 
     The following summary is qualified in its entirety by the more detailed
information appearing elsewhere in this Prospectus and financial statements
incorporated herein by reference. Investors should carefully consider the
information set forth under the heading "Risk Factors." Unless otherwise
indicated, the information in this Prospectus assumes the Underwriters'
over-allotment option will not be exercised and that the Company's
reincorporation into the State of Delaware has been approved by the State of
California.
 
     This Prospectus contains forward-looking statements that 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 COMPANY
 
     VIVUS, Inc. ("VIVUS" or the "Company") is a leader in the development of
advanced therapeutic systems for the treatment of erectile dysfunction. Erectile
dysfunction, commonly referred to as impotence, is the inability to achieve and
maintain an erection of sufficient rigidity for sexual intercourse. The
Company's transurethral system for erection is a non-invasive, easy to use
system that delivers pharmacologic agents topically to the urethral lining. In
March 1996, the Company submitted a New Drug Application ("NDA") to the Food and
Drug Administration ("FDA") for its anticipated first product, MUSE(R)
(alprostadil). The FDA accepted the Company's filing for priority review. The
Company believes that MUSE (alprostadil), if approved, could become first line
therapy for erectile dysfunction.
 
     If required approvals are received, the Company intends to market and sell
its products initially through a direct sales force in the United States and to
distribute its products in foreign markets through distribution, co-promotion or
license agreements with corporate partners. In February 1996, the Company
entered into an agreement with a wholly owned subsidiary of Cardinal Health,
Inc. ("Cardinal") that provides that Cardinal will fulfill the Company's orders
and warehouse its products. In May 1996, the Company completed a marketing
agreement with Astra AB ("Astra") to distribute the Company's products in
Europe, South America, Central America, Australia and New Zealand. As
consideration for execution of the marketing agreement, Astra will pay the
Company $10 million in June 1996. The Company will be paid up to an additional
$20 million in the event it achieves certain milestones. Astra has agreed to
purchase product from the Company for resale into the above mentioned markets.
 
     The Company has sought and will continue to seek pharmacologic agents
suitable for transurethral delivery for which significant safety data already
exists. The Company believes that such agents may progress more rapidly through
clinical development and the regulatory process. In the second half of 1996, the
Company expects to begin a Phase III multi-center trial for its second product
candidate, a combination of alprostadil and prazosin delivered via the Company's
transurethral system for erection. The Company has several other product
candidates in preclinical development.
 
     Based on a published study of more than 1,200 men in Massachusetts, the
Company estimates that over 30% of males in the United States between the ages
of 40 and 70 suffer from moderate to complete erectile dysfunction. The Company
believes that similar rates of erectile dysfunction prevail outside the United
States. A recent estimate from the NIH Consensus Statement on Impotence (1992)
suggests that the number of United States men with erectile dysfunction may be
10 to 20 million. The rate of erectile dysfunction increases significantly with
age. The primary medical therapies currently used are needle injection of
pharmacologic agents into the penis, vacuum constriction devices, penile
implants and oral medications. Despite the detrimental effect erectile
dysfunction may have on a couple's quality of life, the Company believes that,
due in part to the limitations of current therapies, a large number of men
suffering from erectile dysfunction currently do not seek medical treatment. The
Company believes that its transurethral system for erection, because it is a
discreet, easily administered therapy, may increase the number of men who will
seek and receive medical treatment for erectile dysfunction.
 
     The Company's technology is based on the discovery that the urethra,
although an excretory duct, can absorb certain pharmacologic agents into the
surrounding erectile tissues. The Company is the exclusive assignee of issued
patents and patent applications that were filed by ALZA Corporation ("Alza")
based on inventions by the Company's founding scientist while at Alza. The
Company is also the exclusive licensee of other United States and foreign
patents and patent applications that relate to the transurethral delivery of
pharmacologic agents for the treatment of erectile dysfunction.
 
VIVUS was incorporated in California in April 1991 and reincorporated into
Delaware on May 24, 1996, pending approval from the State of California. The
Company's principal executive offices are located at 545 Middlefield Road, Suite
200, Menlo Park, California 94025. The Company's telephone number is (415)
325-5511.
 
                                        3

<PAGE>   5
 
                                  THE OFFERING
 

<TABLE>
<S>                                              <C>
Common Stock Offered by the Company............  2,000,000 shares
Common Stock to be Outstanding after the
  Offering.....................................  15,804,665 shares(1)
Use of Proceeds................................  For expenses related to its marketing and
                                                 sales organization, a second manufacturing
                                                 plant and expansion of the Company's existing
                                                 plant, new product preclinical and clinical
                                                 costs, ongoing research and development
                                                 activities and general corporate purposes.
Nasdaq National Market symbol..................  VVUS
</TABLE>

 
                             SUMMARY FINANCIAL DATA
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
 

<TABLE>
<CAPTION>
                                                                                             THREE MONTHS ENDED
                                                      YEAR ENDED DECEMBER 31,                     MARCH 31,
                                         -------------------------------------------------   -------------------
                                         1991(2)    1992      1993       1994       1995       1995       1996
                                         -------   -------   -------   --------   --------   --------   --------
<S>                                      <C>       <C>       <C>       <C>        <C>        <C>        <C>
CONSOLIDATED STATEMENT OF OPERATIONS
  DATA:
Operating expenses:
  Research and development.............   $ 340    $ 3,102   $ 6,814   $ 13,916   $ 21,313   $  5,113   $  5,359
  General and administrative...........     174        626     1,499      2,587      4,389        897      1,379
                                           ----     ------    ------    -------    -------    -------    -------
         Total operating expenses......     514      3,728     8,313     16,503     25,702      6,010      6,738
Interest income........................       2         63       538      1,639      2,891        553        503
                                           ----     ------    ------    -------    -------    -------    -------
         Net loss......................   $(512)   $(3,665)  $(7,775)  $(14,864)  $(22,811)  $ (5,457)  $ (6,235)
                                           ====     ======    ======    =======    =======    =======    =======
         Net loss per common and common
           equivalent share............      --         --   $ (0.79)  $  (1.27)  $  (1.70)  $  (0.44)  $  (0.45)
Shares used in per share calculation...      --         --     9,828     11,744     13,457     12,315     13,991
</TABLE>

 

<TABLE>
<CAPTION>
                                                      AS OF DECEMBER 31,             AS OF MARCH 31, 1996
                                              ----------------------------------   -------------------------
                                                1993         1994         1995      ACTUAL    AS ADJUSTED(3)
                                              --------     --------     --------   --------   --------------
<S>                                           <C>          <C>          <C>        <C>        <C>
CONSOLIDATED BALANCE SHEET DATA:
  Cash, cash equivalents and securities.....  $ 23,059     $ 40,999     $ 39,524   $ 33,772      $ 90,142
  Total assets..............................    24,732       43,021       44,049     38,657        95,027
  Total liabilities.........................     1,297        2,714        2,868      3,499         3,499
  Accumulated deficit.......................   (11,952)     (26,816)     (49,627)   (55,862)      (55,862)
  Stockholders' equity......................    23,435       40,307       41,181     35,158        91,528
</TABLE>

 
- ---------------
 
(1) Excludes, as of May 31, 1996, 1,647,563 shares of Common Stock issuable upon
    the exercise of outstanding options granted pursuant to the Company's 1991
    Incentive Stock Plan and 264,300 shares of Common Stock issuable upon the
    exercise of outstanding warrants.
 
(2) April 16, 1991 (inception) through December 31, 1991.
 
(3) Adjusted to reflect the sale of 2,000,000 shares of Common Stock offered by
    the Company hereby at an assumed public offering price of $30.25 and the
    receipt of the estimated net proceeds therefrom as described under "Use of
    Proceeds."
 
                                        4

<PAGE>   6
 
                                  RISK FACTORS
 
     An investment in the shares of Common Stock offered hereby involves a high
degree of risk. Prospective investors should carefully consider the following
risk factors, in addition to other information contained in this Prospectus, in
evaluating an investment in the shares offered hereby.
 
     This Prospectus contains forward-looking statements that 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.
 
DEPENDENCE ON THE COMPANY'S TRANSURETHRAL SYSTEM FOR ERECTION
 
     The Company currently relies upon a single therapeutic approach to treat
erectile dysfunction, its transurethral system for erection. No assurance can be
given that the Company's therapeutic approach, or its proposed pharmacologic
formulations, will be shown to be safe and effective or ultimately be approved
by appropriate regulatory agencies. Certain side effects have been found to
occur with the use of MUSE (alprostadil). Mild to moderate transient
penile/perineal pain was suffered by 21 percent to 42 percent of patients
(depending on dosage) treated with MUSE (alprostadil) in the Company's Phase
II/III Dose Ranging study. Moderate to severe decreases in blood pressure were
experienced by one percent to four percent of patients (depending on dosage)
treated with MUSE (alprostadil) in such study. The existence of side effects or
dissatisfaction with product results may impact a patient's decision to use or
continue to use, or a physician's decision to recommend, MUSE (alprostadil) as a
therapy for the treatment of erectile dysfunction thereby affecting the
commercial viability of MUSE (alprostadil). The Company has never commercially
introduced a product and no assurance can be given that any of the Company's
products, if approved, will be successfully introduced. In addition,
technological changes or medical advancements could diminish or eliminate the
commercial viability of the Company's products. As a result of the Company's
single therapeutic approach and its current focus on MUSE (alprostadil), the
failure to obtain an approval of its NDA for MUSE(alprostadil) on a timely
basis, if at all, or to successfully commercialize such product would have an
adverse effect on the Company and could threaten the Company's ability to
continue as a viable entity.
 
GOVERNMENT REGULATION AND UNCERTAINTY OF PRODUCT APPROVALS
 
     The Company's research, preclinical development, clinical trials,
manufacturing and marketing of its products are subject to extensive regulation
by numerous governmental authorities in the United States and other countries.
Clinical trials, manufacturing and marketing of the Company's products will be
subject to the rigorous testing and approval processes of the FDA and equivalent
foreign regulatory agencies. The process of obtaining FDA and other required
regulatory approvals is lengthy and expensive. The time required for FDA
approvals is uncertain and typically takes a number of years, depending on the
type, complexity and novelty of the product. Since the Company's products
involve transurethral delivery, a new therapeutic approach, regulatory approvals
may be obtained more slowly than for products produced using more conventional
delivery systems. The Company completed pivotal clinical trials in 1995 and
submitted an NDA for its anticipated first product, MUSE (alprostadil), to the
FDA in March 1996. While the Company believes its NDA filing was substantially
complete, there can be no assurance that the Company will not be required to
conduct additional research or clinical trials. Although the Company's NDA was
accepted for priority review by the FDA, there can be no assurance that FDA
approval will be granted on a timely basis, if at all, or if granted, that such
approval will not contain significant limitations in the form of warnings,
precautions or contraindications with respect to condition of use. Any delay in
obtaining, or failure to obtain, such approval would adversely affect the
Company's ability to generate product revenue.
 
     The Company's clinical trials for future products will seek safety data as
well as efficacy data and will require substantial time and significant funding.
There is no assurance that clinical trials will be completed successfully within
any specified time period, if at all. Furthermore, the FDA may suspend clinical
trials at any time if it is believed that the subjects participating in such
trials are being exposed to unacceptable health risks. There can be no assurance
that FDA or other regulatory approvals for other products developed by the
 
                                        5

<PAGE>   7
 
Company will be granted on a timely basis, if at all, or if granted, that such
approval will not contain significant limitations in the form of warnings,
precautions or contraindications with respect to conditions of use. Any delay in
obtaining, or failure to obtain, such approvals could adversely affect the
Company's ability to generate product revenue. Failure to comply with the
applicable regulatory requirements can, among other things, result in fines,
suspensions of regulatory approvals, product recalls, operating restrictions and
criminal prosecution. In addition, the marketing and manufacturing of
pharmaceutical products are subject to continuing FDA review, and later
discovery of previously unknown problems with a product, manufacturer or
facility may result in the FDA requiring further clinical research or
restrictions on the product or the manufacturer, including withdrawal of the
product from the market. The restriction, suspension or revocation of regulatory
approvals or any other failure to comply with regulatory requirements would have
a material adverse effect on the Company's business, financial condition and
results of operations. See "Business -- Government Regulation."
 
     The Company obtains the necessary raw materials and components for the
manufacture of MUSE (alprostadil) from third parties. The Company currently
contracts with contract manufacturing organizations that are required to comply
with strict standards established by the Company. Contract manufacturers are
required by the Federal Food, Drug, and Cosmetic Act, as amended, and by FDA
regulations to follow Good Manufacturing Practice ("GMP"). The Company is
required to identify its suppliers to the FDA and is dependent upon its contract
manufacturers and its suppliers to comply with the Company's specifications and,
as required, GMP or similar standards imposed by foreign regulators. There can
be no assurance that the FDA, or a state, local or foreign regulator will not
take action against a contract manufacturer or supplier found to be violating
applicable regulations. Such an action could have a material adverse effect on
the Company's business, financial condition and results of operations. See
"Business -- Raw Materials and Manufacturing."
 
LIMITED MANUFACTURING EXPERIENCE AND DEPENDENCE ON SOLE CONTRACT MANUFACTURER
 
     The Company has only limited experience in manufacturing MUSE (alprostadil)
and has not yet manufactured it in commercial quantities. As a result, the
Company has no experience manufacturing its product in volumes necessary for the
Company to achieve significant commercial sales, and there can be no assurance
that reliable high volume manufacturing can be achieved at commercially
reasonable cost. If the Company encounters any manufacturing difficulties,
including problems involving production yields, quality control and assurance,
supplies of components or raw materials or shortages of qualified personnel, it
could have a material adverse effect on the Company's business, financial
condition and results of operations.
 
     The formulation, filling, packaging and testing of MUSE (alprostadil) is
performed by Paco Pharmaceutical Services, Inc. ("Paco"), a wholly owned
subsidiary of The West Company, at its facility in Lakewood, New Jersey. In June
1995, the Company completed construction of its approximately 6,000 square feet
of dedicated manufacturing and testing space within Paco's facility. The Company
will be required to expand its manufacturing and testing space at Paco or to
find additional facilities, if regulatory approval is obtained and MUSE
(alprostadil) is successfully introduced. The Company also intends to establish
a Company owned and operated manufacturing facility in Europe. Until the Company
develops an in-house manufacturing capability or is able to identify and qualify
alternative contract manufacturers, it will be entirely dependent upon Paco for
the manufacture of its products. As part of the approval process for the
Company's NDA, Paco will be subject to an audit by the FDA as part of its GMP
inspection. There can be no assurance that the facility will receive the
necessary GMP approval. There can be no assurance that the Company's reliance on
Paco or others for the manufacture of its products will not result in problems
with product supply, and there can be no assurance that the Company will be able
to establish a second manufacturing facility or expand its existing facility at
Paco. Interruptions in the availability of products could delay or prevent the
development and commercial marketing of MUSE (alprostadil) and other potential
products and would have a material adverse effect on the Company's business,
financial condition and results of operations. See "Business -- Raw Materials
and Manufacturing" and "-- Government Regulation."
 
                                        6

<PAGE>   8
 
LIMITED SALES AND MARKETING EXPERIENCE AND DEPENDENCE ON THIRD PARTIES
 
     The Company has no experience in the sale, marketing and distribution of
pharmaceutical products. If required approvals are received, the Company intends
to market and sell its products initially through a direct sales force in the
United States. In order to market its products directly, the Company must
develop a sales force with the proper technical expertise. There can be no
assurance that the Company will be able to build a sales force, or that the
Company's sales and marketing efforts will be successful.
 
     In February 1996, the Company entered into an agreement with Cardinal.
Under this agreement, Cardinal will warehouse the Company's finished goods, take
customer orders, pack and ship its product, invoice customers and collect
related receivables. The Company will also have access to Cardinal's information
systems that support these functions. As a result of this agreement with
Cardinal, the Company is dependent on Cardinal's efforts to fulfill orders and
warehouse its products effectively. There can be no assurance that such efforts
will be successful.
 
     In May 1996, the Company completed a marketing agreement with Astra AB
("Astra") to distribute the Company's products in Europe, South America, Central
America, Australia and New Zealand. As consideration for execution of the
marketing agreement, Astra will pay the Company $10 million in June. The Company
will be paid up to an additional $20 million in the event it achieves certain
milestones. The marketing agreement does not have minimum purchase commitments,
and Astra may take up to twelve months to introduce a product in a given country
following regulatory approval in such country. As a result of this marketing
agreement with Astra, the Company is dependent on Astra's efforts to market,
distribute and sell the Company's products effectively in the above mentioned
markets. There can be no assurance that such efforts will be successful.
 
     The Company intends to market and sell its products in other foreign
markets through distribution, co-promotion or license agreements with corporate
partners. To the extent that the Company enters into distribution, co-promotion
or license agreements for the sale of its products, the Company will be
dependent upon the efforts of third parties. These third parties may have other
commitments, and there can be no assurance that they will commit the necessary
resources to effectively market, distribute and sell the Company's product. See
"Business -- Sales and Marketing."
 
INTENSE COMPETITION
 
     Competition in the pharmaceutical and medical products industries is
intense and is characterized by extensive research efforts and rapid
technological progress. Certain treatments for erectile dysfunction exist, such
as needle injection therapy, vacuum constriction devices, penile implants and
oral medications, and the manufacturers of these products will continue to
improve these therapies. In July 1995, the FDA approved the use of alprostadil
in The Upjohn Company's ("Upjohn") needle injection therapy product for erectile
dysfunction. Previously, Upjohn had obtained approval in a number of European
countries. Additional competitive therapies under development include an oral
medication, Viagra, by Pfizer, Inc. which is currently in Phase III clinical
trials. Other large pharmaceutical companies are also actively engaged in the
development of therapies for the treatment of erectile dysfunction. These
companies have substantially greater research and development capabilities as
well as substantially greater marketing, financial and human resources than the
Company. In addition, these companies have significantly greater experience than
the Company in undertaking preclinical testing, human clinical trials and other
regulatory approval procedures. There are also small companies, academic
institutions, governmental agencies and other research organizations that are
conducting research in the area of erectile dysfunction. For instance, Zonagen,
Inc. and Pentech Pharmaceutical, Inc. have oral medications under development.
These entities may also market commercial products either on their own or
through collaborative efforts. The Company's competitors may develop
technologies and products that are available for sale prior to the Company's
products or that are more effective than those being developed by the Company.
Such developments would render the Company's products less competitive or
possibly obsolete. If the Company is permitted to commence commercial sales of
products, it will also be competing with respect to marketing capabilities and
manufacturing efficiency, areas in which it has limited experience. See
"Business -- Competition."
 
                                        7

<PAGE>   9
 
PROPRIETARY RIGHTS AND RISK OF LITIGATION
 
     The Company's success will depend, in large part, on the strength of its
current and future patent position relating to the transurethral delivery of
pharmacologic agents for the treatment of erectile dysfunction. The Company's
patent position, like other pharmaceutical companies, is highly uncertain and
involves complex legal and factual questions. Claims made under patent
applications may be denied or significantly narrowed and issued patents may not
provide significant commercial protection to the Company. The Company could
incur substantial costs in proceedings before the United States Patent Office,
including interference proceedings. These proceedings could also result in
adverse decisions as to the priority of the Company's licensed or assigned
inventions. There is no assurance that the Company's patents will not be
challenged or designed around by others. The Company is aware of a patent
application involving the transurethral application of prostaglandin E2 in the
United States. The corresponding application in Europe has been abandoned.
Failure of the Company's licensed patents to block issuance of such patent could
have a material adverse effect on the Company's business, financial condition
and results of operations.
 
     There can be no assurance that the Company's products do not or will not
infringe on the patent or proprietary rights of others. A patent opposition to
the Company's exclusively licensed European patents has been filed with the
European Patent Office. The Company is vigorously defending the patents, however
an adverse decision could affect the Company's ability, based on its patent
rights, to limit potential competition in Europe. The Company may be required to
obtain additional licenses to the patents, patent applications or other
proprietary rights of others. There can be no assurance that any such licenses
would be made available on terms acceptable to the Company, if at all. If the
Company does not obtain such licenses, it could encounter delays in product
introductions while it attempts to design around such patents, or the
development, manufacture or sale of products requiring such licenses could be
precluded. The Company believes there will continue to be significant litigation
in the pharmaceutical industry regarding patent and other intellectual property
rights.
 
     A former consultant to the Company has claimed that he is the inventor of
certain technology disclosed in one of the Company's patents. The former
consultant further claims that the Company defrauded him by allegedly failing to
inform him that it intended to use and patent this technology and by failing to
compensate him for the technology in the manner allegedly promised. The Company
has filed a declaratory relief action against the former consultant in the
United States District Court for the Northern District of California that seeks
to determine the Company's rights with respect to the allegations. The former
consultant has not yet been served in the proceeding. In a separate matter, the
licensors in an agreement by which the Company acquired a patent license have
recently filed a lawsuit alleging that they were defrauded in connection with
the renegotiation of the license agreement between the Company and the
licensors. In addition to monetary damages, the licensors seek to return to the
terms of the original license agreement. The Company has conducted a review of
the circumstances surrounding these two matters and believes that the
allegations are without merit. Although the Company believes that it should
prevail, the uncertainties inherent in litigation prevent the Company from
giving any assurances about the outcome of such litigation. See "Business --
Litigation."
 
     The Company also relies on trade secrets and other unpatented proprietary
technology. No assurance can be given that the Company can meaningfully protect
its rights in such unpatented proprietary technology or that others will not
independently develop substantially equivalent proprietary products and
processes or otherwise gain access to the Company's proprietary technology. The
Company seeks to protect its trade secrets and proprietary know-how, in part,
with confidentiality agreements with employees and consultants. There can be no
assurance that these agreements will not be breached, that the Company will have
adequate remedies for any breach or that the Company's trade secrets will not
otherwise become known or be independently developed by competitors. In
addition, protracted and costly litigation may be necessary to enforce and
determine the scope and validity of the Company's proprietary rights. See
"Business -- Licensed Patents and Proprietary Rights."
 
                                        8

<PAGE>   10
 
DEPENDENCE ON DUAL SOURCE OF SUPPLY
 
     To date, the Company has obtained its supply of alprostadil from two
sources. The first is Spolana Chemical Works AS in Neratovice, Czech Republic
("Spolana") pursuant to a supply agreement that expires at the end of 1996. In
January 1996, the Company completed a long-term alprostadil supply agreement
with CHINOIN Pharmaceutical and Chemical Works Co., Ltd. ("Chinoin"). Chinoin is
the Hungarian subsidiary of the French pharmaceutical company Sanofi Winthrop.
The Company's sources of supply will be subject to GMP requirements of the FDA.
There can be no assurance FDA approval will be received. Alprostadil, a generic
drug, is extremely difficult to manufacture and is only available to the Company
from a limited number of other suppliers, none of which currently produce it in
commercial quantities. While the Company is seeking additional sources, there
can be no assurance that it will be able to identify and qualify such sources.
The Company is required to identify its suppliers to the FDA, and the FDA may
require additional clinical trials or other studies prior to accepting a new
supplier. Unless the Company secures and qualifies additional sources of
alprostadil, it will be entirely dependent upon Spolana and Chinoin for the
delivery of alprostadil. If interruptions in the supply of alprostadil were to
occur for any reason, including a decision by Spolana and/or Chinoin to
discontinue manufacturing, political unrest, labor disputes or a failure of
Spolana and/or Chinoin to follow regulatory guidelines, the development and
commercial marketing of MUSE (alprostadil) and other potential products could be
delayed or prevented. An interruption in the Company's supply of alprostadil
would have a material adverse effect on the Company's business, financial
condition and results of operations. See "Business -- Raw Materials and
Manufacturing."
 
HISTORY OF LOSSES AND LIMITED OPERATING HISTORY
 
     The Company is a development stage company with a limited operating
history. The Company has not generated any revenue since its inception in April
1991. At March 31, 1996, the Company had an accumulated deficit of approximately
$55.9 million. The Company's losses will increase significantly during the next
twelve months as it incurs expenses related to its marketing and sales
organization, constructing a second manufacturing plant and expanding the
Company's existing plant, preclinical and clinical assessment of potential new
products and ongoing research and development activities. To achieve
profitability, the Company must successfully obtain required regulatory
approvals, manufacture, introduce and market MUSE (alprostadil). The time
required to reach profitability is highly uncertain, and there is no assurance
that the Company will be able to achieve profitability on a sustained basis, if
at all. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
 
FUTURE CAPITAL NEEDS AND UNCERTAINTY OF ADDITIONAL FINANCING
 
     The Company expects to incur substantial additional costs, including
expenses related to its marketing and sales organization, a second manufacturing
plant and expansion of the Company's existing plant, new product preclinical and
clinical costs, ongoing research and development activities and general
corporate purposes. The Company anticipates that its existing capital resources
and the proceeds from this offering will be sufficient to support the Company's
operations through commercial introduction of MUSE (alprostadil) in the United
States and Europe but may not be sufficient for the introduction of any
additional future products. The Company may have to conduct additional studies
or clinical trials in order to obtain regulatory approval of MUSE (alprostadil).
Accordingly, the Company anticipates that it may be required to issue additional
equity or debt securities and may use other financing sources including, but not
limited to, corporate alliances and lease financings to fund the future
development and possible commercial launch of its products. The sale of
additional equity securities can be expected to result in additional dilution to
the Company's stockholders. There can be no assurance that such funds will be
available on terms satisfactory to the Company, or at all. Failure to obtain
adequate funding could cause a delay or cessation of the Company's product
development and marketing efforts and would have a material adverse effect upon
the Company's business, financial condition and results of operations. The
Company's working capital and additional funding requirements will depend upon
numerous factors, including: (i) the ability to obtain and timing and costs of
obtaining regulatory approvals; (ii) the level of resources that the Company
devotes to sales and marketing capabilities; (iii) the level of resources that
the Company devotes to expanding manufacturing capacity; (iv) the activities of
 
                                        9

<PAGE>   11
 
competitors; (v) the progress of the Company's research and development
programs; (vi) the timing and results of preclinical testing and clinical
trials; and (vii) technological advances. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."
 
DEPENDENCE ON KEY PERSONNEL
 
     The Company's progress to date has been highly dependent upon the skills of
a limited number of key management personnel. To reach its future business
objectives, the Company will need to hire numerous other qualified personnel in
the areas of sales, manufacturing, clinical trial management and preclinical
testing. There can be no assurance that the Company will be able to hire such
personnel, as the Company must compete with other companies, academic
institutions, government entities and other agencies. The loss of any of the
Company's key personnel or the failure to attract or retain necessary new
employees could have an adverse effect on the Company's research, product
development and business operations. See "Management" and
"Business -- Employees."
 
RISKS RELATING TO INTERNATIONAL OPERATIONS
 
     In the event the Company receives necessary foreign regulatory approvals,
the Company plans to market its products internationally. Changes in overseas
economic conditions, currency exchange rates, foreign tax laws or tariffs or
other trade regulations could have a material adverse effect on the Company's
business, financial condition and results of operations. The anticipated
international nature of the Company's business is also expected to subject it
and its representatives, agents and distributors to laws and regulations of the
foreign jurisdictions in which they operate or the Company's products are sold.
The regulation of drug therapies in a number of such jurisdictions, particularly
in the European Union, continues to develop, and there can be no assurance that
new laws or regulations will not have a material adverse effect on the Company's
business, financial condition and results of operations. In addition, the laws
of certain foreign countries do not protect the Company's intellectual property
rights to the same extent as do the laws of the United States.
 
PRODUCT LIABILITY AND AVAILABILITY OF INSURANCE
 
     The use of the Company's products in clinical trials may expose the Company
to product liability claims and possible adverse publicity. These risks also
exist with respect to the Company's products, if any, that receive regulatory
approval for commercial sale. The Company currently maintains insurance coverage
for the clinical use of its products but does not have insurance coverage for
the commercial sale of its products. There can be no assurance that the Company
will be able to obtain product liability insurance. There can be no assurance
that the Company's present or future insurance will provide adequate coverage or
be available at a reasonable cost or that product liability claims would not
adversely affect the business or financial condition of the Company.
 
UNCERTAINTY OF PHARMACEUTICAL PRICING AND REIMBURSEMENT
 
     In the United States and elsewhere, sales of pharmaceutical products
currently are dependent, in part, on the availability of reimbursement to the
consumer from third party payors, such as government and private insurance
plans. Third party payors are increasingly challenging the prices charged for
medical products and services. If the Company succeeds in bringing one or more
products to the market, there can be no assurance that these products will be
considered cost effective and that reimbursement to the consumer will be
available or sufficient to allow the Company to sell its products on a
competitive basis.
 
UNCERTAINTY AND POSSIBLE NEGATIVE EFFECTS OF HEALTHCARE REFORM
 
     The healthcare industry is undergoing fundamental changes that are the
result of political, economic and regulatory influences. The levels of revenue
and profitability of pharmaceutical companies may be affected by the continuing
efforts of governmental and third party payors to contain or reduce healthcare
costs through various means. Reforms that have been and may be considered
include mandated basic healthcare benefits, controls on healthcare spending
through limitations on the increase in private health insurance premiums and
 
                                       10

<PAGE>   12
 
Medicare and Medicaid spending, the creation of large insurance purchasing
groups and fundamental changes to the healthcare delivery system. Due to
uncertainties regarding the outcome of healthcare reform initiatives and their
enactment and implementation, the Company cannot predict which, if any, of the
reform proposals will be adopted or the effect such adoption may have on the
Company. There can be no assurance that future healthcare legislation or other
changes in the administration or interpretation of government healthcare or
third-party reimbursement programs will not have a material adverse effect on
the Company. Healthcare reform is also under consideration in other countries.
 
CONTROL BY EXISTING STOCKHOLDERS
 
     Upon completion of this offering, the Company's officers, directors and
principal stockholders, and certain of their affiliates, will beneficially own
22.5 percent of the Company's outstanding Common Stock (approximately 22.1
percent assuming the Underwriter's over-allotment option is exercised in full).
Such concentration of ownership may have the effect of delaying, defining or
preventing a change in control of the Company. Additionally, these stockholders
will have significant influence over the election of directors of the Company.
This concentration of ownership may allow significant influence and control over
Board decisions and corporate actions.
 
POTENTIAL VOLATILITY OF STOCK PRICE
 
     The stock market has recently experienced significant price and volume
fluctuations unrelated to the operating performance of particular companies. In
addition, the market price of the Company's Common Stock, like the securities of
other therapeutic companies without approved products, is likely to be highly
volatile and is likely to continue to be so. Factors such as variations in the
Company's financial results, comments by security analysts, the Company's
ability to scale up its manufacturing capability to commercial levels, the
Company's ability to successfully sell its product in the United States and
Europe, any loss of key management, the results of the Company's clinical trials
or those of its competition, adverse regulatory actions or decisions, evidence
regarding the safety or efficacy of the Company's products or those of its
competition, announcements of technological innovations or new products by the
Company or its competition, changing governmental regulations and developments
with respect to FDA submissions, developments with respect to patents or other
proprietary rights, product or patent litigation or public concern as to the
safety of products developed by the Company, may have a significant effect on
the market price of the Company's Common Stock.
 
ANTI-TAKEOVER EFFECT OF SHAREHOLDER RIGHTS PLAN AND CERTAIN CHARTER AND BYLAW
PROVISIONS
 
     In February 1996, the Company's Board of Directors authorized its
reincorporation into the State of Delaware (the "Reincorporation") and adopted a
Shareholder Rights Plan. The Shareholder Rights Plan provides for a dividend
distribution of one Preferred Share Purchase Right (a "Right") on each
outstanding share of the Common Stock. Each Right entitles stockholders to buy
1/100th of a share of VIVUS Series A Participating Preferred Stock at an
exercise price of $100.00. The Rights will become exercisable following the
tenth day after a person or group announces acquisition of 20 percent or more of
the Common Stock, or announces commencement of a tender offer, the consummation
of which would result in ownership by the person or group of 20 percent or more
of the Common Stock. The Company will be entitled to redeem the Rights at $0.01
per Right at any time on or before the tenth day following acquisition by a
person or group of 20 percent or more of the Company's Common Stock. The
Company's reincorporation into the State of Delaware was approved by its
shareholders and effective in May 1996, pending approval by the State of
California.
 
     The Shareholder Rights Plan and certain provisions of the Company's
Certificate of Incorporation and Bylaws, as adopted in connection with the
reincorporation, may have the effect of making it more difficult for a third
party to acquire, or of discouraging a third party from attempting to acquire
control of the Company. The Company's Certificate of Incorporation allows the
Company to issue Preferred Stock without any vote or further action by the
stockholders, and certain provisions of the Company's Certificate of
Incorporation and Bylaws eliminate the right of stockholders to act by written
consent without a meeting, specify procedures for
 
                                       11

<PAGE>   13
 
director nominations by stockholders and submission of other proposals for
consideration at stockholder meetings, and eliminate cumulative voting in the
election of directors. Certain provisions of Delaware law could also delay or
make more difficult a merger, tender offer or proxy contest involving the
Company, including Section 203, which prohibits a Delaware corporation from
engaging in any business combination with any interested stockholder for a
period of three years unless certain conditions are met. The Shareholder Rights
Plan, the possible issuance of Preferred Stock, the procedures required for
director nominations and stockholder proposals and Delaware law could have the
effect of delaying, deferring or preventing a change in control of the Company,
including without limitation, discouraging a proxy contest or making more
difficult the acquisition of a substantial block of the Company's Common Stock.
These provisions could also limit the price that investors might be willing to
pay in the future for shares of the Company's Common Stock.
 
SHARES ELIGIBLE FOR FUTURE SALE
 
     Sales of a substantial number of shares of Common Stock in the public
market following this offering could have an adverse effect on the price of the
Company's Common Stock. Each of the Company's directors and executive officers
has agreed that for a period of 90 days following the date of this Prospectus,
such stockholder will not, without the prior written consent of PaineWebber
Incorporated, directly or indirectly, offer to sell, sell or otherwise dispose
of shares of Common Stock or any securities convertible or exchangeable for
shares of Common Stock. Upon the expiration of these lock-up agreements,
approximated 2.8 million shares (including shares issuable upon the exercise of
outstanding vested options) will become eligible for sale.
 
DILUTION AND ABSENCE OF DIVIDENDS
 
     The public offering price is substantially higher than the book value per
share of the Common Stock. Assuming a public offering price of $30.25, investors
purchasing shares of Common Stock in this offering, based upon the net tangible
book value as adjusted per share of Common Stock as of March 31, 1996, will
incur immediate and substantial dilution in the amount of $24.38 per share.
Future equity financings may cause further dilution to investors. The Company
has never paid dividends on its Common Stock and will not pay dividends in the
foreseeable future. See "Dilution" and "Dividend Policy."
 
                                       12

<PAGE>   14
 
                                USE OF PROCEEDS
 
     The net proceeds to the Company from the sale of the 2,000,000 shares of
Common Stock offered by the Company hereby are estimated to be $56,370,000
($64,900,500 if the Underwriters' over-allotment option is exercised in full),
assuming a public offering price of $30.25 per share and after deduction of the
underwriting discount and estimated offering expenses. The Company anticipates
using the net proceeds of this offering for expenses related to its marketing
and sales organization, a second manufacturing plant and expansion of the
Company's existing plant, new product preclinical and clinical costs, ongoing
research and development activities, and general corporate purposes. The exact
timing and amount of funds required for specific uses by the Company cannot be
precisely determined by the Company at this time. Pending such uses, the Company
intends to invest the estimated net proceeds primarily in investment-grade,
interest-bearing obligations.
 
     The Company believes that its existing cash, cash equivalents and
investments combined with the net proceeds from this offering will be sufficient
to support the Company's operations through commercial introduction of MUSE
(alprostadil) in the United States and Europe but may not be sufficient for the
introduction of any additional future products. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."
 
                          PRICE RANGE OF COMMON STOCK
 
     The Company's Common Stock is traded on the Nasdaq National Market under
the symbol "VVUS." The Company commenced its initial public offering of Common
Stock on April 7, 1994 at an initial public offering price of $14.00. The
following table sets forth for the periods indicated during 1995 and 1996 the
high and low sale prices of the Common Stock as reported by the Nasdaq National
Market.
 

<TABLE>
<CAPTION>
                                                                       HIGH       LOW
                                                                       -----     -----
<S>                                                                    <C>       <C>
YEAR ENDED DECEMBER 31, 1994
  Second Quarter (from April 7, 1994)..............................    $  16     $  13
  Third Quarter....................................................       14        13
  Fourth Quarter...................................................    15 1/4       13
YEAR ENDED DECEMBER 31, 1995
  First Quarter....................................................    18 1/2    13 1/4
  Second Quarter...................................................       18     11 1/4
  Third Quarter....................................................       24     13 1/2
  Fourth Quarter...................................................    31 1/2    16 3/4
YEAR ENDED DECEMBER 31, 1996
  First Quarter....................................................    31 3/4    23 1/2
  Second Quarter (through May   , 1996)............................    32 1/2    26 1/4
</TABLE>

 
     On May 30, 1996, the last sale price of the Common Stock as reported by the
Nasdaq National Market was $30.25 per share. As of May 17, 1995 there were 428
stockholders of record of the Company's Common Stock.
 
                                DIVIDEND POLICY
 
     The Company has never declared or paid cash dividends on its Common Stock.
The Company intends to retain earnings and will not pay cash dividends in the
foreseeable future. Any future determination to pay cash dividends will be at
the discretion of the Board of Directors and will be dependent upon the
Company's financial condition, results of operations, capital requirements,
general business conditions and such other factors as the Board of Directors
deems relevant.
 
                                       13

<PAGE>   15
 
                                 CAPITALIZATION
 
     The following table sets forth the capitalization of the Company as of
March 31, 1996, and as adjusted to reflect the sale of the 2,000,000 shares of
Common Stock offered by the Company hereby at an assumed public offering price
of $30.25 and the receipt of the estimated net proceeds therefrom:
 

<TABLE>
<CAPTION>
                                                                              MARCH 31, 1996
                                                                          ----------------------
                                                                           ACTUAL    AS ADJUSTED
                                                                          --------   -----------
                                                                              (IN THOUSANDS)
<S>                                                                       <C>        <C>
Stockholders' equity(2):
  Preferred stock, 5,000,000 shares, $0.001 par value, authorized;
     none issued and outstanding........................................  $     --    $       --
  Common stock, 30,000,000 shares, $0.001 par value, authorized;
     13,585,693 shares issued and outstanding actual and 15,585,693
     shares issued and outstanding as adjusted(1).......................        14            16
  Additional paid-in capital............................................    91,734       148,102
  Unrealized loss on securities.........................................       (47)          (47)
  Deferred compensation.................................................      (681)         (681)
  Accumulated deficit...................................................   (55,862)      (55,862)
                                                                          --------   -----------
     Total stockholders' equity.........................................  $ 35,158    $   91,528
                                                                          ========     =========
</TABLE>

 
- ---------------
 
(1)  Excludes, as of May 31, 1996, 1,647,563 shares of Common Stock issuable
     upon the exercise of outstanding options granted pursuant to the Company's
     1991 Incentive Stock Plan at a weighted average exercise price of $12.70
     per share and 264,300 shares of Common Stock issuable upon the exercise of
     outstanding warrants at an exercise price of $8.63 per share.
 
(2) Vivus was incorporated in California in April 1991 and reincorporated into
    Delaware on May 24, 1996, pending approval by the State of California. The
    capitalization table considers the effect of the reincorporation.
 
                                    DILUTION
 
     The net tangible book value of the Company as of March 31, 1996 was
approximately $35.2 million, or $2.59 per share of Common Stock. The net
tangible book value per share is equal to the Company's total tangible assets
less total liabilities, divided by the number of shares of Common Stock
outstanding. After giving effect to the sale of the 2,000,000 shares of Common
Stock offered by the Company hereby at an assumed public offering price of
$30.25 per share and the receipt of the estimated net proceeds therefrom, the
net tangible book value as adjusted of the Company at March 31, 1996 would have
been approximately $91.5 million or $5.87 per share. This represents an
immediate increase in net tangible book value of $3.28 per share to existing
stockholders and an immediate dilution of $24.38 per share to new investors
purchasing shares in this offering. The following table illustrates the per
share dilution:
 

<TABLE>
        <S>                                                             <C>     <C>
        Assumed public offering price.................................          $30.25
          Net tangible book value before offering.....................  $2.59
          Increase attributable to new investors......................   3.28
                                                                        -----
        Net tangible book value after offering........................           (5.87)
                                                                                ------
        Dilution to new investors.....................................          $24.38
                                                                                ======
</TABLE>

 
                                       14

<PAGE>   16
 
                            SELECTED FINANCIAL DATA
 
     The selected financial data as of December 31, 1994 and 1995 and for the
three years ended December 31, 1995 have been derived from consolidated
financial statements of the Company incorporated herein by reference. These
consolidated financial statements have been audited by Arthur Andersen LLP,
independent public accountants, whose report thereon is also incorporated herein
by reference. The selected financial data as of December 31, 1991, 1992 and 1993
and for the year ended December 31, 1992 and for the period from April 16, 1991
(inception) to December 31, 1991 are derived from audited financial statements
of the Company not incorporated herein by reference. The selected financial data
for the quarters ended March 31, 1995 and 1996, and as of March 31, 1995 and
1996 have been derived from unaudited financial statements of the Company but,
in the opinion of the Company, include all adjustments (consisting only of
normal recurring adjustments) necessary for a fair presentation thereof. The
results for the quarter ended March 31, 1996 are not necessarily indicative of
results to be expected for a full fiscal year. 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" located elsewhere in
this Prospectus and the consolidated financial statements and notes thereto
incorporated herein by reference.
 

<TABLE>
<CAPTION>
                                                                                                THREE MONTHS
                                                                                                    ENDED
                                                       YEAR ENDED DECEMBER 31,                    MARCH 31,
                                          -------------------------------------------------   -----------------
                                          1991(1)    1992      1993       1994       1995      1995      1996
                                          -------   -------   -------   --------   --------   -------   -------
                                                        (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S>                                       <C>       <C>       <C>       <C>        <C>        <C>       <C>
CONSOLIDATED STATEMENT OF OPERATIONS
  DATA:
Operating expenses:
  Research and development..............  $   340   $ 3,102   $ 6,814   $ 13,916   $ 21,313   $ 5,113   $ 5,359
  General and administrative............      174       626     1,499      2,587      4,389       897     1,379
                                          -------   -------   -------   --------   --------   -------   -------
    Total operating expenses............      514     3,728     8,313     16,503     25,702     6,010     6,738
  Interest income.......................        2        63       538      1,639      2,891       553       503
                                          -------   -------   -------   --------   --------   -------   -------
    Net loss............................  $  (512)  $(3,665)  $(7,775)  $(14,864)  $(22,811)  $(5,457)  $(6,235)
                                          ========  ========  ========  =========  =========  ========  ========
    Net loss per common and common
      equivalent share..................       --        --   $ (0.79)  $  (1.27)  $  (1.70)  $ (0.44)  $ (0.45)
Shares used in per share calculation....       --        --     9,828     11,744     13,457    12,315    13,991
CONSOLIDATED BALANCE SHEET DATA:
  Cash, cash equivalents and
    securities..........................  $   486   $ 5,450   $23,059   $ 40,999   $ 39,524   $36,129   $33,772
  Total assets..........................      534     5,626    24,732     43,021     44,049    39,121    38,657
  Total liabilities.....................      219       530     1,297      2,714      2,868     3,853     3,499
  Accumulated deficit...................     (512)   (4,177)  (11,952)   (26,816)   (49,627)  (32,273)  (55,862)
  Stockholders' equity..................      315     5,096    23,435     40,307     41,181    35,268    35,158
</TABLE>

 
- ---------------
 
(1) April 16, 1991 (inception) through December 31, 1991.
 
                                       15

<PAGE>   17
 

          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 that involve risks
and uncertainties. The Company's actual results could differ materially from
those anticipated in the 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 1991, VIVUS, Inc. (the Company), a development
stage company, has focused on the design and development of products for the
treatment of erectile dysfunction. The Company has devoted substantially all its
efforts to research and development conducted on its behalf and through
collaboration with clinical institutions. The Company's primary product, MUSE
(alprostadil), has moved from preclinical development to regulatory application
phase over the last three years. The Company has generated a cumulative net loss
of $55.9 million for the period from its inception through March 31, 1996. The
ability of the Company to successfully obtain regulatory approval for,
manufacture, and market MUSE (alprostadil) is dependent on many factors. The
Company is subject to a number of risks including the approval of its product,
its ability to scale-up its manufacturing capabilities and secure adequate
supplies of raw materials, its ability to successfully market, distribute and
sell its product and intense competition. Accordingly, there can be no assurance
of the Company's future success.
 
     Spending increased from 1993 through the period ended March 31, 1996
largely as a result of expanded operational activities related to the Company's
Phase II and III clinical trials, preparing the MUSE (alprostadil) NDA for the
FDA and expansion of its manufacturing capabilities. Spending levels will
continue to increase during 1996 as the Company further develops its commercial
manufacturing, marketing and sales capabilities.
 
     To date, the Company has received no revenue from product sales or from
collaborative agreements. The Company does not anticipate significant revenue
from operations for at least two years. The Company does not have any experience
in manufacturing or selling MUSE (alprostadil) in commercial quantities. Whether
the Company can successfully manage the transition to a large scale commercial
enterprise will depend upon the successful further development of its
manufacturing capability and its distribution network and attainment of domestic
and foreign regulatory approvals for MUSE (alprostadil) and other potential
products. Failure to make such a transition successfully would have a material
adverse effect on the Company's business, financial condition and results of
operations.
 
     The Company anticipates that its losses will continue to increase
significantly over at least the next twelve months as it expands its operations,
prepares for the anticipated commercial introduction of MUSE (alprostadil) and
expands its research and development activities with regard to other products.
To achieve profitability, the Company must obtain the required regulatory
approvals and successfully manufacture, introduce and market MUSE (alprostadil).
The time required to reach profitability is highly uncertain, and there can be
no assurance that the Company will be able to obtain profitability on a
sustained basis, if at all.
 
     The Company currently relies on a single therapeutic approach to treat
erectile dysfunction, the transurethral system for erection. The Company
recently completed Phase III clinical trials and submitted an NDA to the FDA for
its anticipated first product, MUSE (alprostadil). While the Company's NDA was
accepted for priority review by the FDA, there can be no assurance that FDA
approval will be granted on a timely basis, if at all, or if granted, that such
approval will not contain significant limitations in the form of warnings,
precautions or contraindications with respect to condition of use. Failure to
obtain approval of the Company's NDA for MUSE (alprostadil) on a timely basis,
if at all, or if granted, the failure to successfully commercialize MUSE
(alprostadil) would have a material adverse effect on the Company.
 
     In April 1994, the Company successfully completed an initial public
offering of 2,473,000 shares of common stock, with net proceeds to the Company
of $31,578,000. The Company completed a secondary public offering of 1,800,000
shares of common stock in April 1995. Of the total number of shares offered,
 
                                       16

<PAGE>   18
 
1,670,000 shares were sold by the Company and 130,000 shares were sold by a
stockholder. Net proceeds to the Company were $22,483,000.
 
     The Company has an agreement with Alza, executed on December 31, 1993, that
provides for the assignment by Alza of patents and patent applications related
to the Company's technology. In consideration for the rights granted to the
Company under the agreement, the Company issued shares of Common Stock to Alza
and is required to pay certain royalties on the sale of any products for the
transurethral treatment for erectile dysfunction. To maintain exclusive rights
beyond December 31, 1998, the Company issued an additional 200,000 shares of
Common Stock to Alza in May 1996 and recorded a charge of $5.9 million to the
consolidated statement of operations.
 
RESULTS OF OPERATIONS
 
     Three Months Ended March 31, 1996 and 1995
 
     No revenues have been recorded from inception to March 31, 1996.
 
     For the three months ended March 31, 1996, research and development
expenses were $5,359,000 compared with $5,113,000 for the three months March 31,
1995, an increase of 5%. This increase was due primarily to increased pre-launch
manufacturing and quality assurance expenses, which were partially offset by
lower clinical costs resulting from the completion of the Phase II and III
clinical trials in 1995.
 
     General and administrative expenses for the three months ended March 31,
1996 were $1,379,000 compared with $897,000 for the three months ended March 31,
1995, an increase of 54%. This increase resulted primarily from hiring
additional personnel to support the growth of the Company's operations, in
addition to higher marketing, legal and accounting expenses.
 
     Interest income for the three months ended March 31, 1996 was $503,000
compared with $553,000 for the three months ended March 31, 1995. This decrease
was primarily the result of lower average invested cash balances.
 
     Years Ended December 31, 1995 and 1994
 
     Research and development expenses in 1995 were $21,313,000 compared with
$13,916,000 in 1994, an increase of 53%. This increase resulted primarily from
the increased expenses supporting the Company's Phase III confirmatory clinical
studies and ongoing clinical study programs for MUSE (alprostadil), costs
associated with the preparation of the NDA for MUSE (alprostadil), expansion of
the Company's manufacturing capability and growth in personnel to support the
Company's expanding operations. Clinical trial costs consisted largely of
payments to clinical investigators. The Company pays its clinical investigators
on a per patient basis. In clinical trials through December 31, 1995, the
Company's transurethral system for erection had been used by more than 1,950 men
at over 80 sites in the United States and Europe.
 
     General and administrative expenses in 1995 were $4,389,000 compared with
$2,587,000 in 1994, an increase of 70%. This increase resulted primarily from
hiring additional personnel to support the growth of the Company's operations,
in addition to higher market research, legal and accounting expenses, and
expenses associated with being a public company.
 
     Interest income in 1995 was $2,891,000 compared with $1,639,000 in 1994.
The increase resulted from higher average invested cash balances as well as
higher returns on its cash investments in 1995 due to the favorable effects of
higher average interest rates.
 
     Years Ended December 31, 1994 and 1993
 
     Research and development expenses in 1994 were $13,916,000 compared with
$6,814,000 in 1993, an increase of 104%. This increase resulted primarily from
increased purchases of alprostadil, enrollment of additional patients in
clinical trials, and contract manufacturing and quality control services.
Research and development expenses in 1993 included license fees of $1,380,000.
There were no license fees included in research and development expenses in
1994.
 
                                       17

<PAGE>   19
 
     General and administrative expenses in 1994 were $2,587,000 compared with
$1,499,000 in 1993, an increase of 73%. This increase resulted primarily from
hiring additional personnel to support the growth of the Company's operations,
in addition to higher legal and accounting expenses, and expenses associated
with being a public company.
 
     Interest income in 1994 was $1,639,000 compared with $538,000 in 1993. The
increase resulted from higher average invested cash balances associated with the
$31,578,000 in net proceeds received from the initial offering in April 1994, in
addition to higher average interest rates in 1994.
 
LIQUIDITY AND CAPITAL RESOURCES
 
     Since inception, the Company has financed operations primarily from the
sale of preferred and common stock. Through March 31, 1996, VIVUS has raised
$88,958,000. Cash, cash equivalents and securities available-for-sale totaled
$33,772,000 at March 31, 1996 compared with $39,524,000 at December 31, 1995.
The Company maintains its current excess cash balances in a variety of interest
bearing investment-grade financial investments such as U.S. government
securities, corporate debt and certificates of deposit. Principal preservation,
liquidity and safety are the primary investment objectives.
 
     Cash used in operations in the three months ended March 31, 1996 was
$5,403,000 compared with $4,199,000 in the three months ended March 31, 1995.
The increased use of cash was primarily due to a net loss of $6,235,000 in the
three months ended March 31, 1996 compared with a net loss of $5,457,000 for the
same period in 1995. Cash used for operations is expected to increase in 1996 as
the Company further develops its commercial manufacturing, marketing and sales
capabilities.
 
     Prepaid and other current assets at March 31, 1996 were $737,000 compared
with $590,000 at December 31, 1995, an increase of $147,000. This increase
resulted primarily from an increase in interest receivables related to the
Company's investment portfolio, and prepaid insurance.
 
     Current liabilities were $3,499,000 at March 31, 1996 compared with
$2,868,000 at December 31, 1995. This increase was primarily due to an increase
in alprostadil purchases in 1996.
 
     Capital expenditures in the three months ended March 31, 1996 were $499,000
compared with $974,000 for the same period ended March 31, 1995. Capital
expenditures during the period in 1996 and 1995 consisted primarily of
manufacturing and quality control equipment. Capital expenditures were higher in
1995 due to the construction of the Company's dedicated manufacturing and
testing space within the Paco facility in Lakewood, New Jersey. Major capital
expenditures over the next two years are likely to include a Company owned
manufacturing facility in Europe, expansion of its current facility in the
United States and establishing a research and quality control laboratory.
 
     Cash used in operations in 1995 was $21,539,000 compared with $12,643,000
in 1994. The increased use of cash was primarily due to a net loss of
$22,811,000 in 1995 compared with a net loss of $14,864,000 in 1994.
 
     Prepaid and other current assets at December 31, 1995 were $590,000
compared with $555,000 at December 31, 1994, an increase of $35,000. This
increase resulted primarily from an increase in interest receivables related to
the Company's investment portfolio.
 
     Current liabilities were $2,868,000 at December 31, 1995 compared with
$2,714,000 at December 31, 1994. This increase was primarily due to an increase
in expenditures in 1995.
 
     Capital expenditures in 1995 were $3,148,000 compared with $787,000 in
1994. In 1995, the Company constructed and equipped approximately 6,000 square
feet of manufacturing and testing space within Paco. Capital expenditures in
1995 consisted primarily of manufacturing, quality control and laboratory
equipment.
 
     In 1995, the Company implemented an international product distribution
strategy for VIVUS products. Implementation included the transfer of
international product marketing rights to VIVUS International Limited in a
taxable transaction. The transfer of rights and related allocation of research
and development costs resulted in the current utilization of $29,467,000 of the
Company's net operating loss carryforward.
 
                                       18

<PAGE>   20
 
     The Company expects to incur substantial additional costs, including
expenses related to its marketing and sales organization, a second manufacturing
plant and expansion of the Company's existing plant, new product preclinical and
clinical costs, ongoing research and development activities and general
corporate purposes. The Company anticipates that its existing capital resources
and the proceeds from this offering will be sufficient to support the Company's
operations through commercial introduction of MUSE (alprostadil) in the United
States and Europe but may not be sufficient for the introduction of any
additional future products. While the Company believes its NDA filing was
substantially complete, the Company may have to conduct additional studies or
clinical trials in order to obtain regulatory approval of MUSE (alprostadil).
Accordingly, the Company anticipates that it may be required to issue additional
equity or debt securities and may use other financing sources including, but not
limited to, corporate alliances and lease financings to fund the future
development and possible commercial launch of its products. The sale of
additional equity securities can be expected to result in additional dilution to
the Company's stockholders. There can be no assurance that such funds will be
available on terms satisfactory to the Company, or at all. Failure to obtain
adequate funding could cause a delay or cessation of the Company's product
development and marketing efforts and would have a material adverse effect upon
the Company's business, financial condition and results of operations. The
Company's working capital and additional funding requirements will depend upon
numerous factors, including: (i) the ability to obtain and timing and costs of
obtaining regulatory approvals; (ii) the level of resources that the Company
devotes to sales and marketing capabilities; (iii) the level of resources that
the Company devotes to expanding manufacturing capacity; (iv) the activities of
competitors; (v) the progress of the Company's research and development
programs; (vi) the timing and results of preclinical testing and clinical
trials; and (vii) technological advances.
 
                                       19

<PAGE>   21
 
 
                                   BUSINESS
 
     The following Business section contains forward-looking statements that
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.
 
     VIVUS is a leader in the development of advanced therapeutic systems for
the treatment of erectile dysfunction. Erectile dysfunction, commonly referred
to as impotence is the inability to achieve and maintain an erection of
sufficient rigidity for sexual intercourse. The Company's transurethral system
for erection is a non-invasive, easy to use system that delivers pharmacologic
agents topically to the urethral lining. In March 1996, the Company submitted an
NDA to the FDA for its anticipated first product, MUSE (alprostadil). The FDA
accepted the Company's filing for priority review. The Company believes that
MUSE (alprostadil), if approved by the FDA and foreign regulatory bodies, could
become first line therapy for erectile dysfunction.
 
     If required approvals are received, the Company intends to market and sell
its products initially through a direct sales force in the United States and to
distribute its products in foreign markets through distribution, co-promotion or
license agreements with corporate partners. In February 1996, the Company
entered into an agreement with Cardinal that provides that Cardinal will fulfill
the Company's orders and warehouse its products. In May 1996, the Company
completed a marketing agreement with Astra to distribute the Company's products
in Europe, South America, Central America, Australia and New Zealand. As
consideration for execution of the marketing agreement, Astra will pay the
Company $10 million in June 1996. The Company will be paid up to an additional
$20 million in the event it achieves certain milestones. Astra has agreed to
purchase product from the Company for resale into the above mentioned markets.
 
BACKGROUND
 
     Erectile dysfunction results from (i) an inadequate supply of blood to the
penis, (ii) a failure to relax the smooth muscle tissue in the penis so it can
become engorged with blood or (iii) a failure to retain blood in the penis.
Blood is carried to the penis in two large arteries that terminate in a maze of
blood vessels contained in the three erectile bodies of the penis, the corpus
spongiosum which surrounds the urethra and two corpora cavernosa. Smooth muscle
tissue surrounds each individual blood vessel in the erectile bodies. When the
penis is flaccid, the smooth muscle tissue is in a contracted state, which
constricts the blood vessels resulting in reduced blood flow. During
stimulation, a signal is sent to nerve endings in the penis that causes the
smooth muscle tissue to relax. This relaxation allows the blood vessels to
expand and, as arterial blood fills the erectile bodies, the penis becomes
engorged with blood and erect. As the erectile bodies expand, the venous outflow
of blood is restricted so that the erection can be maintained.
 
                                 [ILLUSTRATION]
 
                                       20

<PAGE>   22
 
     Causes of Erectile Dysfunction
 
     Historically, psychological factors were considered the primary cause of
erectile dysfunction. It is now widely understood that a substantial majority of
all cases have a physiological cause. The Company believes that therapeutic
treatments of erectile dysfunction can be effective, whether the cause is
psychological or physiological. The primary physiological causes of erectile
dysfunction fall into the following general categories:
 
     Vascular Diseases. Atherosclerosis, hypertension and other diseases can
impede or obstruct the flow of blood to the penis.
 
     Neurological Diseases. Multiple sclerosis, Parkinson's disease and other
diseases can interrupt nerve impulses to the penis.
 
     Diabetes. Diabetes mellitus can alter both nerve function and vascular
flow, inhibiting the ability to achieve an erection.
 
     Prescription Drugs. Certain antihypertensive and cardiac medications, as
well as a number of other prescription drugs, can affect nerve function in the
penis by altering neurotransmitter levels.
 
     Spinal Injury. Injury to the spinal column can interrupt nerve impulses
from the spinal cord to the penis.
 
     Pelvic Surgery. Radical prostatectomies, cystoprostatectomies and
colectomies may traumatize or cut nerves or blood vessels to the penis.
 
     Other Causes. Hormonal imbalance, renal failure and dialysis, and drug and
substance abuse (particularly smoking) can also impair the neurovascular system
and cause erectile dysfunction.
 
  Market Size
 
     Based on a published study of more than 1,200 men in Massachusetts, the
Company estimates that over 30% of males in the United States between the ages
of 40 to 70 suffer from moderate to complete erectile dysfunction. The Company
believes that similar rates prevail outside the United States. A recent estimate
from the NIH Consensus Statement on Impotence (1992) suggests that the number of
United States men with erectile dysfunction may be 10 to 20 million. The rate of
erectile dysfunction increases significantly with age.
 
  Current Therapies
 
     Despite the detrimental effect erectile dysfunction may have on a couple's
quality of life, the Company believes that, due in part to the limitations of
current therapies, a large number of men suffering from erectile dysfunction
currently do not seek medical treatment. The primary physiological therapies
currently utilized for the treatment of erectile dysfunction are:
 
     Needle Injection Therapy. This form of treatment involves the needle
injection of pharmacologic agents directly into the penis. These agents are
generally combinations of vasoactive compounds such as alprostadil, phentolamine
and papaverine. This form of treatment requires a prescription and instruction
from a health care professional on self-injection. Side effects may include pain
associated with injection and local pain and aching, priapism (persistent
prolonged erections), fibrosis (build-up of scar tissue), and bleeding.
 
     Vacuum Constriction Devices. This form of treatment involves the use of a
mechanical system that creates a vacuum around the penis, causing the erectile
bodies to fill with blood. A constriction band is then placed around the base of
the penis to impede blood drainage and maintain the erection. Vacuum
constriction devices are large, mechanical devices that can be unwieldy and
somewhat difficult to use. In addition, the erection may not seem natural since
only the part of the penis beyond the constriction band is rigid, and the penis
can become cold and discolored due to the constriction of blood flow.
Complications encountered by some users of vacuum constriction devices include
pain and difficulty ejaculating.
 
                                       21

<PAGE>   23
 
     Penile Implants. This therapy involves the surgical implantation of a
semi-rigid, rigid or inflatable device into the penile structure to mechanically
simulate an erection. In addition to the risks associated with surgical
procedures, there is a significant rate of complication with implants such as
infection and mechanical failure of the device. This may necessitate a second
surgical procedure to remove or reposition the device. In addition, due to the
scarring associated with the implant procedure, the patient may no longer be a
viable candidate for subsequent less radical therapies.
 
     Oral Medications. Yohimbine is the primary oral medication currently
prescribed in the United States for the treatment of erectile dysfunction. While
easily administered, yohimbine must be taken multiple times daily and may cause
irritability, sweating, nausea and possibly hypertension. The Company believes
that, for patients with physiologic erectile dysfunction, the efficacy of
currently available oral medications is not significantly greater than placebo.
The Company is aware of several oral medications that are currently under
development, which, if approved, may be more effective than currently available
oral medications.
 
THE VIVUS SOLUTION
 
     VIVUS intends to address the significant market opportunity for erectile
dysfunction therapy with its transurethral system for erection. The Company's
transurethral system for erection represents a unique approach to treating
erectile dysfunction and is based on the discovery that the urethra, although an
excretory duct, can absorb certain pharmacologic agents into the surrounding
erectile tissues. The Company believes that MUSE (alprostadil), if approved,
could become first line therapy and increase the number of men who seek and
receive treatment for erectile dysfunction. The Company's transurethral system
for erection is designed to overcome the limitations of current therapies
through its unique product attributes:
 
     Ease of Administration. The Company's transurethral system for erection is
easy to use with minimal instruction, unlike needle injection therapy which
requires precise injection into a corpus cavernosum.
 
     Non-invasive. The Company's transurethral system for erection utilizes
urethral delivery, permitting topical application to the urethral mucosa.
 
     Discreet. The Company's transurethral system for erection utilizes a small,
easily carried, single-use disposable applicator that can be discreetly applied
and is easily integrated into the normal sexual life of the patient.
Administration takes less than a minute.
 
     Quality of Erection. The Company's transurethral system for erection
therapy mimics the normal vasoactive process, producing an erection which is
more natural than those resulting from needle injection therapy, vacuum
constriction devices or penile implants.
 
     Cost-competitive. Although the price for the Company's products has not
been established, the Company anticipates that it will be a competitively priced
therapy.
 
     Minimal Side Effects. The Company believes that therapy with MUSE
(alprostadil) will result in fewer, less severe side effects than needle
injection therapy and penile implants.
 
                                       22

<PAGE>   24
 
THE TRANSURETHRAL SYSTEM FOR ERECTION
 
     Administration. Administration of the transurethral system for erection is
an easy and painless procedure. The end of the applicator is less than half the
diameter of a man's urine stream and is inserted approximately three centimeters
into the urethra. To use the transurethral system for erection, a patient
urinates, shakes the penis to remove excess urine, inserts the transurethral
system for erection into the urethra, releases the medication and then rolls the
penis between the hands for 10 seconds to distribute the medication.
 
                                 [ILLUSTRATION]
 
     The application process takes less than a minute. Once administered, the
pharmacologic agent dissolves in the small amount of urine which remains in the
urethra. The pharmacologic agent is absorbed by the urethral mucosa and moves
across the adjacent tissue and into the erectile bodies. When successful, an
erection is produced within 15 minutes of administration and lasts approximately
30-60 minutes. Many patients experience mild and transient penile pain, urethral
burning and/or local aching after administration and during intercourse.
 
     Initial Pharmacologic Agent.  Alprostadil is the first pharmacologic agent
anticipated for use in the transurethral system for erection. Alprostadil is the
generic name for the synthetic version of prostaglandin E(1), a naturally
occurring vasodilator present throughout the body and at high levels in seminal
fluid. Alprostadil received FDA approval in 1981 for preoperative management of
newborns with congenital heart defects. The Company believes that alprostadil
has been widely prescribed for needle injection therapy of erectile dysfunction
for years, even though it was only recently approved by the FDA for such use in
July 1995. The Company has developed a formulation of alprostadil for the
transurethral system for erection that enables it to quickly dissolve in the
urine present in the urethra and pass through the adjacent corpus spongiosum and
into the corpora cavernosa.
 
     Other Pharmacologic Agents.  The Company is also engaged in the evaluation
and development of additional pharmacologic agents to treat erectile dysfunction
either alone or in combination with other agents. One such agent is prazosin, a
generic alpha-blocker that can be delivered by the Company's transurethral
system for erection, both alone and in conjunction with alprostadil. The Company
has several other product candidates in preclinical development.
 
THE VIVUS STRATEGY
 
     The Company's objective is to become the leading developer, manufacturer
and supplier of products for the treatment of erectile dysfunction. The Company
is pursuing this objective with the following strategies:
 
     Facilitate Clinical Development and Regulatory Review.  The Company has
sought and will continue to seek additional pharmacologic agents suitable for
transurethral delivery for which significant safety data already exists. The
Company believes that such agents may progress more rapidly through the clinical
development and regulatory process.
 
     Expand the Market.  The Company is seeking to increase the number of men
receiving treatment for erectile dysfunction by developing safe, effective,
discreet, easy to use, non-invasive products and by heightening physician and
consumer awareness of erectile dysfunction through education.
 
                                       23

<PAGE>   25
 
     Maintain Proprietary Technology.  The Company has sought and will continue
to seek a strong proprietary position for the Company's transurethral system for
erection by pursuing patent protection in the United States and key
international countries.
 
     Develop Novel Pharmacologic Agents.  The Company is engaged in the research
and development of and may seek to license novel pharmacologic agents that may
provide an enhanced therapeutic benefit in the treatment of erectile
dysfunction, either alone or in combination with other agents.
 
     Achieve Broad Distribution.  The Company intends to market and sell its
products initially through a direct sales force in the United States and to
distribute its products in foreign markets through distribution, co-promotion or
license agreements with corporate partners. In May 1996, the Company completed a
marketing agreement with Astra to distribute its products in Europe, South
America, Central America, Australia and New Zealand.
 
CLINICAL STUDIES
 
     In March 1996, the Company submitted an NDA for its anticipated first
product, MUSE (alprostadil). The NDA submission utilized information from the
Company's clinical trials, which are depicted in the following chart and
discussed below.
 
                                   ILLUSTRATION
 
     In July 1992, the Company filed an Investigational New Drug ("IND")
application with the FDA. The IND application covered the use of the
transurethral system for erection to deliver alprostadil and prazosin, either
alone or in combination, for the treatment of erectile dysfunction. Under the
IND, the Company has established 83 study sites and to date has enrolled and
treated more than 1,950 men.
 
     In early 1994, the Company completed a Phase II/III Dose Ranging study that
enrolled and treated 234 patients. The goal of this clinical trial was to
examine the safety and efficacy of MUSE (alprostadil), prazosin and MUSE
(alprostadil) in combination with prazosin at several dosage levels. The primary
efficacy endpoint of the Dose Ranging study was the patient achieving penile
rigidity or full enlargement.
 
                                       24

<PAGE>   26
 
     Based upon the results of this study, the Company chose alprostadil as its
initial pharmaclogic agent due to its safety and efficacy profile. Patients in
the Dose Ranging study suffered from erectile dysfunction for an average period
of 48 months prior to enrollment. More than 50 percent of the patients suffered
from erectile dysfunction for a period of 36 months or more prior to enrollment.
The results of this study showed that each dose of MUSE (alprostadil) (125, 250,
500 and 1000 mcg) was significantly better than placebo in achieving an
erection. More than 52 percent of men treated with MUSE (alprostadil) in the
study achieved penile rigidity and/or full penile enlargement, compared to 2.6
percent of men treated with placebo. The Company's transurethral system for
erection was also rated as easy to use. The principal side effects of therapy
with MUSE (alprostadil) were mild to moderate transient penile/perineal
discomfort (experienced by 21 percent to 42 percent of patients depending upon
dosage level) and moderate to severe decreases in blood pressure (experienced by
one percent to four percent of patients depending upon dosage level). The
Company believes that these data demonstrate preliminary efficacy and safety of
transurethrally administered alprostadil in men with longstanding erectile
dysfunction. In addition, several of the low-dose combinations of alprostadil
and prazosin delivered by the Company's transurethal system for erection
appeared to demonstrate preliminary safety and efficacy.
 
     In early 1995, the Company completed a Phase III Quality of Life study that
enrolled and treated 539 patients. Upon completion of the Dose Ranging and
Quality of Life studies, certain patients continued treatment by enrolling in a
pivotal Phase III Maintenance study that was completed in mid-1995.
 
     Two additional pivotal Phase III Confirmatory studies began enrollment in
mid-1994 and completed their enrollment with over 990 patients at 58 study sites
throughout the United States. A similar European Confirmatory study was
performed at 13 study sites in five European countries. A separate study was
also concluded at two sites in Mexico. The Confirmatory studies were designed to
further demonstrate the safety and efficacy of MUSE (alprostadil). The purpose
of these studies was to examine the long-term efficacy and safety of the product
in a large group of patient couples. The primary efficacy endpoint of the
Confirmatory studies was the ability of the patient and his partner to engage in
sexual intercourse. All of the Company's Phase III studies were prospective,
double-blind, placebo-controlled trials. In mid-1995, the Company completed its
Phase III Confirmatory studies for MUSE (alprostadil). Of participants using
MUSE (alprostadil) 64.9 percent reported successful intercourse at least once
versus 18.6 percent receiving placebo. Of all active doses administered, 50.2
percent resulted in intercourse, compared to 10.4 percent of placebo doses. No
increased risk of serious adverse events due to MUSE (alprostadil) was found,
and there were no reports of priapism (persistent abnormal erection) or penile
scarring. Eighty-eight(88) percent of patient couples that commenced the pivotal
Phase III Confirmation Study completed it. The most common side effect reported
was mild and transient penile pain, and less than one percent of participants
discontinued use due to discomfort. In patients who responded to treatment with
MUSE (alprostadil) there was a statistically significant improvement in the
patient's perception of his emotional well-being (p < 0.004) and in his
relationship with his partner (p < 0.001) compared to patients treated with
placebo. From the partner's perspective, there also was a statistically
significant improvement in her relationship with the patient (p < 0.001)
compared to partners in the placebo group. During the NDA approval process, the
Company will continue open label Extended Maintenance studies for those patients
electing to continue treatment.
 
     The Company's ongoing clinical trials will evaluate the long-term safety of
MUSE (alprostadil) for both the patient and his partner. Additional adverse side
effects may arise during the course of ongoing clinical trials. There can be no
assurance that MUSE (alprostadil) will be shown to be safe or efficacious or
that FDA approval will be obtained. The FDA may require limitations on use or
warnings that limit demand for the Company's products. See "Risk
Factors -- Dependence on The Transurethral System for Erection" and "--
Government Regulation and Uncertainty of Product Approvals."
 
     Because alprostadil and prazosin have each been approved for other
indications, the FDA and other regulatory authorities allowed the Company to
commence clinical trials with limited preclinical safety studies. However, the
Company conducted additional safety studies, concurrent with its pivotal trials,
to further define the safety profile of alprostadil. These studies included
pharmacokinetic, in vitro mutagenicity, developmental reproductive and
repeat-dose toxicology studies. The Company included the results of these
studies in the
 
                                       25

<PAGE>   27
 
NDA for MUSE (alprostadil). Additional safety studies may be required by the FDA
or other regulatory agencies.
 
RESEARCH AND DEVELOPMENT
 
     The Company's research and development is focused on the evaluation of
pharmacologic agents capable of producing erections through various mechanisms
and the testing of promising agents, both alone and in combination with other
agents, in the Company's transurethral system for erection. Classes of agents
causing erections by relaxing smooth muscle tissue include nitric oxide donors,
potassium channel activators, phosphodiesterase inhibitors and other
vasodilators (such as alprostadil). Classes of agents that contribute to an
erection by delaying smooth muscle contraction include alpha blockers (such as
prazosin) and calcium channel blockers. The Company has evaluated several alpha
blocking agents and nitric oxide donors. In addition, the Company has begun the
evaluation of a phosphodiesterase inhibitor and certain calcium channel blockers
and potassium channel activators.
 
     As part of the Company's strategy, the Company focuses its research and
development on pharmacologic agents for which significant safety data already
exists. The Company believes that such agents may progress more rapidly through
clinical development and the regulatory process. The Company is currently
developing its potential second product, an alprostadil and prazosin combination
for use with its transurethral system for erection. The Company expects to begin
a Phase III multi-center trial for this product in the second half of 1996. The
Company will be required to undertake time-consuming and costly development
activities and seek FDA approval for this product. There can be no assurance
that product development will ever be successfully completed, that NDAs, if
applied for, will be granted by the FDA on a timely basis, if at all, or that
the products will ever achieve commercial acceptance. Failure by the Company to
develop, obtain necessary regulatory approval for or to successfully market new
products could have a material adverse effect on the Company's business,
financial condition and results of operations.
 
SALES AND MARKETING
 
     The Company has no experience in the sale, marketing and distribution of
pharmaceutical products. Upon receiving required approvals, the Company intends
to market and sell its products initially through a direct sales force in the
United States. In order to market its products directly, the Company must
develop a sales force with the proper technical expertise. There can be no
assurance that the Company will be able to build a sales force, or that the
Company's sales and marketing efforts will be successful.
 
     In February 1996, the Company entered into an agreement with a wholly-owned
subsidiary of Cardinal Health, Inc. ("Cardinal"). Under this agreement, Cardinal
will warehouse the Company's finished goods, take customer orders, pack and ship
its product, invoice customers and collect related receivables. The Company will
also have access to Cardinal's information systems that support these functions.
As a result of this agreement with Cardinal, the Company is dependent on
Cardinal's efforts to fulfill orders and warehouse its products effectively.
There can be no assurance that such efforts will be successful.
 
     In May 1996, the Company completed a marketing agreement with Astra to
distribute the Company's products in Europe, South America, Central America,
Australia and New Zealand. As consideration for execution of the marketing
agreement, Astra will pay the Company $10 million in June 1996. The Company will
be paid up to an additional $20 million in the event it achieves certain
milestones. The Company and Astra will jointly build a specialty sales
organization within Astra called "ASTRA/VIVUS," to promote the product in
certain European markets, including the United Kingdom, France and Germany. The
Company retains the right to take over this specialty organization and
co-promote the product in these markets after a certain period of time. Astra
has agreed to purchase product from the Company for resale into the above
mentioned markets. The marketing agreement does not have minimum purchase
commitments, and Astra may take up to twelve months to introduce a product in a
given country following regulatory approval in such country. As a result of this
marketing agreement with Astra, the Company is dependent on Astra's efforts to
market, distribute and sell the Company's products effectively in the above
mentioned markets. There can be no assurance that such efforts will be
successful.
 
                                       26

<PAGE>   28
 
     The Company intends to market and sell its products in other foreign
markets through distribution, co-promotion or license agreements with corporate
partners. To the extent that the Company enters into distribution, co-promotion
or license agreements for the sale of its products, the Company will be
dependent upon the efforts of third parties. These third parties may have other
commitments, and there can be no assurance that they will commit the necessary
resources to effectively market, distribute and sell the Company's products. See
"Risk Factors -- Limited Sales and Marketing Experience and Dependence on Third
Parties."
 
RAW MATERIALS AND MANUFACTURING
 
     To date, the Company has obtained its supply of alprostadil from two
sources. The first is Spolana pursuant to a supply agreement that expires at the
end of 1996. In January 1996, the Company completed a long-term alprostadil
supply agreement with Chinoin. Chinoin is the Hungarian subsidiary of the French
pharmaceutical company Sanofi Winthrop. The Company's sources of supply will be
subject to GMP requirements of the FDA. While the Company believes it has taken
steps to ensure GMP compliance, there can be no assurance FDA approval will be
received. Alprostadil, a generic drug, is extremely difficult to manufacture and
is only available to the Company from a limited number of other suppliers, none
of which currently produce it in commercial quantities. While the Company is
seeking additional sources of alprostadil, there can be no assurance that it
will be able to identify and qualify such sources. The Company is required to
identify its suppliers to the FDA, and the FDA may require additional clinical
trials or other studies prior to accepting any new supplier. Unless the Company
secures and qualifies additional sources of alprostadil, it will be entirely
dependent upon Spolana and Chinoin for the delivery of alprostadil. If
interruptions in the supply of alprostadil were to occur for any reason,
including a decision by Spolana and/or Chinoin to discontinue manufacturing,
political unrest, labor disputes, or a failure of Spolana and/or Chinoin to
follow regulatory guidelines, the development and commercial marketing of MUSE
(alprostadil) and other potential products could be delayed or prevented. An
interruption in the Company's supply of alprostadil would have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Risk Factors -- Dependence on Dual Source of Supply."
 
     The Company has only limited experience in manufacturing MUSE (alprostadil)
and has not yet manufactured it in commercial quantities. As a result, the
Company has no experience manufacturing its product in volumes necessary for the
Company to achieve significant commercial sales, and there can be no assurance
that reliable, high-volume manufacturing can be achieved at commercially
reasonable cost. If the Company encounters any manufacturing difficulties,
including problems involving production yields, quality control and assurance,
supplies of components or raw materials or shortages of qualified personnel, it
could have a material adverse effect on its business, financial condition and
results of operations.
 
     The formulation, filling, packaging and testing of MUSE (alprostadil) is
performed by Paco at its facility in Lakewood, New Jersey. In June 1995, the
Company completed construction of its approximately 6,000 square feet of
dedicated manufacturing and testing space within Paco's facility. The Company
will be required to expand its manufacturing and testing space at Paco or to
find additional facilities, if regulatory approval is obtained and MUSE
(alprostadil) is successfully introduced. The Company also intends to establish
a Company owned and operated manufacturing facility in Europe. Until the Company
develops an in-house manufacturing capability or is able to identify and qualify
alternative contract manufacturers, it will be entirely dependent upon Paco for
the manufacture of its products. As part of the approval process for the
Company's NDA, Paco will be subject to audit by the FDA as part of its GMP
inspection. There can be no assurance that the facility will receive the
necessary GMP approval. There can be no assurance that the Company's reliance on
Paco or others for the manufacture of its products will not result in problems
with product supply, and there can be no assurance that the Company will be able
to establish a second manufacturing facility or expand its existing facility at
Paco. Interruptions in the availability of products could delay or prevent the
development and commercial marketing of MUSE (alprostadil) and other potential
products and would have a material adverse effect on the Company's business,
financial condition and results of operations. See "Risk Factors -- Limited
Manufacturing Experience and Dependence on Sole Contract Manufacturer."
 
                                       27

<PAGE>   29
 
     The Company obtains the necessary raw materials and components for the
manufacture of MUSE (alprostadil) from third parties. The Company currently
contracts with contract manufacturing organizations that are required to comply
with strict standards established by the Company. Contract manufacturers are
required by the Federal Food, Drug, and Cosmetic Act, as amended, and by FDA
regulations to follow GMP. The Company is required to identify its suppliers to
the FDA and is dependent upon its contract manufacturers and its suppliers to
comply with the Company's specifications and, as required, GMP or similar
standards imposed by foreign regulators. Although the Company has taken all
actions that it believes are reasonable to assure that its contract
manufacturers and suppliers are in compliance with these requirements, there can
be no assurance that the FDA, or a state, local or foreign regulator will not
take action against a contract manufacturer or supplier found to be violating
applicable regulations. Such an action could have a material adverse effect on
the Company's business, financial condition and results of operation. See "Risk
Factors -- Government Regulation and Uncertainty of Product Approvals."
 
LICENSED PATENTS AND PROPRIETARY RIGHTS
 
     The Company's policy is to aggressively maintain its patent protection and
to enforce all of its intellectual property rights.
 
     The Company is the exclusive licensee of United States and Canadian patents
originally filed in the name of Dr. Gene Voss. These patents claim methods of
treating erectile dysfunction by the topical application of an ointment
containing a vasodilator. There are also claims to methods of treatment
involving the insertion of a catheter into the urethra to deliver vasodilators.
 
     The Company is the exclusive licensee of patents and patent applications
filed in the name of Dr. Nils Kock in numerous countries. Patents have issued in
Australia, Canada, New Zealand, Sweden, South Africa and Europe (Austria,
Belgium, Germany, France, Great Britain, Ireland, Italy, Luxembourg,
Netherlands, Sweden, Greece and Spain). Patent applications are pending in
Denmark, Finland, Japan and the United States. The European patents claim
compositions for the treatment of erectile dysfunction through the urethra of
certain active substances including alpha-receptor blockers, vasoactive
polypeptides, prostaglandins or nitroglycerine dispersed in a hydrophilic
vehicle. A competitor has filed a patent opposition against this patent with the
European Patent Office. The Company is vigorously defending this patent,
however, an adverse decision could affect the Company's ability, based on its
patent rights, to prevent potential competition in Europe.
 
     The Company is the exclusive assignee of two United States patents and
divisional patent applications from Alza Corporation ("Alza"), covering
inventions of Dr. Virgil Place made while he was an employee of Alza. The
patents and patent applications describe dosage forms for administering a
therapeutic agent to the urethra, methods for treating erectile dysfunction and
specific drug formulations that can be delivered transurethrally for the
treatment of erectile dysfunction. Five additional divisional or continuation
applications claiming subject matter disclosed but not claimed in the issued
patents or applications were filed in the United States on June 7, 1995. Patent
applications filed before June 8, 1995, if approved, will have a patent life of
17 years from the patent issue date. Patent applications filed after June 8,
1995, if approved, will have a patent life of 20 years from the filing date.
Foreign patents have issued in South Africa and Australia and foreign
applications are pending in Canada, Finland, Ireland, Mexico, Portugal, New
Zealand, Japan, South Korea, Norway and Europe (Austria, Belgium, Switzerland,
Germany, Denmark, Spain, France, United Kingdom, Italy, Luxembourg, Netherlands,
Sweden and Greece).
 
     The Company's license and assignment agreements for these patents and
patent applications are royalty bearing and do not expire until the licensed
patents expire. These license and assignment agreements provide that the Company
may assume responsibility for the maintenance and prosecution of the patents and
to bring infringement actions.
 
     In addition, the Company filed four patent applications in the United
States and one patent cooperation treaty application in 1995 and two in 1996.
These patents further address the treatment, diagnosis and/or prevention of
erectile dysfunction, and one covers a chemical synthesis of a drug substance
for erectile dysfunction. The Company is currently prosecuting these recently
filed patents.
 
                                       28

<PAGE>   30
 
     The Company's success will depend in large part on the strength of its
current and future patent position relating to the transurethral delivery of
pharmacologic agents for the treatment of erectile dysfunction. The Company's
patent position, like other pharmaceutical companies, is highly uncertain and
involves complex legal and factual questions. Claims made under patent
applications may be denied or significantly narrowed and the issued patents may
not provide significant commercial protection to the Company. The Company could
incur substantial costs in proceedings before the United States Patent Office,
including interference proceedings. These proceedings could also result in
adverse decisions as to the priority of the Company's licensed or assigned
inventions. There is no assurance that the Company's patents will not be
challenged or designed around by others. The Company is aware of a patent
application involving the transurethral application of prostaglandin E2 in the
United States. The corresponding application in Europe has been abandoned.
Failure of the Company's licensed patents to block issuance of such patent could
have a material adverse effect on the Company's business, financial condition
and results of operations.
 
     There can be no assurance that the Company's products do not or will not
infringe on the patent or proprietary rights of others. A patent opposition to
the Company's exclusively licensed European patents has been filed with the
European Patent Office. The Company is vigorously defending the patents, however
an adverse decision could affect the Company's ability, based on its patent
rights, to limit potential competition in Europe. The Company may be required to
obtain additional licenses to the patents, patent applications or other
proprietary rights of others. There can be no assurance that any such licenses
would be made available on terms acceptable to the Company, if at all. If the
Company does not obtain such licenses, it could encounter delays in product
introductions while it attempts to design around such patents, or the
development, manufacture or sale of products requiring such licenses could be
precluded. The Company believes there will continue to be significant litigation
in the pharmaceutical industry regarding patent and other intellectual property
rights.
 
     A former consultant to the Company has claimed that he is the inventor of
certain technology disclosed in one of the Company's patents. The former
consultant further claims that the Company defrauded him by allegedly failing to
inform him that it intended to use and patent this technology and by failing to
compensate him for the technology in the manner allegedly promised. The Company
has filed a declaratory relief action against the former consultant in the
United States District Court for the Northern District of California that seeks
to determine the Company's rights with respect to the allegations. The former
consultant has not yet been served in the proceeding. In a separate matter, the
licensors in an agreement by which the Company acquired a patent license have
recently filed a lawsuit alleging that they were defrauded in connection with
the renegotiation of the license agreement between the Company and the
licensors. In addition to monetary damages, the licensors seek to return to the
terms of the original license agreement. The Company has conducted a review of
the circumstances surrounding these two matters and believes that the
allegations are without merit. Although the Company believes that it should
prevail, the uncertainties inherent in litigation prevent the Company from
giving any assurances about the outcome of such litigation. See "-- Litigation."
 
     The Company also relies on trade secrets and other unpatented proprietary
technology. No assurance can be given that the Company can meaningfully protect
its rights in such unpatented proprietary technology or that others will not
independently develop substantially equivalent proprietary products and
processes or otherwise gain access to the Company's proprietary technology. The
Company seeks to protect its trade secrets and proprietary know-how, in part,
with confidentiality agreements with employees and consultants. There can be no
assurance that these agreements will not be breached, that the Company will have
adequate remedies for any breach or that the Company's trade secrets will not
otherwise become known or be independently developed by competitors. In
addition, protracted and costly litigation may be necessary to enforce and
determine the scope and validity of the Company's proprietary rights. See "Risk
Factors -- Proprietary Rights and Risk of Litigation."
 
COMPETITION
 
     Competition in the pharmaceutical and medical products industries is
intense and is characterized by extensive research efforts and rapid
technological progress. Certain treatments for erectile dysfunction exist, such
as needle injection therapy, vacuum constriction devices, penile implants and
oral medications, and the
 
                                       29

<PAGE>   31
 
manufacturers of these products will continue to improve these therapies. In
July 1995, the FDA approved the use of alprostadil in Upjohn's needle injection
therapy product for erectile dysfunction. Previously, Upjohn had obtained
approval in a number of European countries. Additional competitive therapies
under development include an oral medication, Viagra, by Pfizer, Inc., which is
currently in Phase III clinical trials. Other large pharmaceutical companies are
also actively engaged in the development of therapies for the treatment of
erectile dysfunction. These companies have substantially greater research and
development capabilities as well as substantially greater marketing, financial
and human resources than the Company. In addition, these companies have
significantly greater experience than the Company in undertaking preclinical
testing, human clinical trials and other regulatory approval procedures. There
are also small companies, academic institutions, governmental agencies and other
research organizations that are conducting research in the area of erectile
dysfunction. For instance, Zonagen, Inc. and Pentech Pharmaceutical, Inc. have
oral medications under development. These entities may also market commercial
products either on their own or through collaborative efforts. The Company's
competitors may develop technologies and products that are available for sale
prior to the Company's products or that are more effective than those being
developed by the Company. Such developments would render the Company's products
less competitive or possibly obsolete. If the Company is permitted to commence
commercial sales of products, it will also be competing with respect to
marketing capabilities and manufacturing efficiency, areas in which it has
limited experience. See "Risk Factors -- Intense Competition."
 
GOVERNMENT REGULATION
 
     The production and marketing of the Company's proposed products and its
research and development activities are subject to regulation for safety,
effectiveness and quality by numerous governmental authorities in the United
States and other countries. In the United States, drugs are subject to rigorous
FDA regulation. The Federal Food, Drug, and Cosmetic Act, as amended, the
regulations promulgated thereunder, and other federal and state statutes and
regulations, govern, among other things, the testing, manufacture, safety,
effectiveness, labeling, storage, record keeping, advertising and promotion of
the Company's products. Product development and approval within this regulatory
framework takes a number of years and involves the expenditure of substantial
resources.
 
     The steps required before a pharmaceutical agent may be marketed in the
United States include (i) preclinical laboratory tests, in vivo preclinical
studies and formulation studies, (ii) the submission to the FDA of an IND
application for human clinical testing, which must become effective before human
clinical trials commence, (iii) adequate and well-controlled human clinical
trials to establish the safety and effectiveness of the drug, (iv) the
submission of an NDA to the FDA, and (v) the FDA approval of the NDA prior to
any commercial sale or shipment of the drug. In addition to obtaining FDA
approval for each product, each domestic drug manufacturing establishment must
be registered with, and approved by, the FDA. Domestic manufacturing
establishments are subject to biennial inspections by the FDA and must comply
with GMP for both drugs and devices. To supply products for use in the United
States, foreign manufacturing establishments must comply with GMP and are
subject to periodic inspection by the FDA or by corresponding regulatory
agencies in such countries under reciprocal agreements with the FDA. The
Company's contract manufacturing site, located in New Jersey, must also be
licensed by the State of New Jersey and must comply with New Jersey's separate
regulatory requirements.
 
     Preclinical tests include laboratory evaluation of product chemistry and
formulation, as well as animal studies to assess the potential safety and
effectiveness of the product. Compounds must be adequately manufactured and
preclinical safety tests must be conducted by laboratories that comply with FDA
regulations. The results of the preclinical tests are submitted to the FDA as
part of an IND and are reviewed by the FDA prior to the commencement of human
clinical trials. There can be no assurance that submission of an IND will result
in FDA authorization to commence clinical trials.
 
     Clinical trials involve the administration of the investigational new drug
to patients, under the supervision of a qualified principal investigator.
Clinical trials are conducted in accordance with Good Clinical Practices under
protocols that detail the objectives of the study, the parameters to be used to
monitor safety and the effectiveness criteria to be evaluated. Each protocol
must be submitted to the FDA as part of the IND.
 
                                       30

<PAGE>   32
 
Further, each clinical study must be conducted under the auspices of an
independent Institutional Review Board ("IRB") at the institution at which the
study will be conducted. The IRB will consider, among other things, ethical
factors, the safety of human subjects and the possible liability of the
institution.
 
     Clinical trials are typically conducted in three sequential phases, but the
phases may overlap. In Phase I, the initial introduction of the drug into
healthy subjects, the drug is tested for safety, dosage tolerance, absorption,
distribution, metabolism, excretion and pharmacodynamics (clinical
pharmacology). Phase II involves studies in a limited patient population to (i)
determine the effectiveness of the drug for specific, targeted indications, (ii)
determine dosage tolerance and optimal dosage and (iii) identify possible
adverse effects and safety risks. When a compound is found to be effective and
to have an acceptable safety profile in Phase II evaluations, Phase III trials
are undertaken to further evaluate clinical effectiveness and to further test
for safety within an expanded patient population at geographically dispersed
clinical study sites. There can be no assurance that Phase I, Phase II or Phase
III testing will be completed within any specific time period, if at all, with
respect to any of the Company's products subject to such testing. Furthermore,
the Company or the FDA may suspend clinical trials at any time if it is believed
that the patients are being exposed to an unacceptable health risk. See "Risk
Factors -- Government Regulation and Uncertainty of Product Approvals."
 
     The results of the pharmaceutical development, preclinical studies and
clinical studies are submitted to the FDA in the form of an NDA for approval of
the marketing and commercial shipment of the drug. The testing and approval
process is likely to require substantial time and effort and there can be no
assurance that any approval will be granted on a timely basis, if at all. The
FDA may deny an NDA if applicable regulatory criteria are not satisfied, require
additional testing or information, or require postmarketing testing and
surveillance to monitor the safety of the Company's products if they do not view
the NDA as containing adequate evidence of the safety and effectiveness of the
drug. Notwithstanding the submission of such data, the FDA may ultimately decide
that the application does not satisfy its regulatory criteria for approval.
Moreover, if regulatory approval of a drug is granted, such approval may entail
limitations on the indicated uses for which it may be marketed. Finally,
approvals may be withdrawn if compliance with regulatory standards is not
maintained or if problems occur following initial marketing.
 
     For purposes of prioritizing the review of NDAs, FDA classifies drugs as
either "priority review" or "standard review" products. A "priority review" drug
is one that appears to represent a therapeutic advance over available therapy.
This assessment is for FDA's review purposes only and does not represent the
agency's views or predictions regarding a drug's ultimate value or how it will
be received in the market. FDA can change a drug's classification during the
review process.
 
     In connection with the Prescription Drug User Fee Act of 1992 (PDUFA), FDA
has accepted a five-year goal, to be implemented by September 30, 1997, of
acting on priority NDAs within six months of submission and on standard NDAs
within 12 months of submission (major amendments received within three months of
the action due date extend the date by three months). For these purposes, to
"act on" an application does not necessarily mean to approve an NDA, but rather
includes issuing an initial action letter indicating either that the application
is approvable or that it is not approvable and listing the deficiencies that
must be corrected.
 
     There are numerous "interim" review-time goals under PDUFA slated for
implementation before 1997, but these do not treat priority and standard
applications separately. Experience under PDUFA thus far has shown that, on
average, priority applications have undergone somewhat shorter review periods
than have standard applications before issuance of an initial action letter.
However, the review period prior to an initial action letter and prior to final
approval for any particular NDA will depend on many factors and may be
considerably longer or shorter than the average, and there is no assurance that
any particular NDA will in fact be approved by the FDA.
 
     Among the conditions for an NDA approval is the requirement that the
prospective manufacturer's quality control and manufacturing procedures conform
to GMP. In complying with standards set forth in these regulations,
manufacturers must continue to expend time, money and effort in the area of
production and quality control to ensure full technical compliance.
 
                                       31

<PAGE>   33
 
     For clinical investigation and marketing in Europe, the Company also is
subject to foreign regulatory requirements governing human clinical trials and
marketing approval for drugs. The requirements governing the conduct of clinical
trials, product licensing, pricing and reimbursement vary widely for European
countries both within and outside the European Union ("EU"). The Company's
approach to the European regulatory process involved the identification of
respected clinical investigators in the member states of the EU and other
European countries to conduct clinical studies. The Company designed these
studies to meet FDA, EU and other European countries' standards. Within the EU,
while marketing authorizations must be supported by clinical trial data of a
type and extent set out by EU directives and guidelines, the approval process
for the commencement of clinical trials is just beginning to be harmonized by EU
law, and still varies from country to country. The system for obtaining
marketing authorizations within the EU changed on January 1, 1995. The new EU
registration system is a dual one in which certain products, such as
biotechnology and high-technology products and those containing new active
substances, have access to a central regulatory system that provides
registration throughout the entire EU. Other products will be registered by
national authorities in individual EU member states, operating on a principle of
mutual recognition. As far as possible, the Company's studies were designed to
develop a regulatory package sufficient for multi-country approval in the
European markets without the need to duplicate studies for individual country
approvals.
 
     Outside the United States and Europe, the Company's ability to market a
product is contingent upon receiving a marketing authorization from the
appropriate regulatory authority. This foreign regulatory approval process
includes all of the risks associated with FDA approval previously discussed.
 
EMPLOYEES
 
     As of May 17, 1996 the Company employed 42 persons, of whom one is
part-time. None of the Company's current employees is represented by a labor
union or is the subject of a collective bargaining agreement. The Company
believes that it maintains good relations with its employees.
 
FACILITIES
 
     The Company currently occupies 16,507 square feet of administrative space
in Menlo Park, California under a lease which expires in December 1997. The
Company's facility serves as the principal site for administration, clinical
trial management, regulatory affairs and monitoring of product production and
quality control. The current facilities are expected to meet the Company's
administration requirements through the term of the lease.
 
     In June 1995, the Company completed constructing and equipping to its
specifications approximately 6,000 square feet of leased manufacturing and
testing space within Paco's facility in Lakewood, New Jersey.
 
     The Company is currently subleasing 2,150 square feet of laboratory space
in San Carlos, California under a sublease which expires in August 1996. The
Company anticipates that it can renew this lease or that other space will be
available.
 
LITIGATION
 
     A former consultant to the Company has claimed that he is the inventor of
certain technology disclosed in one of the Company's patents. The former
consultant further claims that the Company defrauded him by allegedly failing to
inform him that it intended to use and patent this technology, and by failing to
compensate him for the technology in the manner allegedly promised. On May 28,
1996, the Company filed a complaint for declaratory judgment against the former
consultant in the United States District Court for the Northern District of
California, which seeks a declaration from the court that the former consultant
is not an inventor of any of the technology disclosed in the patent. In a
separate matter, on April 10, 1996, the licensors in an agreement by which the
Company acquired a patent license filed a lawsuit in a Texas State court that
alleges that they were defrauded in connection with the renegotiation of the
license agreement between the Company and the licensors. On May 8, 1996 the
action was removed to the United States District Court for the Western District
of Texas. In addition to monetary damages, the licensors seek to return to the
terms of the original license agreement. The Company has conducted a review of
the circumstances surrounding these two matters
 
                                       32

<PAGE>   34
 
and believes that the allegations are without merit. Although the Company
believes that it should prevail, the uncertainties inherent in litigation
prevent the Company from giving any assurances about the outcome of such
litigation. See "Management -- Limitations on Liability and Indemnification
Matters."
 
MEDICAL ADVISORY BOARD
 
     VIVUS has recruited several physician specialists and experienced
practitioners in the treatment of erectile dysfunction to serve on its Medical
Advisory Board.
 
     Nils G. Kock, M.D., Ph.D. is a Professor Emeritus and former chairman in
the Department of Surgery, University of Goteborg, Sahlgren's Hospital,
Goteborg, Sweden. Dr. Kock is an expert in the causes and treatment of erectile
dysfunction, an area where he has published extensively. He was one of the first
to study transurethral therapy in patients with erectile dysfunction, and is the
named inventor on a patent which is licensed to the Company describing
transurethral therapy for erectile dysfunction.
 
     Stanley G. Korenman, M.D. is the Associate Dean of Ethics and the Medical
Scientist Training Program, Department of Medicine, University of California at
Los Angeles, California. Dr. Korenman is a renowned endocrinologist and
geriatrician. He has lectured and published extensively on the causes and
treatment of erectile dysfunction and aging and male sexual function.
 
     Tom F. Lue, M.D. is a Professor in the Department of Urology, School of
Medicine, University of California Medical Center, San Francisco, California.
Dr. Lue is an acknowledged expert in the area of erectile dysfunction and has
published extensively on its causes and treatment.
 
     Virgil A. Place, M.D., Chairman of the Board and Chief Scientific Officer
of VIVUS, also serves as a Medical Advisory Board member.
 
     Mary Lake Polan, M.D., Ph.D. is a Professor and the Chairman of the
Department of Gynecology and Obstetrics, Stanford University Medical Center,
Stanford, California. Dr. Polan has published extensively on the causes and
treatment of female infertility and the female reproductive system.
 
                                       33

<PAGE>   35
 
                                   MANAGEMENT
 
DIRECTORS AND EXECUTIVE OFFICERS
 
     The executive officers and directors of the Company are as follows:
 

<TABLE>
<CAPTION>
                 NAME                    AGE                        POSITION
- --------------------------------------  -----  ---------------------------------------------------
<S>                                     <C>    <C>
Virgil A. Place, M.D..................   71    Chairman of the Board and Chief Scientific Officer
Leland F. Wilson......................   52    President, Chief Executive Officer and Director
Paul C. Doherty, Ph.D.................   46    Vice President, Research and Development
Neil Gesundheit, M.D..................   43    Vice President, Clinical and Regulatory Affairs
Terry M. Nida.........................   47    Vice President, Europe
Clair W. Sater........................   54    Vice President, Corporate Development
David C. Yntema.......................   51    Vice President, Finance and Chief Financial Officer
Richard L. Casey(1)...................   49    Director
Samuel D. Colella(2)(3)...............   56    Director
Brian H. Dovey(2)(3)..................   55    Director
Peter Barton Hutt(1)..................   61    Director
</TABLE>

 
- ---------------
 
(1) Member of Compensation Committee
 
(2) Member of Audit Committee
 
(3) Member of Nominating Committee
 
     All directors hold office until the next annual meeting of stockholders or
until their successors have been elected and qualified. Officers serve at the
discretion of the Board of Directors. There are no family relationships between
any of the directors or executive officers of the Company.
 
     VIRGIL A. PLACE, M.D. is the founder of VIVUS and has been its Chief
Scientific Officer and Chairman of the Board since the Company was formed in
April 1991. Before joining VIVUS, Dr. Place worked at Alza from 1969 to 1993. At
Alza, Dr. Place was Principal Scientist and held a variety of executive
positions including Vice President of Medical and Regulatory Affairs. In
addition, Dr. Place served nine years on the Alza Board of Directors. He
received a B.A. in Chemistry from Indiana University and an M.D. from Johns
Hopkins University. He is Board Certified in Internal Medicine, with specialty
training at Mayo Clinic.
 
     LELAND F. WILSON has been President and a director of VIVUS since April
1991 and Chief Executive Officer since November 1991. Prior to joining VIVUS,
Mr. Wilson was Vice President of Marketing and Corporate Development of GeneLabs
Technologies, Inc. from 1989 to 1991. Mr. Wilson was Group Product Director,
later promoted to Director of Marketing at LifeScan, a Johnson & Johnson
company, from 1986 to 1989. From 1973 to 1986, Mr. Wilson served in several
research, marketing and sales positions for Syntex Research and Syntex
Laboratories, Inc. Mr. Wilson received a B.S. and an M.S. from Pennsylvania
State University.
 
     PAUL C. DOHERTY, PH.D. has been Vice President, Research and Development of
VIVUS since February 1994. Prior to joining VIVUS, Dr. Doherty was Senior
Scientist working in erectile dysfunction research for Lilly Research
Laboratories, Eli Lilly and Company from 1990 to 1994. He was Assistant
Professor, Department of Anatomy at Northeastern Ohio University College of
Medicine from 1984 to 1990. He received a B.S. in Biology from Boston College, a
Ph.D. in Anatomy from the University of Texas Health Science Center and has
completed postgraduate work in Behavioral Endocrinology at the Massachusetts
Institute of Technology.
 
     NEIL GESUNDHEIT, M.D., M.P.H. has been Vice President, Clinical and
Regulatory Affairs for VIVUS since February 1994. Prior to joining VIVUS, Dr.
Gesundheit was Associate Director of Clinical Research (Endocrinology) at
Genentech, Inc. from 1989 to 1993. He received an A.B. from Harvard University,
an M.P.H. from the University of California at Berkeley, and an M.D. from the
University of California at San
 
                                       34

<PAGE>   36
 
Francisco. Dr. Gesundheit is Board Certified in Internal Medicine and in the
subspecialty of Endocrinology and Metabolism.
 
     TERRY M. NIDA has been Vice President, Europe for VIVUS since November 1995
and effective March 28, 1996 was appointed an executive officer. Prior to
joining VIVUS, Mr. Nida was Vice President for Carrington Laboratories, with
responsibility for all sales, marketing and business development activities. Mr.
Nida was Senior Director, Worldwide Sales, Marketing and Business Development
for Centocor, Inc. from 1993 to 1994, and Director of Sales and Marketing in
Europe for Centocor, Inc. from 1990 to 1993. He received his B.A. in English and
Masters in Administration of Justice from Wichita State University.
 
     CLAIR W. SATER has been Vice President, Corporate Development for VIVUS
since January 1995. From January 1993 to January 1995, Mr. Sater was Vice
President, Marketing and Business Development. Prior to joining VIVUS, Mr. Sater
was Executive Vice President for Cholestech Corporation from 1990 to 1991. Mr.
Sater was Vice President of Marketing and Vice President of International for
LifeScan, a Johnson & Johnson company, from 1982 to 1990. Mr. Sater received a
B.S. and an M.S. in Engineering from Iowa State University and an M.B.A. from
Stanford University.
 
     DAVID C. YNTEMA has been Vice President, Finance and Chief Financial
Officer of VIVUS since May 1994. Prior to joining VIVUS, he served as Chief
Financial Officer of EO, Inc., a hand-held personal computer company, from 1993
to 1994, MasPar Computer Corporation, a supercomputer company, from 1990 to
1993, and System Industries, Inc., a storage sub-system company, from 1988 to
1990. He received a B.A. from Hope College and an M.B.A. from the University of
Michigan, and is a Certified Public Accountant.
 
     RICHARD L. CASEY has been a director of VIVUS since March 1992. Since 1987,
Mr. Casey has been Chairman and Chief Executive Officer of Scios, Inc., a
biotechnology company. Prior to joining Scios, Inc., Mr. Casey was Executive
Vice President of Alza and President of Alza Pharmaceuticals Division. Mr. Casey
is a director of Guilford Pharmaceuticals, Inc. He received a B.S. in Chemistry
and an M.B.A. from Stanford University.
 
     SAMUEL D. COLELLA has been a director of VIVUS since November 1991. Mr.
Colella has been a general partner at Institutional Venture Partners, a venture
capital firm, since 1984. Mr. Colella is a director of Biosys, Inc., Endosonics
Corp. and Genta Incorporated. He received a B.S. in Business and Engineering
from the University of Pittsburgh and an M.B.A. from Stanford University.
 
     BRIAN H. DOVEY has been a director of VIVUS since November 1991. Mr. Dovey
has been a general partner of Domain Associates, a venture capital firm, since
1988. Mr. Dovey is a director of Univax Biologics, Inc., Creative BioMolecules,
Inc., Athena Neurosciences, Inc. and ReSound Corporation. He received a B.A.
from Colgate University and an M.B.A. from Harvard Business School.
 
     PETER BARTON HUTT has been a director of VIVUS since January 1992. Mr. Hutt
has been a partner in the Washington, D.C. law firm of Covington & Burling since
1975. From 1971 to 1975 he was chief counsel for the Food and Drug
Administration. Mr. Hutt is a director of Cell Genesys, Inc., IDEC
Pharmaceuticals, Inc., Emisphere Technologies, Inc., Sparta Pharmaceuticals,
Inc. and Interneuron Pharmaceutical, Inc. He received a B.A. from Yale
University, an LL.B. from Harvard University, and an LL.M. from New York
University.
 
              LIMITATIONS ON LIABILITY AND INDEMNIFICATION MATTERS
 
     The Company's Certificate of Incorporation limits the liability of
directors to the maximum extent permitted by Delaware law. Delaware law provides
that directors of a corporation will not be personally liable for monetary
damages for breach of their fiduciary duties as directors, except liability for
(i) breach of their duty of loyalty to the corporation or its stockholders, (ii)
acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) unlawful payments of dividends or unlawful stock
repurchases or redemptions, or (iv) any transaction from which the director
derived an improper personal benefit. Such limitation of liability does not
apply to liabilities arising under the federal or state securities laws and does
not affect the availability of equitable remedies such as injunctive relief or
rescission.
 
                                       35

<PAGE>   37
 
     The Company's Bylaws provide that the Company shall indemnify its directors
and executive officers and may indemnify its other officers and employees and
other agents to the fullest extent permitted by law. The Company believes that
indemnification under its Bylaws covers at least negligence and gross negligence
on the part of indemnified parties. The Company's Bylaws also permit it to
secure insurance on behalf of any officer, director, employee or other agent for
any liability arising out of his or her actions in such capacity, regardless of
whether the Bylaws permit such indemnification.
 
     The Company has entered into agreements to indemnify its directors and
executive officers, in addition to the indemnification provided for in the
Company's Bylaws. These agreements, among other things, indemnify the Company's
directors and executive officers for certain expenses (including attorneys'
fees), judgments, fines and settlement amounts incurred by any such person in
any action or proceeding, including any action by or in the right of the Company
arising out of such person's services as a director or executive officer of the
Company, any subsidiary of the Company or any other company or enterprise to
which the person provides services at the request of the Company. The Company
believes that these provisions and agreements are necessary to attract and
retain qualified persons as directors and executive officers.
 
     There is certain pending and threatened litigation involving Leland F.
Wilson and Virgil A. Place, each a director and officer of the Company, that may
result in a claim for indemnification. See "Business -- Litigation."
 
                                       36

<PAGE>   38
 
                                  UNDERWRITING
 
     The underwriters named below (the "Underwriters"), for whom PaineWebber
Incorporated and Invemed Associates, Inc. are acting as representatives (the
"Representatives"), have severally agreed, on the terms and subject to the
conditions set forth in the Underwriting Agreement by and among the Company and
the Underwriters (the "Underwriting Agreement"), to purchase from the Company,
and the Company has agreed to sell to the Underwriters, the number of shares of
Common Stock set forth opposite the name of such Underwriters below:
 

<TABLE>
<CAPTION>
                                                                             NUMBER
                                  UNDERWRITERS                              OF SHARES
        ----------------------------------------------------------------    ---------
        <S>                                                                 <C>
        PaineWebber Incorporated........................................
        Invemed Associates, Inc.........................................
 
                                                                            ---------
                  Total.................................................    2,000,000
                                                                             ========
</TABLE>

 
     The Underwriting Agreement provides that the obligations of the
Underwriters to purchase the shares of Common Stock listed above are subject to
certain conditions. The Underwriting Agreement also provides that the
Underwriters are committed to purchase all of the shares of Common Stock offered
hereby, if any are purchased (without consideration of any shares that may be
purchased through the Underwriters' over-allotment option).
 
     The Representatives have advised the Company that the Underwriters propose
to offer the shares of Common Stock to the public at the public offering price
set forth on the cover of this Prospectus and to certain dealers at such price
less a concession not in excess of $       per share, and that the Underwriters
and such selected dealers may reallow a concession to other dealers not in
excess of $       per share. After the public offering of the Common Stock, the
public offering price, the concessions to selected dealers and reallowance to
other dealers may be changed by the Representatives.
 
     The Company has granted the Underwriters an option, exercisable during the
30-day period after the date of this Prospectus, to purchase up to an additional
300,000 shares of Common Stock at the public offering price set forth on the
cover page of this Prospectus, less the underwriting discounts and commissions.
To the extent the Underwriters exercise such option, each of the Underwriters
will become obligated, subject to certain conditions, to purchase such
percentage of such additional shares of Common Stock as is approximately equal
to the percentage of shares of Common Stock that it is obligated to purchase as
shown in the table set forth above. The Underwriters may exercise such option
only to cover over-allotments, if any, incurred in the sales of shares of Common
Stock.
 
     The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act, or to contribute to
payments that the Underwriters may be required to make in respect thereof.
 
     The Company, its directors and executive officers and certain stockholders
have agreed not to offer, sell, contract to sell, or grant any option to
purchase or otherwise dispose of any shares of Common Stock owned by them prior
to the expiration of 90 days from the date of this Prospectus, except (i) for
shares of Common Stock offered hereby, (ii) with the prior written consent of
PaineWebber Incorporated, and (iii) in the case of the Company, for the issuance
of shares of Common Stock upon the exercise of options, or the grant of options
to purchase shares of Common Stock.
 
     In connection with this offering, certain Underwriters and selling group
members or their affiliates may engage in passive market making transactions in
the Common Stock on the Nasdaq National Market in
 
                                       37

<PAGE>   39
 
accordance with Rule 10b-6A under the Exchange Act. Passive market making
consists of, among other things, displaying bids on the Nasdaq National Market
limited by the bid prices of independent market makers and making purchases
limited by such prices and effected in response to order flow. Net purchases by
a passive market maker on each day are limited to a specified percentage of the
passive market maker's average daily trading volume in the Common Stock during a
specified prior period, and all passive market making activity must be
discontinued when such limit is reached. Passive market making may stabilize the
market price of the Common Stock at a level above that which might otherwise
prevail and, if commenced, may be discontinued at any time.
 
     As of the date of this Prospectus, Invemed Associates, Inc. and its
affiliates beneficially own an aggregate of 199,172 shares of Common Stock
(including up to 92,505 shares subject to outstanding warrants exercisable for
Common Stock).
 
                                 LEGAL MATTERS
 
     The validity of the Common Stock offered hereby will be passed upon for the
Company by Wilson Sonsini Goodrich & Rosati, P.C., Palo Alto, California.
Certain legal matters relating to patents in connection with this offering will
be passed on by Flehr Hohbach Test Albritton & Herbert, San Francisco,
California. Pillsbury Madison & Sutro LLP, Menlo Park, California is acting as
legal counsel for the Underwriters in connection with certain legal matters
relating to the shares of Common Stock offered hereby. As of the date of this
Prospectus, members of Wilson Sonsini Goodrich & Rosati, P.C., beneficially own
approximately 18,500 shares of the Company's Common Stock.
 
                                    EXPERTS
 
     The consolidated financial statements incorporated by reference in this
Prospectus and elsewhere in the Registration Statement have been audited by
Arthur Andersen LLP, independent public accountants, as indicated in their
report with respect thereto, and are incorporated herein in reliance upon the
authority of such firm as experts in accounting and auditing.
 
     The statements in this Prospectus under the caption "Risk
Factors -- Proprietary Rights and Risk of Litigation" and "Business -- Licensed
Patents and Proprietary Rights" have been reviewed and approved by Flehr Hohbach
Test Albritton & Herbert, patent counsel for the Company, as experts in such
matters and are included herein in reliance upon such review and approval.
 
                                       38

<PAGE>   40
 
                             AVAILABLE INFORMATION
 
     The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, and in accordance therewith files reports, proxy and
information statements, and other information with the Securities and Exchange
Commission (the "Commission"). Such reports, statements and other information
can be inspected and copied at the public reference facilities maintained by the
Commission at its office at Room 1034, 450 Fifth Street, N.W., Washington, D.C.
20549, and at the Commission's regional offices at Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661 and 7 World Trade Center,
Suite 1300, New York, New York 10048. Copies of such materials can be obtained
from the public reference section of the Commission, 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. The Company's Common Stock is
quoted on the Nasdaq National Market.
 
     The Company has filed with the Commission a Registration Statement on Form
S-3 (together with all amendments and exhibits thereto, the "Registration
Statement") under the Securities Act with respect to the Common Stock offered
hereby. This Prospectus does not contain all of the information set forth in the
Registration Statement and the exhibits and schedules thereto, certain parts of
which are omitted in accordance with the rules and regulations of the
Commission. For further information with respect to the Company and the Common
Stock, reference is made to the Registration Statement and the exhibits and
schedules thereto. Statements contained in this Prospectus as to the contents of
any contract or other document are not necessarily complete and, in each
instance, reference is made to the copy of such contract or document filed as an
exhibit to the Registration Statement, each such statement being qualified in
all respects by such reference. Copies of the Registration Statement, including
all exhibits thereto, may be obtained from the Commission's principal office in
Washington, D.C. upon payment of the fees prescribed by the Commission, or may
be examined without charge at the offices of the Commission described above.
 
     The Company's logo and MUSE are trademarks of the Company. Trademarks of
other corporations and organizations are also referred to in this Prospectus.
 
                INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
 
     The following documents previously filed with the Commission are hereby
incorporated by reference into this Prospectus: (i) the Company's Annual Report
on Form 10-K for the year ended December 31, 1995, (ii) the Company's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1996, (iii) the description
of the Common Stock contained in the Company's Registration Statement on Form
8-A filed under the Exchange Act with the Commission that became effective on
April 7, 1994, (iv) the description of Common Stock and the Preferred Share
Purchase Rights contained in the Company's Registration Statement on Form 8-A
filed under the Exchange Act with the Commission that became effective on March
5, 1996, and (v) the Company's Form 8-K filed with the Commission on May 31,
1996. All documents subsequently filed by the Company pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act prior to the termination of the offering
to which this Prospectus relates shall be deemed to be incorporated by reference
into this Prospectus and to be part of this Prospectus from the date of filing
thereof. The following unaudited material events occurring subsequent to the
date of the report of independent public accountants should be read in
conjunction with the December 31, 1995 financial statements, (i) the discussion
under "Business -- Litigation," (ii) the discussion of the marketing agreement
with Astra under "Business -- Sales and Marketing" and (iii) the discussion of
the issuance of Common Stock to ALZA under "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Overview."
 
     Any statement contained in a document incorporated by reference herein
shall be deemed to be modified or superseded for purposes of this Prospectus and
the Registration Statement of which it is a part to the extent that a statement
contained herein or in any other subsequently filed document which also is
incorporated herein modifies or replaces such statement. Any statement so
modified or superseded shall not be deemed, in its unmodified form, to
constitute a part of this Prospectus or such Registration Statement. The Company
will provide without charge to each person to whom a copy of the Prospectus has
been delivered, and who makes a written or oral request, a copy of any and all
of the foregoing documents incorporated by reference in the Registration
Statement (other than exhibits unless such exhibits are specifically
incorporated by reference into such documents). Requests should be submitted in
writing or by telephone to David C. Yntema, VIVUS, Inc., 545 Middlefield Road,
Suite 200, Menlo Park, California 94025, telephone (415) 325-5511.
 
                                       39

<PAGE>   41
 
- ------------------------------------------------------------
- ------------------------------------------------------------
 
     NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION AND
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY
OR THE UNDERWRITERS. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY 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 ITS DATE.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY ANY SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH IT
RELATES. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION
OF AN OFFER TO BUY SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR
SOLICITATION IS UNLAWFUL.
 
                            ------------------------
 
                               TABLE OF CONTENTS
 

<TABLE>
<CAPTION>
                                             PAGE
                                            ------
<S>                                         <C>
Prospectus Summary.........................      3
Risk Factors...............................      5
Use of Proceeds............................     13
Price Range of Common Stock................     13
Dividend Policy............................     13
Capitalization.............................     14
Dilution...................................     14
Selected Financial Data....................     15
Management's Discussion and Analysis of
  Financial Condition and Results of
  Operations...............................     16
Business...................................     20
Management.................................     34
Underwriting...............................     37
Legal Matters..............................     38
Experts....................................     38
Available Information......................     39
Incorporation of Certain Documents by
  Reference................................     39
</TABLE>

 
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------------------------------------------------------------
 
                                2,000,000 SHARES
 
                                      LOGO
                                  COMMON STOCK
 
                            ------------------------
                                   PROSPECTUS
                            ------------------------
                            PAINEWEBBER INCORPORATED
 
                            INVEMED ASSOCIATES, INC.
                            ------------------------
 
                                          , 1996
 
- ------------------------------------------------------------
- ------------------------------------------------------------

<PAGE>   42
 
                      APPENDIX -- DESCRIPTION OF GRAPHICS
 
INSIDE FRONT COVER:
 
     (UPPER LEFT).  This illustration depicts a cross section of the penis and
labels the location of the urethra and the erectile bodies. There is a box
around the urethra with an arrow attached to it that points to the illustration
in the upper right of the inside front cover.
 
     INSIDE FRONT COVER:
 
     CAPTION:  CROSS SECTION OF PENIS
               For an erection to occur, a sufficient quantity of blood must
               flow into the erectile bodies of the penis and be maintained
               there.
 
     (UPPER RIGHT).  This illustration is being pointed to by the box that is
around the urethra in the illustration in the upper right of the inside front
cover and depicts a blow up view of the urethra. The illustration depicts a
pharmacologic agent in the urethra that is being transferred to the surrounding
erectile tissues.
 
     CAPTION:  CLOSE-UP VIEW OF THE URETHRA
               The pharmacologic agent is applied topically to the urethral
               lining where it is quickly absorbed and rapidly transferred to
               the surrounding erectile tissues.
 
     (LOWER LEFT).  This is a photograph of a hand holding the Company's
transurethral system for erection which contains a pharmacologic agent.
 
     CAPTION:  The MUSE transurethral system for erection consists of a
single-use, disposable plastic applicator which contains the pharmacologic agent
and can be easily administered with minimal instruction.
 
PAGE 20
 
     This illustration depicts a cross section of the penis and labels the
location of the corpora cavernosa, the corpus spongiosum and the urethra.
 
PAGE 23
 
     There are two illustrations side by side. The one on the left is a
depiction of a hand holding the Company's transurethral system for erection. The
one on the right is a depiction of the Company's transurethral system for
erection being inserted into the urethra of the penis.
 
PAGE 24
 
     This chart depicts the sequence of the Company's clinical trials from left
to right. On the far left is a column of two boxes. One is for the Company's
Dose Ranging Study and the other is for the Company's Quality of Life Study.
Each study is indicated as having been completed, and the applicable box
designates the Dose Ranging Study as a Phase II/III study and the Quality of
Life Study as a Phase III Study.
 
     To the right of the two far left boxes is a middle column of four boxes for
(from top to bottom) the Company's Maintenance Study, the Company's U.S.
Confirmatory Study #1, the Company's U.S. Confirmatory Study #2 and the
Company's European Confirmatory Study. Each of these studies is designated as a
Phase III study that has been completed. The top box in the column is for the
Maintenance Study, and there are arrows emanating from two far left boxes that
point to the box for the Maintenance Study.
 
     There are two boxes in a column on the far right for the Company's Extended
Maintenance Study and the Company's European Extended Maintenance Study
indicating that each of them is still in process. The upper box is for the
Extended Maintenance Study, and there are arrows emanating from the upper three
boxes (Maintenance Study, U.S. Confirmatory Study #1, and U.S. Confirmatory
Study #2) in the middle column that point to the box for the Extended
Maintenance Study. The lower box in the far right column is for the

<PAGE>   43
 
European Extended Maintenance Study, and there is an arrow emanating from lowest
box in the middle column that points to the box for the European Extended
Maintenance Study.
 
     Beneath the far left column of boxes and the middle column of boxes is a
long rectangular box that runs from the beginning of the left column to the end
of the middle column. This box is for the Company's Safety Studies that are
designated as complete.
 
     Sitting above and between the middle column of boxes and the far right
column of boxes is an ellipse for the Company's NDA Submission, which is
indicated as having been filed in March 1996. An arrow emanates from the bottom
of the ellipse and points down to the space between the middle column of boxes
and the far right column of boxes.

<PAGE>   44
 

                                    PART II
 
                     INFORMATION NOT REQUIRED IN PROSPECTUS
 
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
 
     The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the Company in connection
with the sale of Common Stock being registered. All amounts are estimates except
the registration fee.
 

<TABLE>
<CAPTION>
                                                                             AMOUNT
                                                                             TO BE
                                                                              PAID
                                                                            --------
        <S>                                                                 <C>
        Registration Fee..................................................  $ 23,800
        NASD Filing Fee...................................................     7,400
        The Nasdaq National Market Listing Fee............................    17,500
        Printing..........................................................   100,000
        Legal Fees and Expenses...........................................   200,000
        Accounting Fees and Expenses......................................   100,000
        Blue Sky Fees and Expenses........................................    15,000
        Registrar and Transfer Agent Fees.................................     5,000
        Miscellaneous.....................................................    31,300
                                                                            --------
                  Total...................................................  $500,000
                                                                            ========
</TABLE>

 
ITEM 15.  INDEMNIFICATION OF DIRECTORS AND OFFICERS
 
     Section 145 of the Delaware General Corporation Law permits a corporation
to include in its charter documents, and in agreements between the corporation
and its directors and officers, provisions expanding the scope of
indemnification beyond that specifically provided by the current law.
 
     Article VIII of the Registrant's Certificate of Incorporation provides for
the indemnification of directors to the fullest extent permissible under
Delaware law.
 
     Article VI of the Registrant's Bylaws provides for the indemnification of
officers, directors and third parties acting on behalf of the corporation if
such person acted in good faith and in a manner reasonably believed to be in and
not opposed to the best interest of the corporation, and, with respect to any
criminal action or proceeding, the indemnified party had no reason to believe
his conduct was unlawful.
 
     The Registrant has entered into indemnification agreements with its
directors and executive officers, in addition to indemnification provided for in
the Registrant's Bylaws, and intends to enter into indemnification agreements
with any new directors and executive officers in the future.
 
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
 
     (a) EXHIBITS
 

<TABLE>
    <C>           <S>
         1.1      Form of Underwriting Agreement
        *4.1      Preferred Shares Rights Agreement dated as of February 13, 1996 by and
                  among Vivus, Inc. and First Interstate Bank of California including the
                  Certificate at Determination, the Form of Rights Certificate and the
                  Summary at Rights attached thereto as Exhibits A, B and C respectively.
         5.1      Opinion of Wilson Sonsini Goodrich & Rosati, P.C.
</TABLE>

 
                                      II-1

<PAGE>   45
 

<TABLE>
    <C>           <S>
        24.1      Consent of Arthur Andersen LLP, Independent Public Accountants (See II-4)
        24.2      Consent of Wilson Sonsini Goodrich & Rosati, P.C. (included in Exhibit
                  5.1)
        24.3      Consent of Flehr Hohbach Test Albritton & Herbert (See II-5)
        25.1      Power of Attorney (See II-3)
</TABLE>

 
- ---------------
 
* Incorporated by reference to the exhibit filed with the Registrant's
  Registration Statement on Form 8-A filed with the Securities Exchange
  Commission that became effective on March 5, 1996.
 
  ITEM 17. UNDERTAKINGS
 
     The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (the "Exchange Act") (and, where applicable, each filing of
an employee benefit plan's annual report pursuant to Section 15(d) of the
Exchange Act) that is incorporated by reference in the registration statement
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.
 
     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 15, the Underwriting
Agreement, 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 hereunder,
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 be governed by the final adjudication
of such issue.
 
     The undersigned Registrant undertakes; (1) that 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; (2)
that 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 in the
initial bona fide offering thereof; and (3) to deliver or cause to be delivered
with the prospectus, to each person to whom the prospectus is sent or given, the
latest annual report to security holders that is incorporated by reference in
the prospectus and furnished pursuant to and meeting the requirements of Rule
14a-3 or Rule 14c-3 under the Exchange Act, and, where interim financial
information required to be presented by Article 3 of Regulation S-X are not set
forth in the prospectus, to deliver, or cause to be delivered to each person to
whom the prospectus is sent or given, the latest quarterly report that is
specifically incorporated by reference in the prospectus to provide such interim
financial information.
 
                                      II-2

<PAGE>   46
 

                                   SIGNATURES
 
     Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Menlo Park,
State of California, on the 30th day of May, 1996.
 
                                          VIVUS, Inc.
 
                                          By:         LELAND F. WILSON
 
                                            ------------------------------------
                                                      Leland F. Wilson
                                               President and Chief Executive
                                                           Officer
 
                               POWER OF ATTORNEY
 
     KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below hereby constitutes and appoints, jointly and severally, Leland F.
Wilson and David C. Yntema, and each of them acting individually, as his or her
attorney-in-fact, each with full power of substitution, for him or her in any
and all capacities, to sign any and all amendments (including, without
limitation, post-effective amendments and any amendments or abbreviated
registration statements increasing the amount of securities for which
registration is being sought) to this Registration Statement, with all exhibits
and any and all documents required to be filed with respect thereto, with the
Securities and Exchange Commission or any regulatory authority, granting unto
such attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite and necessary to be done
in order to effectuate the same as fully to all intents and purposes as he or
she might or could do if personally present, hereby ratifying and confirming all
that such attorneys-in-fact and agents, or any of them, or their substitute or
substitutes, may lawfully do or cause to be done.
 
     Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
 

<TABLE>
<CAPTION>
                     NAME                                    TITLE                   DATE
- -----------------------------------------------  ------------------------------  -------------
<S>                                              <C>                             <C>
               LELAND F. WILSON                    President, Chief Executive     May 30, 1996
- -----------------------------------------------   Officer (Principal Executive
               Leland F. Wilson                      Officer) and Director

                VIRGIL A. PLACE                    Chairman of the Board and      May 30, 1996
- -----------------------------------------------   Chief Scientific Officer and
                Virgil A. Place                             Director

                DAVID C. YNTEMA                    Vice President of Finance      May 30, 1996
- -----------------------------------------------     Chief Financial Officer
                David C. Yntema                     (Principal Financial and
                                                      Accounting Officer)

               RICHARD L. CASEY                             Director              May 30, 1996
- -----------------------------------------------
               Richard L. Casey

               SAMUEL D. COLELLA                            Director              May 30, 1996
- -----------------------------------------------
               Samuel D. Colella
                                                            
                BRIAN H. DOVEY                              Director              May 30, 1996
- -----------------------------------------------
                Brian H. Dovey

               PETER BARTON HUTT                            Director              May 30, 1996
- -----------------------------------------------
               Peter Barton Hutt
</TABLE>

 
                                      II-3

<PAGE>   47
 

                                                                    EXHIBIT 24.1
 
                   CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
 
     As independent public accountants, we hereby consent to the use of our
report (and all references to our Firm) included in or made a part of the
Registration Statement for VIVUS, Inc.
 
                                          ARTHUR ANDERSEN LLP
Oakland, California
May 30, 1996
 
                                      II-4

<PAGE>   48
 

                                                                    EXHIBIT 24.3
 
                               CONSENT OF COUNSEL
 
     We consent to the use of our name in the second paragraph under the caption
"Experts" in the prospectus, which constitutes a part of the Registration
Statement for the Common Stock of VIVUS, Inc. on Form S-3. We further consent to
the aforementioned use of our name in any amendments to the aforementioned
Registration Statement.
 
                                          By: DAVID J. BREZNER
                                            Flehr, Hohbach, Test, Albritton &
                                              Herbert
San Francisco, California
May 30, 1996
 
                                      II-5

<PAGE>   49
 

                                 EXHIBIT INDEX
 

<TABLE>
<CAPTION>
   EXHIBIT
   NUMBER                                      DESCRIPTION
  ---------   ------------------------------------------------------------------------------
  <C>         <S>
       1.1    Form of Underwriting Agreement
      *4.1    Preferred Shares Rights Agreement dated as of February 13, 1996 by and among
              Vivus, Inc. and First Interstate Bank of California including the Certificate
              at Determination, the Form of Rights Certificate and the Summary at Rights
              attached thereto as Exhibits A, B and C respectively
       5.1    Opinion of Wilson Sonsini Goodrich & Rosati, P.C.
      24.1    Consent of Arthur Andersen LLP, Independent Public Accountants
      24.2    Consent of Wilson Sonsini Goodrich & Rosati, P.C. (included in Exhibit 5.1)
      24.3    Consent of Flehr Hohbach Test Albritton & Herbert
      25.1    Power of Attorney
</TABLE>

 
- ---------------
 
* Incorporated by reference to the exhibit filed with the Registrant's
  Registration Statement on Form 8-A filed with the Securities Exchange
  Commission that became effective on March 5, 1996.





<PAGE>   1
                                2,000,000 Shares

                                   VIVUS, Inc.

                                  Common Stock

                             UNDERWRITING AGREEMENT

                                                                   June __, 1996

PAINEWEBBER INCORPORATED
INVEMED ASSOCIATES, INC.
  As Representatives of the
  several Underwriters
c/o PaineWebber Incorporated
  1285 Avenue of the Americas
  New York, New York 10019

Ladies and Gentlemen:

         VIVUS, Inc., a Delaware corporation (the "Company"), proposes to sell
an aggregate of 2,000,000 shares (the "Firm Shares") of the Company's Common
Stock, par value $0.001 per share (the "Common Stock"), to you and to the other
underwriters named in Schedule I (collectively, the "Underwriters"), for whom
you are acting as representatives (the "Representatives"). The Company has also
agreed to grant to you and the other Underwriters an option (the "Option") to
purchase up to an additional 300,000 shares of Common Stock (the "Option
Shares") on the terms and for the purposes set forth in Section 1(b). The Firm
Shares and the Option Shares are hereinafter collectively referred to as the
"Shares."

         The initial public offering price per share for the Shares and the
purchase price per share for the Shares to be paid by the several Underwriters
shall be agreed upon by the Company and the Representatives, acting on behalf of
the several Underwriters, and such agreement
 shall be set forth in a separate
written instrument substantially in the form of Exhibit A hereto (the "Price
Determination Agreement"). The Price Determination Agreement may take the form
of an exchange of any standard form of written telecommunication among the
Company and the Representatives and shall specify such applicable information as
is indicated in Exhibit A hereto. The offering of the Shares will be governed by
this Agreement, as supplemented by the Price Determination Agreement. From and
after the date of the execution and delivery of the Price Determination
Agreement, this Agreement shall be deemed to incorporate, and, unless the
context otherwise indicates, all references contained herein to "this Agreement"
and to the phrase "herein" shall be deemed to include the Price Determination
Agreement.

         The Company confirms as follows its agreements with the Representatives
and the several other Underwriters.

         1. Agreement to Sell and Purchase.

         (a) On the basis of the representations, warranties and agreements of
the Company herein contained and subject to all the terms and conditions of this
Agreement, the Company agrees to sell to each Underwriter named below, and each
Underwriter, severally and not jointly, agrees to purchase from the Company at
the purchase price per share for the Firm Shares to be agreed upon by the
Representatives and the Company in accordance with Section 1(c) or 1(d) and set
forth in the Price Determination Agreement, the number of Firm Shares set forth
opposite the name of such Underwriter in Schedule I, plus such additional

                                       -1-

<PAGE>   2
number of Firm Shares which such Underwriter may become obligated to purchase
pursuant to Section 8 hereof. Schedule I may be attached to the Price
Determination Agreement.

         (b) Subject to all the terms and conditions of this Agreement, the
Company grants the Option to the several Underwriters to purchase, severally and
not jointly, up to 300,000 Option Shares from the Company at the same price per
share as the Underwriters shall pay for the Firm Shares. The Option may be
exercised only to cover over-allotments in the sale of the Firm Shares by the
Underwriters and may be exercised in whole or in part at any time (but not more
than once) on or before the 45th day after the date of this Agreement (or, if
the Company has elected to rely on Rule 430A, on or before the 45th day after
the date of the Price Determination Agreement), upon written or telegraphic
notice (the "Option Shares Notice") by the Representatives to the Company no
later than 12:00 noon, New York City time, at least two and no more than five
business days before the date specified for closing in the Option Shares Notice
(the "Option Closing Date") setting forth the aggregate number of Option Shares
to be purchased and the time and date for such purchase. On the Option Closing
Date, the Company will issue and sell to the Underwriters the number of Option
Shares set forth in the Option Shares Notice, and each Underwriter will purchase
such percentage of the Option Shares as is equal to the percentage of Firm
Shares that such Underwriter is purchasing, as adjusted by the Representatives
in such manner as they deem advisable to avoid fractional shares.

         (c) If the Company has elected to rely on Rule 430A, the initial public
offering price per share for the Firm Shares and the purchase price per share
for the Firm Shares to be paid by the several Underwriters shall be agreed upon
and set forth in the Price Determination Agreement. In the event such price has
not been agreed upon and the Price Determination Agreement has not been executed
by the close of business on the fourteenth business day following the date on
which the Registration Statement becomes effective, this Agreement shall
terminate forthwith, without liability of any party to any other party except
that Section 6 shall remain in effect.

         2. Delivery and Payment. Delivery of the Firm Shares shall be made to
the Representatives for the accounts of the Underwriters against payment of the
purchase price by certified or official bank check payable in New York Clearing
House (next-day) funds to the order of the Company at the office of PaineWebber
Incorporated, 1285 Avenue of the Americas, New York, New York 10019, [credit to
the account of the Company with the Depository Trust Company.] Such payments
shall be made at 10:00 a.m., New York City time, on the third business day after
the date on which the first bona fide offering of the Shares to the public is
made by the Underwriters or at such time on such other date, not later than ten
business days after such date, as may be agreed upon by the Company and the
Representatives (such date is hereinafter referred to as the "Closing Date").

         To the extent the Option is exercised, delivery of the Option Shares
against payment by the Underwriters (in the manner specified above) will take
place at the offices specified above for the Closing Date at the time and date
(which may be the Closing Date) specified in the Option Shares Notice.

         The cost of original issue tax stamps, if any, in connection with the
issuance and delivery of the Firm Shares and Option Shares by the Company to the
respective Underwriters shall be borne by the Company. The Company will pay and
save each Underwriter and any subsequent holder of the Shares harmless from any
and all liabilities with respect to or resulting from any failure or delay in
paying Federal and state stamp and other transfer taxes, if any, which may be
payable or determined to be payable in connection with the original issuance or
sale to such Underwriter of the Firm Shares and Option Shares.

         3. Representations and Warranties of the Company. The Company
represents, warrants and covenants to each Underwriter that:

         (a) The Company meets the requirements for use of Form S-3 and a
registration statement (Registration No. ) on Form S-3 relating to the Shares,
including a preliminary prospectus and such amendments to such registration
statement as may have been required to the date of this Agreement, has been
prepared by the Company under the provisions of the Securities Act of 1933, as
amended (the "Act"), and the

                                       -2-

<PAGE>   3
rules and regulations (collectively referred to as the "Rules and Regulations")
of the Securities and Exchange Commission (the "Commission") thereunder, and has
been filed with the Commission. The term "preliminary prospectus" as used herein
means a preliminary prospectus as contemplated by Rule 430 or Rule 430A ("Rule
430A") of the Rules and Regulations included at any time as part of the
registration statement. Copies of such registration statement and amendments and
of each related preliminary prospectus have been delivered to the
Representatives. The term "Registration Statement" means the registration
statement as amended at the time it becomes or became effective (the "Effective
Date"), including financial statements and all exhibits and any information
deemed to be included by Rule 430A or Rule 434 of the Rules and Regulations. If
the Company files a registration statement to register a portion of the Shares
and relies on Rule 462(b) of the Rules and Regulations for such registration
statement to become effective upon filing with the Commission (the "Rule 462
Registration Statement"), then any reference to the "Registration Statement"
shall be deemed to include the Rule 462 Registration Statement, as amended from
time to time. The term "Prospectus" means the prospectus as first filed with the
Commission pursuant to Rule 424(b) of the Rules and Regulations or, if no such
filing is required, the form of final prospectus included in the Registration
Statement at the Effective Date. Any reference herein to the Registration
Statement, any preliminary prospectus or the Prospectus shall be deemed to refer
to and include the documents incorporated by reference therein pursuant to Item
12 of Form S-3 which were filed under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), on or before the Effective Date or the date of
such preliminary prospectus or the Prospectus, as the case may be. Any reference
herein to the terms "amend," "amendment" or "supplement" with respect to the
Registration Statement, any preliminary prospectus or the Prospectus shall be
deemed to refer to and include the filing of any document under the Exchange Act
after the Effective Date, or the date of any preliminary prospectus or the
Prospectus, as the case may be, and deemed to be incorporated therein by
reference.

         (b) On the Effective Date, the date the Prospectus is first filed with
the Commission pursuant to Rule 424(b) (if required), at all times subsequent to
and including the Closing Date and, if later, the Option Closing Date and when
any post-effective amendment to the Registration Statement becomes effective or
any amendment or supplement to the Prospectus is filed with the Commission, the
Registration Statement and the Prospectus (as amended or as supplemented if the
Company shall have filed with the Commission any amendment or supplement
thereto), including the financial statements included or incorporated by
reference in the Prospectus, did or will comply with all applicable provisions
of the Act, the Exchange Act, the rules and regulations thereunder (the
"Exchange Act Rules and Regulations") and the Rules and Regulations and will
contain all statements required to be stated therein in accordance with the
Act, the Exchange Act, the Exchange Act Rules and Regulations and the Rules and
Regulations. On the Effective Date and when any post-effective amendment to the
Registration Statement becomes effective, no part of the Registration Statement
or any such amendment did or will contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
in order to make the statements therein not misleading. At the Effective Date,
the date the Prospectus or any amendment or supplement to the Prospectus is
filed with the Commission and at the Closing Date and, if later, the Option
Closing Date, the Prospectus did not or will not contain any untrue statement of
a material fact or omit to state a material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading. The foregoing representations and warranties in this
Section 3(b) do not apply to any statements or omissions made in reliance on and
in conformity with information relating to any Underwriter furnished in writing
to the Company by the Representatives specifically for inclusion in the
Registration Statement or Prospectus or any amendment or supplement thereto. For
all purposes of this Agreement, the amounts of the selling concession and
reallowance set forth in the Prospectus constitute the only information relating
to any Underwriter furnished in writing to the Company by the Representatives
specifically for inclusion in the Registration Statement, the preliminary
prospectus or the Prospectus. The Company has not distributed any offering
material in connection with the offering or sale of the Shares other than the
Registration Statement, the preliminary prospectus, the Prospectus or any other
materials, if any, permitted by the Act.

         (c) The documents which are incorporated by reference in the
preliminary prospectus and the Prospectus or from which information is so
incorporated by reference, when they become effective or were filed with the
Commission, as the case may be, complied in all material respects with the
requirements of the Act or the Exchange Act, as applicable, the Exchange Act
Rules and Regulations and the Rules and

                                       -3-

<PAGE>   4
Regulations; and any documents so filed and incorporated by reference subsequent
to the Effective Date shall, when they are filed with the Commission, conform in
all material respects with the requirements of the Act and the Exchange Act, as
applicable, the Exchange Act Rules and Regulations and the Rules and
Regulations.

         (d) The only subsidiaries (as defined in the Rules and Regulations) of
the Company are the subsidiaries listed on Exhibit 21 to the Registration
Statement (the "Subsidiaries"). The Company and each of its Subsidiaries is, and
at the Closing Date will be, a corporation duly organized, validly existing and
in good standing under the laws of its jurisdiction of incorporation. The
Company and each of its Subsidiaries has, and at the Closing Date will have,
full power and authority to conduct all the activities conducted by it, to own
or lease all the assets owned or leased by it and to conduct its business as
described in the Registration Statement and the Prospectus. The Company and each
of its Subsidiaries is, and at the Closing Date will be, duly licensed or
qualified to do business and in good standing as a foreign corporation in all
jurisdictions in which the nature of the activities conducted by it or the
character of the assets owned or leased by it makes such licensing or
qualification necessary. All of the outstanding shares of capital stock of the
Subsidiaries have been duly authorized and validly issued and are fully paid and
non-assessable and are owned by the Company free and clear of all liens,
encumbrances and claims whatsoever. Except for the stock of the Subsidiaries and
as disclosed in the Registration Statement, the Company does not own, and at the
Closing Date will not own, directly or indirectly, any shares of stock or any
other equity or long-term debt securities of any corporation or have any equity
interest in any firm, partnership, joint venture, association or other entity.
Complete and correct copies of the certificate of incorporation and of the
by-laws of the Company and each of its Subsidiaries and all amendments thereto
have been delivered to the Representatives, and no changes therein will be made
subsequent to the date hereof and prior to the Closing Date or, if later, the
Option Closing Date.

         (e) The outstanding shares of Common Stock have been, and the Shares to
be issued and sold by the Company upon such issuance will be, duly authorized,
validly issued, fully paid and nonassessable and will not be subject to any
preemptive or similar right. The description of the Common Stock in the
Registration Statement and the Prospectus is, and at the Closing Date will be,
complete and accurate in all respects. Except as set forth in the Prospectus,
the Company does not have outstanding, and at the Closing Date will not have
outstanding, any options to purchase, or any rights or warrants to subscribe
for, or any securities or obligations convertible into, or any contracts or
commitments to issue or sell, any shares of Common Stock, any shares of capital
stock of any Subsidiary or any such warrants, convertible securities or
obligations.

         (f) The financial statements and schedules included or incorporated by
reference in the Registration Statement or the Prospectus present fairly the
consolidated financial condition of the Company as of the respective dates
thereof and the consolidated results of operations and cash flows of the Company
for the respective periods covered thereby, all in conformity with generally
accepted accounting principles applied on a consistent basis throughout the
entire period involved, except as otherwise disclosed in the Prospectus. The pro
forma financial statements and other pro forma financial information included in
the Registration Statement or the Prospectus (i) present fairly in all material
respects the information shown therein, (ii) have been prepared in accordance
with the Commission's rules and guidelines with respect to pro forma financial
statements and (iii) have been properly computed on the bases described therein.
The assumptions used in the preparation of the pro forma financial statements
and other pro forma financial information included in the Registration Statement
or the Prospectus are reasonable and the adjustments used therein are
appropriate to give effect to the transactions or circumstances referred to
therein. No other financial statements or schedules of the Company are required
by the Act, the Exchange Act or the Rules and Regulations to be included in the
Registration Statement or the Prospectus. Arthur Andersen LLP (the
"Accountants") who have reported on such financial statements and schedules, are
independent accountants with respect to the Company as required by the Act and
the Rules and Regulations. The statements included in the Registration Statement
with respect to the Accountants pursuant to Rule 509 of Regulation S-K of the
Rules and Regulations are true and correct in all material respects.

         (g) The Company maintains a system of internal accountings control
sufficient to provide reasonable assurance that (i) transactions are executed in
accordance with management's general or specific authorization; (ii)
transactions are recorded as necessary to permit preparation of financial
statements in

                                       -4-

<PAGE>   5
conformity with generally accepted accounting principles and to maintain
accountability for assets; (iii) access to assets is permitted only in
accordance with management's general or specific authorization; and (iv) the
recorded accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.

         (h) Subsequent to the respective dates as of which information is given
in the Registration Statement and the Prospectus and prior to the Closing Date,
except as set forth in or contemplated by the Registration Statement and the
Prospectus, (i) there has not been and will not have been any change in the
capitalization of the Company, or in the business, properties, business
prospects, condition (financial or otherwise) or results of operations of the
Company and its Subsidiaries, arising for any reason whatsoever, (ii) neither
the Company nor any of its Subsidiaries has incurred nor will it incur any
material liabilities or obligations, direct or contingent, nor has it entered
into nor will it enter into any material transactions other than pursuant to
this Agreement and the transactions referred to herein and (iii) the Company has
not and will not have paid or declared any dividends or other distributions of
any kind on any class of its capital stock.

         (i) The Company is not an "investment company" or an "affiliated
person" of, or "promoter" or "principal underwriter" for, an "investment
company," as such terms are defined in the Investment Company Act of 1940, as
amended.

         (j) Except as set forth in the Registration Statement and the
Prospectus, there are no actions, suits or proceedings pending or threatened
against or affecting the Company or any of its Subsidiaries or any of their
respective officers in their capacity as such, before or by any Federal or state
court, commission, regulatory body, administrative agency or other governmental
body, domestic or foreign, wherein an unfavorable ruling, decision or finding
might materially and adversely affect the Company or any of its Subsidiaries or
its business, properties, business prospects, condition (financial or otherwise)
or results of operations.

         (k) The Company and each of its Subsidiaries has, and at the Closing
Date will have, (i) all governmental licenses, permits, consents, orders,
approvals and other authorizations necessary to carry on its business as
contemplated in the Prospectus, (ii) complied in all respects with all laws,
regulations and orders applicable to it or its business and (iii) performed all
its obligations required to be performed by it, and is not, and at the Closing
Date will not be, in default, under any indenture, mortgage, deed of trust,
voting trust agreement, loan agreement, bond, debenture, note agreement, lease,
contract or other agreement or instrument (collectively, a "contract or other
agreement") to which it is a party or by which its property is bound or
affected. To the best knowledge of the Company and each of its Subsidiaries, no
other party under any contract or other agreement to which it is a party is in
default in any respect thereunder. Neither the Company nor any of its
Subsidiaries is, nor at the Closing Date will any of them be, in violation of
any provision of its certificate of incorporation or by-laws.

         (l) No consent, approval, authorization or order of, or any filing or
declaration with, any court or governmental agency or body is required in
connection with the authorization, issuance, transfer, sale or delivery of the
Shares by the Company, in connection with the execution, delivery and
performance of this Agreement by the Company or in connection with the taking by
the Company of any action contemplated hereby, except such as have been obtained
under the Act or the Rules and Regulations and such as may be required under
state securities or Blue Sky laws or the by-laws and rules of the National
Association of Securities Dealers, Inc. (the "NASD") in connection with the
purchase and distribution by the Underwriters of the Shares.

         (m) The Company has full corporate power and authority to enter into
this Agreement. This Agreement has been duly authorized, executed and delivered
by the Company and constitutes a valid and binding agreement of the Company and
is enforceable against the Company in accordance with the terms hereof. The
performance of this Agreement and the consummation of the transactions
contemplated hereby and the application of the net proceeds from the offering
and sale of the Shares in the manner set forth in the Prospectus under "Use of
Proceeds" will not result in the creation or imposition of any lien, charge or

                                       -5-

<PAGE>   6
encumbrance upon any of the assets of the Company or any of its Subsidiaries
pursuant to the terms or provisions of, or result in a breach or violation of
any of the terms or provisions of, or constitute a default under, or give any
other party a right to terminate any of its obligations under, or result in the
acceleration of any obligation under, the certificate of incorporation or
by-laws of the Company or any of its Subsidiaries, any contract or other
agreement to which the Company or any of its Subsidiaries is a party or by which
the Company or any of its Subsidiaries or any of its properties is bound or
affected, or violate or conflict with any judgment, ruling, decree, order,
statute, rule or regulation of any court or other governmental agency or body
applicable to the business or properties of the Company or any of its
Subsidiaries.

         (n) The Company and each of its Subsidiaries has good and marketable
title to all properties and assets described in the Prospectus as owned by it,
free and clear of all liens, charges, encumbrances or restrictions, except such
as are described in the Prospectus or are not material to the business of the
Company or its Subsidiaries. The Company and each of its Subsidiaries has valid,
subsisting and enforceable leases for the properties described in the Prospectus
as leased by it, with such exceptions as are not material and do not materially
interfere with the use made and proposed to be made of such properties by the
Company and such Subsidiaries.

         (o) There is no document or contract of a character required to be
described in the Registration Statement or the Prospectus or to be filed as an
exhibit to the Registration Statement which is not described or filed as
required. All such contracts to which the Company or any Subsidiary is a party
have been duly authorized, executed and delivered by the Company or such
Subsidiary, constitute valid and binding agreements of the Company or such
Subsidiary and are enforceable against the Company or such Subsidiary in
accordance with the terms thereof.

         (p) No statement, representation, warranty or covenant made by the
Company in this Agreement or made in any certificate or document required by
this Agreement to be delivered to the Representatives was or will be, when made,
inaccurate, untrue or incorrect.

         (q) Neither the Company nor any of its directors, officers or
controlling persons has taken, directly or indirectly, any action intended, or
which might reasonably be expected, to cause or result, under the Act or
otherwise, in, or which has constituted, stabilization or manipulation of the
price of any security of the Company to facilitate the sale or resale of the
Shares.

         (r) No holder of securities of the Company has rights to the
registration of any securities of the Company because of the filing of the
Registration Statement.

         (s) The Shares are duly authorized for listing, subject to official
notice of issuance, on the NASDAQ National Market.

         (t) Neither the Company nor any of its Subsidiaries is involved in any
material labor dispute nor, to the knowledge of the Company, is any such dispute
threatened.

         (u) The Company and its Subsidiaries own, or are licensed or otherwise
have the full exclusive right to use, all material trademarks and trade names
which are used in or necessary for the conduct of their respective businesses as
described in the Prospectus. No claims have been asserted by any person to the
use of any such trademarks or trade names or challenging or questioning the
validity or effectiveness of any such trademark or trade name. The use, in
connection with the business and operations of the Company and its Subsidiaries
of such trademarks and trade names does not, to the Company's knowledge,
infringe on the rights of any person.

         (v) Neither the company nor any of its Subsidiaries nor, to the
Company's knowledge, any employee or agent of the Company or any Subsidiary has
made any payment of funds of the Company or any Subsidiary or received or
retained any funds in violation of any law, rule or regulation or of a character
required to be disclosed in the Prospectus.

                                       -6-

<PAGE>   7
         (w) The Company has complied, and until the completion of the
distribution of the Shares will comply, with all of the provisions of
(including, without limitation, filing all forms required by) Section 517.075 of
the Florida Securities and Investor Protection Act and regulation 3E-900.001
issued thereunder with respect to the offering and sale of the Shares.

         4. Agreements of the Company. The Company agrees with the several
Underwriters as follows:

         (a) The Company will not, either prior to the Effective Date or
thereafter during such period as the Prospectus is required by law to be
delivered in connection with sales of the Shares by an Underwriter or dealer,
file any amendment or supplement to the Registration Statement or the
Prospectus, unless a copy thereof shall first have been submitted to the
Representatives within a reasonable period of time prior to the filing thereof
and the Representatives shall not have objected thereto in good faith.

         (b) The Company will use its best efforts to cause the Registration
Statement to become effective, and will notify the Representatives promptly, and
will confirm such advice in writing, (1) when the Registration Statement has
become effective and when any post-effective amendment thereto becomes
effective, (2) of any request by the Commission for amendments or supplements to
the Registration Statement or the Prospectus or for additional information, (3)
of the issuance by the Commission of any stop order suspending the effectiveness
of the Registration Statement or the initiation of any proceedings for that
purpose or the threat thereof, (4) of the happening of any event during the
period mentioned in the second sentence of Section 4(e) that in the judgment of
the Company makes any statement made in the Registration Statement or the
Prospectus untrue or that requires the making of any changes in the Registration
Statement or the Prospectus in order to make the statements therein, in light of
the circumstances in which they are made, not misleading and (5) of receipt by
the Company or any representative or attorney of the Company of any other
communication from the Commission relating to the Company, the Registration
Statement, any preliminary prospectus or the Prospectus. If at any time the
Commission shall issue any order suspending the effectiveness of the
Registration Statement, the Company will make every reasonable effort to obtain
the withdrawal of such order at the earliest possible moment. The Company will
use its best efforts to comply with the provisions of and make all requisite
filings with the Commission pursuant to Rule 430A and to notify the
Representatives promptly of all such filings.

         (c) The Company will furnish to the Representatives, without charge,
two signed copies of the Registration Statement and of any post-effective
amendment thereto, including financial statements and schedules, and all
exhibits thereto (including any document filed under the Exchange Act and deemed
to be incorporated by reference into the Prospectus), and will furnish to the
Representatives, without charge, for transmittal to each of the other
Underwriters, a copy of the Registration Statement and any post-effective
amendment thereto, including financial statements and schedules but without
exhibits.

         (d) The Company will comply with all the provisions of any undertakings
contained in the Registration Statement.

         (e) On the Effective Date, and thereafter from time to time, the
Company will deliver to each of the Underwriters, without charge, as many copies
of the Prospectus or any amendment or supplement thereto as the Representatives
may reasonably request. The Company consents to the use of the Prospectus or any
amendment or supplement thereto by the several Underwriters and by all dealers
to whom the Shares may be sold, both in connection with the offering or sale of
the Shares and for any period of time thereafter during which the Prospectus is
required by law to be delivered in connection therewith. If during such period
of time any event shall occur which in the judgment of the Company or counsel to
the Underwriters should be set forth in the Prospectus in order to make any
statement therein, in the light of the circumstances under which it was made,
not misleading, or if it is necessary to supplement or amend the Prospectus to
comply with law, the Company will forthwith prepare and duly file with the
Commission an appropriate supplement or amendment thereto, and will deliver to
each of the Underwriters, without charge, such number of copies thereof as the
Representatives may reasonably request. The Company shall not file any document
under the Exchange Act before the termination of the offering of the Shares by
the Underwriters if such document would be deemed to

                                       -7-

<PAGE>   8
be incorporated by reference into the Prospectus which is not approved by the
Representatives after reasonable notice thereof.

         (f) Prior to any public offering of the Shares by the Underwriters, the
Company will cooperate with the Representatives and counsel to the Underwriters
in connection with the registration or qualification of the Shares for offer and
sale under the securities or Blue Sky laws of such jurisdictions as the
Representatives may request; provided, that in no event shall the Company be
obligated to qualify to do business in any jurisdiction where it is not now so
qualified or to take any action which would subject it to general service of
process in any jurisdiction where it is not now so subject.

         (g) During the period of five years commencing on the Effective Date,
the Company will furnish to the Representatives and each other Underwriter who
may so request copies of such financial statements and other periodic and
special reports as the Company may from time to time distribute generally to the
holders of any class of its capital stock, and will furnish to the
Representatives and each other Underwriter who may so request a copy of each
annual or other report it shall be required to file with the Commission.

         (h) The Company will make generally available to holders of its
securities as soon as may be practicable but in no event later than the last day
of the fifteenth full calendar month following the calendar quarter in which the
Effective Date falls, an earnings statement (which need not be audited but shall
be in reasonable detail) for a period of 12 months ended commencing after the
Effective Date, and satisfying the provisions of Section 11(a) of the Act
(including Rule 158 of the Rules and Regulations).

         (i) Whether or not the transactions contemplated by this Agreement are
consummated or this Agreement is terminated, the Company will pay, or reimburse
if paid by the Representatives, all costs and expenses incident to the
performance of the obligations of the Company under this Agreement, including
but not limited to costs and expenses of or relating to (1) the preparation,
printing and filing of the Registration Statement and exhibits to it, each
preliminary prospectus, the Prospectus and any amendment or supplement to the
Registration Statement or the Prospectus, (2) the preparation and delivery of
certificates representing the Shares, (3) the printing of this Agreement, the
Agreement Among Underwriters, any Dealer Agreements and any Underwriters'
Questionnaire, (4) furnishing (including costs of shipping, mailing and courier)
such copies of the Registration Statement, the Prospectus and any preliminary
prospectus, and all amendments and supplements thereto, as may be requested for
use in connection with the offering and sale of the Shares by the Underwriters
or by dealers to whom Shares may be sold, (5) the listing of the Shares on the
NASDAQ National Market, (6) any filings required to be made by the Underwriters
with the NASD, and the fees, disbursements and other charges of counsel for the
Underwriters in connection therewith, (7) the registration or qualification of
the Shares for offer and sale under the securities or Blue Sky laws of such
jurisdictions designated pursuant to Section 4(f), including the fees,
disbursements and other charges of counsel to the Underwriters in connection
therewith, and the preparation and printing of preliminary, supplemental and
final Blue Sky memoranda, (8) counsel to the Company, (9) the transfer agent for
the Shares and (10) the Accountants.

         (j) If this Agreement shall be terminated by the Company pursuant to
any of the provisions hereof (otherwise than pursuant to Section 8) or if for
any reason the Company shall be unable to perform its obligations hereunder, the
Company will reimburse the several Underwriters for all out-of-pocket expenses
(including the fees, disbursements and other charges of counsel to the
Underwriters) reasonably incurred by them in connection herewith.

         (k) The Company will not at any time, directly or indirectly, take any
action intended, or which might reasonably be expected, to cause or result in,
or which will constitute, stabilization of the price of the shares of Common
Stock to facilitate the sale or resale of any of the Shares.

         (l) The Company will apply the net proceeds from the offering and sale
of the Shares to be sold by the Company in the manner set forth in the
Prospectus under "Use of Proceeds."

                                       -8-

<PAGE>   9
         (m) The Company will not, and will cause each of its executive
officers, directors and each beneficial owner of more than 5% of the outstanding
shares of Common Stock to enter into agreements with the Representatives in the
form set forth in Exhibit B to the effect that they will not, for a period of 90
days after the commencement of the public offering of the Shares, without the
prior written consent of PaineWebber Incorporated, sell, contract to sell or
otherwise dispose of any shares of Common Stock or rights to acquire such shares
(other than pursuant to employee stock option plans or in connection with other
employee incentive compensation arrangements).

         5. Conditions of the Obligations of the Underwriters. In addition to
the execution and delivery of the Price Determination Agreement, the obligations
of each Underwriter hereunder are subject to the following conditions:

         (a) Notification that the Registration Statement has become effective
shall be received by the Representatives not later than 5:00 p.m., New York City
time, on the date of this Agreement or at such later date and time as shall be
consented to in writing by the Representatives and all filings required by Rule
424 of the Rules and Regulations and Rule 430A shall have been made.

         (b) (i) No stop order suspending the effectiveness of the Registration
Statement shall have been issued and no proceedings for that purpose shall be
pending or threatened by the Commission, (ii) no order suspending the
effectiveness of the Registration Statement or the qualification or registration
of the Shares under the securities or Blue Sky laws of any jurisdiction shall be
in effect and no proceeding for such purpose shall be pending before or
threatened or contemplated by the Commission or the authorities of any such
jurisdiction, (iii) any request for additional information on the part of the
staff of the Commission or any such authorities shall have been complied with to
the satisfaction of the staff of the Commission or such authorities and (iv)
after the date hereof no amendment or supplement to the Registration Statement
or the Prospectus shall have been filed unless a copy thereof was first
submitted to the Representatives and the Representatives did not object thereto
in good faith, and the Representatives shall have received certificates, dated
the Closing Date and the Option Closing Date and signed by the Chief Executive
Officer or the Chairman of the Board of Directors of the Company and the Chief
Financial Officer of the Company (who may, as to proceedings threatened, rely
upon the best of their information and belief), to the effect of clauses (i),
(ii) and (iii).

         (c) Since the respective dates as of which information is given in the
Registration Statement and the Prospectus, (i) there shall not have been a
material adverse change in the general affairs, business, business prospects,
properties, management, condition (financial or otherwise) or results of
operations of the Company and its Subsidiaries, taken as a whole, whether or not
arising from transactions in the ordinary course of business, in each case other
than as set forth in or contemplated by the Registration Statement and the
Prospectus and (ii) neither the Company nor any of its Subsidiaries shall have
sustained any material loss or interference with its business or properties from
fire, explosion, flood or other casualty, whether or not covered by insurance,
or from any labor dispute or any court or legislative or other governmental
action, order or decree, which is not set forth in the Registration Statement
and the Prospectus, if in the judgment of the Representatives any such
development makes it impracticable or inadvisable to consummate the sale and
delivery of the Shares by the Underwriters at the initial public offering price.

         (d) Since the respective dates as of which information is given in the
Registration Statement and the Prospectus, there shall have been no litigation
or other proceeding instituted against the Company or any of its Subsidiaries or
any of their respective officers or directors in their capacities as such,
before or by any Federal, state or local court, commission, regulatory body,
administrative agency or other governmental body, domestic or foreign, in which
litigation or proceeding an unfavorable ruling, decision or finding would
materially and adversely affect the business, properties, business prospects,
condition (financial or otherwise) or results of operations of the Company and
its Subsidiaries taken as a whole.

         (e) Each of the representations and warranties of the Company contained
herein shall be true and correct in all material respects at the Closing Date
and, with respect to the Option Shares, at the Option Closing Date, as if made
at the Closing Date and, with respect to the Option Shares, at the Option
Closing

                                       -9-

<PAGE>   10
Date, and all covenants and agreements herein contained to be performed on the
part of the Company and all conditions herein contained to be fulfilled or
complied with by the Company at or prior to the Closing Date and, with respect
to the Option Shares, at or prior to the Option Closing Date, shall have been
duly performed, fulfilled or complied with.

         (f) The Representatives shall have received an opinion, dated the
Closing Date and, with respect to the Option Shares, the Option Closing Date,
and satisfactory in form and substance to counsel for the Underwriters, from
Wilson Sonsini Goodrich & Rosati, counsel to the Company, to the effect set
forth in Exhibit C.

         (g) The Representatives shall have received an opinion, dated the
Closing Date and the Option Closing Date, from Pillsbury Madison & Sutro LLP,
counsel to the Underwriters, with respect to the Registration Statement, the
Prospectus and this Agreement, which opinion shall be satisfactory in all
respects to the Representatives.

         (h) On the date of the Prospectus, the Accountants shall have furnished
to the Representatives a letter, dated the date of its delivery, addressed to
the Representatives and in form and substance satisfactory to the
Representatives, confirming that they are independent accountants with respect
to the Company as required by the Act and the Rules and Regulations and with
respect to the financial and other statistical and numerical information
contained in the Registration Statement or incorporated by reference therein. At
the Closing Date and, as to the Option Shares, the Option Closing Date, the
Accountants shall have furnished to the Representatives a letter, dated the date
of its delivery, which shall confirm, on the basis of a review in accordance
with the procedures set forth in the letter from the Accountants, that nothing
has come to their attention during the period from the date of the letter
referred to in the prior sentence to a date (specified in the letter) not more
than five days prior to the Closing Date and the Option Closing Date which would
require any change in their letter dated the date of the Prospectus, if it were
required to be dated and delivered at the Closing Date and the Option Closing
Date.

         (i) At the Closing Date and, as to the Option Shares, the Option
Closing Date, there shall be furnished to the Representatives an accurate
certificate, dated the date of its delivery, signed by each of the Chief
Executive Officer and the Chief Financial Officer of the Company, in form and
substance satisfactory to the Representatives, to the effect that:

             (i) Each signer of such certificate has carefully examined the
         Registration Statement and the Prospectus (including any documents
         filed under the Exchange Act and deemed to be incorporated by reference
         into the Prospectus) and (A) as of the date of such certificate, such
         documents are true and correct in all material respects and do not omit
         to state a material fact required to be stated therein or necessary in
         order to make the statements therein not untrue or misleading and (B)
         since the Effective Date, no event has occurred as a result of which it
         is necessary to amend or supplement the Prospectus in order to make the
         statements therein not untrue or misleading in any material respect
         and there has been no document required to be filed under the Exchange
         Act and the Exchange Act Rules and Regulations that upon such filing
         would be deemed to be incorporated by reference into the Prospectus
         that has not been so filed.

             (ii) Each of the representations and warranties of the Company
         contained in this Agreement were, when originally made, and are, at the
         time such certificate is delivered, true and correct in all material
         respects.

             (iii) Each of the covenants required herein to be performed by the
         Company on or prior to the delivery of such certificate has been duly,
         timely and fully performed and each condition herein required to be
         complied with by the Company on or prior to the date of such
         certificate has been duly, timely and fully complied with.

                                      -10-

<PAGE>   11
         (j) On or prior to the Closing Date, the Representatives shall have
received the executed agreements referred to in Section 4(n).

         (k) The Shares shall be qualified for sale in such states as the
Representatives may reasonably request, each such qualification shall be in
effect and not subject to any stop order or other proceeding on the Closing Date
and the Option Closing Date.

         (l) Prior to the Closing Date, the Shares shall have been duly
authorized for listing by the Nasdaq National Market upon official notice of
issuance.

         (m) The Company shall have furnished to the Representatives such
certificates, in addition to those specifically mentioned herein, as the
Representatives may have reasonably requested as to the accuracy and
completeness at the Closing Date and the Option Closing Date of any statement in
the Registration Statement or the Prospectus or any documents filed under the
Exchange Act and deemed to be incorporated by reference into the Prospectus, as
to the accuracy at the Closing Date and the Option Closing Date of the
representations and warranties of the Company herein, as to the performance by
the Company of its obligations hereunder, or as to the fulfillment of the
conditions concurrent and precedent to the obligations hereunder of the
Representatives.

         6.       Indemnification.

         (a) The Company will indemnify and hold harmless each Underwriter, the
directors, officers, employees and agents of each Underwriter and each person,
if any, who controls each Underwriter within the meaning of Section 15 of the
Act or Section 20 of the Exchange Act, from and against any and all losses,
claims, liabilities, expenses and damages (including any and all investigative,
legal and other expenses reasonably incurred in connection with, and any amount
paid in settlement of, any action, suit or proceeding between any of the
indemnified parties and any indemnifying parties or between any indemnified
party and any third party, or otherwise, or any claim asserted), to which they,
or any of them, may become subject under the Act, the Exchange Act or other
Federal or state statutory law or regulation, at common law or otherwise,
insofar as such losses, claims, liabilities, expenses or damages arise out of or
are based on any untrue statement or alleged untrue statement of a material fact
contained in any preliminary prospectus, the Registration Statement or the
Prospectus or any amendment or supplement to the Registration Statement or the
Prospectus or in any documents filed under the Exchange Act and deemed to be
incorporated by reference into the Prospectus, or the omission or alleged
omission to state in such document a material fact required to be stated in it
or necessary to make the statements in it not misleading, provided that the
Company will not be liable to the extent that such loss, claim, liability,
expense or damage arises from the sale of the Shares in the public offering to
any person by an Underwriter and is based on an untrue statement or omission or
alleged untrue statement or omission made in reliance on and in conformity with
information relating to any Underwriter furnished in writing to the Company by
the Representatives on behalf of any Underwriter expressly for inclusion in the
Registration Statement, any preliminary prospectus or the Prospectus. This
indemnity agreement will be in addition to any liability that the Company might
otherwise have.

         (b) Each Underwriter will indemnify and hold harmless the Company, each
person, if any, who controls the Company within the meaning of Section 15 of the
Act or Section 20 of the Exchange Act, each director of the Company and each
officer of the Company who signs the Registration Statement to the same extent
as the foregoing indemnity from the Company to each Underwriter, but only
insofar as losses, claims, liabilities, expenses or damages arise out of or are
based on any untrue statement or omission or alleged untrue statement or
omission made in reliance on and in conformity with information relating to any
Underwriter furnished in writing to the Company by the Representatives on behalf
of such Underwriter expressly for use in the Registration Statement, the
Preliminary Prospectus or the Prospectus. This indemnity will be in addition to
any liability that each Underwriter might otherwise have.

         (c) Any party that proposes to assert the right to be indemnified under
this Section 6 will, promptly after receipt of notice of commencement of any
action against such party in respect of which a claim

                                      -11-


<PAGE>   12
is to be made against an indemnifying party or parties under this Section 6,
notify each such indemnifying party of the commencement of such action,
enclosing a copy of all papers served, but the omission so to notify such
indemnifying party will not relieve it from any liability that it may have to
any indemnified party under the foregoing provisions of this Section 6 unless,
and only to the extent that, such omission results in the forfeiture of
substantive rights or defenses by the indemnifying party. If any such action is
brought against any indemnified party and it notifies the indemnifying party of
its commencement, the indemnifying party will be entitled to participate in and,
to the extent that it elects by delivering written notice to the indemnified
party promptly after receiving notice of the commencement of the action from the
indemnified party, jointly with any other indemnifying party similarly notified,
to assume the defense of the action, with counsel satisfactory to the
indemnified party, and after notice from the indemnifying party to the
indemnified party of its election to assume the defense, the indemnifying party
will not be liable to the indemnified party for any legal or other expenses
except as provided below and except for the reasonable costs of investigation
subsequently incurred by the indemnified party in connection with the defense.
The indemnified party will have the right to employ its own counsel in any such
action, but the fees, expenses and other charges of such counsel will be at the
expense of such indemnified party unless (1) the employment of counsel by the
indemnified party has been authorized in writing by the indemnifying party, (2)
the indemnified party has reasonably concluded (based on advice of counsel) that
there may be legal defenses available to it or other indemnified parties that
are different from or in addition to those available to the indemnifying party,
(3) a conflict or potential conflict exists (based on advice of counsel to the
indemnified party) between the indemnified party and the indemnifying party (in
which case the indemnifying party will not have the right to direct the defense
of such action on behalf of the indemnified party) or (4) the indemnifying party
has not in fact employed counsel to assume the defense of such action within a
reasonable time after receiving notice of the commencement of the action, in
each of which cases the reasonable fees, disbursements and other charges of
counsel will be at the expense of the indemnifying party or parties. It is
understood that the indemnifying party or parties shall not, in connection with
any proceeding or related proceedings in the same jurisdiction, be liable for
the reasonable fees, disbursements and other charges of more than one separate
firm admitted to practice in such jurisdiction at any one time for all such
indemnified party or parties. All such fees, disbursements and other charges
will be reimbursed by the indemnifying party promptly as they are incurred. An
indemnifying party will not be liable for any settlement of any action or claim
effected without its written consent (which consent will not be unreasonably
withheld). No indemnifying party shall, without the prior written consent of
each indemnified party, settle or compromise or consent to the entry of any
judgment in any pending or threatened claim, action or proceeding relating to
the matters contemplated by this Section 6 (whether or not any indemnified party
is a party thereto), unless such settlement, compromise or consent includes an
unconditional release of each indemnified party from all liability arising or
that may arise out of such claim, action or proceeding.

         (d) In order to provide for just and equitable contribution in
circumstances in which the indemnification provided for in the foregoing
paragraphs of this Section 6 is applicable in accordance with its terms but for
any reason is held to be unavailable from the Company or the Underwriters, the
Company and the Underwriters will contribute to the total losses, claims,
liabilities, expenses and damages (including any investigative, legal and other
expenses reasonably incurred in connection with, and any amount paid in
settlement of, any action, suit or proceeding or any claim asserted, but after
deducting any contribution received by the Company from persons other than the
Underwriters, such as persons who control the Company within the meaning of the
Act, officers of the Company who signed the Registration Statement and directors
of the Company, who also may be liable for contribution) to which the Company
and any one or more of the Underwriters may be subject in such proportion as
shall be appropriate to reflect the relative benefits received by the Company on
the one hand and the Underwriters on the other. The relative benefits received
by the Company on the one hand and the Underwriters on the other shall be deemed
to be in the same proportion as the total net proceeds from the offering (before
deducting expenses) received by the Company bear to the total underwriting
discounts and commissions received by the Underwriters, in each case as set
forth in the table on the cover page of the Prospectus. If, but only if, the
allocation provided by the foregoing sentence is not permitted by applicable
law, the allocation of contribution shall be made in such proportion as is
appropriate to reflect not only the relative benefits referred to in the
foregoing sentence but also the relative fault of the Company, on the one hand,
and the Underwriters, on the other, with respect to the statements or omissions
which resulted in such loss, claim, liability, expense or damage, or action in
respect thereof, as well as any

                                      -12-

<PAGE>   13
other relevant equitable considerations with respect to such offering. Such
relative fault shall be determined by reference to whether the untrue or alleged
untrue statement of a material fact or omission or alleged omission to state a
material fact relates to information supplied by the Company or the
Representatives on behalf of the Underwriters, the intent of the parties and
their relative knowledge, access to information and opportunity to correct or
prevent such statement or omission. The Company and the Underwriters agree that
it would not be just and equitable if contributions pursuant to this Section
6(d) were to be determined by pro rata allocation (even if the Underwriters were
treated as one entity for such purpose) or by any other method of allocation
which does not take into account the equitable considerations referred to
herein. The amount paid or payable by an indemnified party as a result of the
loss, claim, liability, expense or damage, or action in respect thereof,
referred to above in this Section 6(d) shall be deemed to include, for purpose
of this Section 6(d), any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating or defending any such action
or claim. Notwithstanding the provisions of this Section 6(d), no Underwriter
shall be required to contribute any amount in excess of the underwriting
discounts received by it and no person found guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) will be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations to contribute as provided in
this Section 6(d) are several in proportion to their respective underwriting
obligations and not joint. For purposes of this Section 6(d), any person who
controls a party to this Agreement within the meaning of the Act will have the
same rights to contribution as that party, and each officer of the Company who
signed the Registration Statement will have the same rights to contribution as
the Company, subject in each case to the provisions hereof. Any party entitled
to contribution, promptly after receipt of notice of commencement of any action
against such party in respect of which a claim for contribution may be made
under this Section 6(d), will notify any such party or parties from whom
contribution may be sought, but the omission so to notify will not relieve the
party or parties from whom contribution may be sought from any other obligation
it or they may have under this Section 6(d). No party will be liable for
contribution with respect to any action or claim settled without its written
consent (which consent will not be unreasonably withheld).

         (e) The indemnity and contribution agreements contained in this Section
6 and the representations and warranties of the Company contained in this
Agreement shall remain operative and in full force and effect regardless of (i)
any investigation made by or on behalf of the Underwriters, (ii) acceptance of
the Shares and payment therefor or (iii) any termination of this Agreement.

         7. Termination. The obligations of the several Underwriters
under this Agreement may be terminated at any time on or prior to the Closing
Date (or, with respect to the Option Shares, on or prior to the Option Closing
Date), by notice to the Company from the Representatives, without liability on
the part of any Underwriter to the Company, if, prior to delivery and payment
for the Shares (or the Option Shares, as the case may be), in the sole judgment
of the Representatives, (i) trading in any of the equity securities of the
Company shall have been suspended by the Commission, by an exchange that lists
the Shares or by the NASDAQ National Market, (ii) trading in securities
generally on the New York Stock Exchange shall have been suspended or limited or
minimum or maximum prices shall have been generally established on such
exchange, or additional material governmental restrictions, not in force on the
date of this Agreement, shall have been imposed upon trading in securities
generally by such exchange or by order of the Commission or any court or other
governmental authority, (iii) a general banking moratorium shall have been
declared by either Federal or New York State authorities or (iv) any material
adverse change in the financial or securities markets in the United States or in
political, financial or economic conditions in the United States or any outbreak
or material escalation of hostilities or declaration by the United States of a
national emergency or war or other calamity or crisis shall have occurred the
effect of any of which is such as to make it, in the sole judgment of the
Representatives, impracticable or inadvisable to market the Shares on the terms
and in the manner contemplated by the Prospectus.

         8. Substitution of Underwriters. If any one or more of the
Underwriters shall fail or refuse to purchase any of the Firm Shares which it or
they have agreed to purchase hereunder, and the aggregate number of Firm Shares
which such defaulting Underwriter or Underwriters agreed but failed or refused
to purchase is not more than one-tenth of the aggregate number of Firm Shares,
the other Underwriters shall be obligated,

                                      -13-

<PAGE>   14
severally, to purchase the Firm Shares which such defaulting Underwriter or
Underwriters agreed but failed or refused to purchase, in the proportions which
the number of Firm Shares which they have respectively agreed to purchase
pursuant to Section 1 bears to the aggregate number of Firm Shares which all
such non-defaulting Underwriters have so agreed to purchase, or in such other
proportions as the Representatives may specify; provided that in no event shall
the maximum number of Firm Shares which any Underwriter has become obligated to
purchase pursuant to Section 1 be increased pursuant to this Section 8 by more
than one-ninth of the number of Firm Shares agreed to be purchased by such
Underwriter without the prior written consent of such Underwriter. If any
Underwriter or Underwriters shall fail or refuse to purchase any Firm Shares and
the aggregate number of Firm Shares which such defaulting Underwriter or
Underwriters agreed but failed or refused to purchase exceeds one-tenth of the
aggregate number of the Firm Shares and arrangements satisfactory to the
Representatives and the Company for the purchase of such Firm Shares are not
made within 48 hours after such default, this Agreement will terminate without
liability on the part of any non-defaulting Underwriter or the Company for the
purchase or sale of any Shares under this Agreement. In any such case either the
Representatives or the Company shall have the right to postpone the Closing
Date, but in no event for longer than seven days, in order that the required
changes, if any, in the Registration Statement and in the Prospectus or in any
other documents or arrangements may be effected. Any action taken pursuant to
this Section 8 shall not relieve any defaulting Underwriter from liability in
respect of any default of such Underwriter under this Agreement.

         9. Miscellaneous. Notice given pursuant to any of the provisions of
this Agreement shall be in writing and, unless otherwise specified, shall be
mailed or delivered (a) if to the Company, at the office of the Company, 545
Middlefield Road, Suite 200, Menlo Park, California 94025, Attention: Leland F.
Wilson, or (b) if to the Underwriters, to the Representatives at the offices of
PaineWebber Incorporated, 1285 Avenue of the Americas, New York, New York 10019,
Attention: Corporate Finance Department. Any such notice shall be effective only
upon receipt. Any notice under Section 7 or 8 may be made by telex or telephone,
but if so made shall be subsequently confirmed in writing.

         This Agreement has been and is made solely for the benefit of the
several Underwriters and the Company and of the controlling persons, directors
and officers referred to in Section 6, and their respective successors and
assigns, and no other person shall acquire or have any right under or by virtue
of this Agreement. The term "successors and assigns" as used in this Agreement
shall not include a purchaser, as such purchaser, of Shares from any of the
several Underwriters.

         All representations, warranties and agreements of the Company contained
herein or in certificates or other instruments delivered pursuant hereto, shall
remain operative and in full force and effect regardless of any investigation
made by or on behalf of any Underwriter or any of its controlling persons and
shall survive delivery of and payment for the Shares hereunder.

         Any action required or permitted to be taken by the Representatives
under this Agreement may be taken by them jointly or by PaineWebber
Incorporated.

         THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO THE CONFLICT OF LAWS
PRINCIPLES OF SUCH STATE.

         This Agreement may be signed in two or more counterparts with the same
effect as if the signatures thereto and hereto were upon the same instrument.

         In case any provision in 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.

         The Company and the Underwriters each hereby irrevocably waive any
right they may have to a trial by jury in respect of any claim based upon or
arising out of this Agreement or the transactions contemplated hereby.

                                      -14-

<PAGE>   15
         This Agreement may not be amended or otherwise modified or any
provision hereof waived except by an instrument in writing signed by the
Representatives and the Company.

         Please confirm that the foregoing correctly sets forth the agreement
among the Company and the several Underwriters.

                                                     Very truly yours,

                                                     VIVUS, INC.


                                                     By:
                                                        ------------------------
                                                        Title:

Confirmed as of the date first above mentioned:

PAINEWEBBER INCORPORATED
INVEMED ASSOCIATES, INC.
Acting on behalf of
themselves and as the
Representatives of the
other several Underwriters
named in Schedule I hereof.

By:  PAINEWEBBER INCORPORATED


By:  
     ----------------------------                      
     Title:


INVEMED ASSOCIATES, INC.


By:                                                  
     ---------------------------- 
     Title:

                                      -15-

<PAGE>   16
                                   SCHEDULE I

                                  UNDERWRITERS


<TABLE>
<CAPTION>
                                                Number of
   Name of                                     Firm Shares
 Underwriters                                to be Purchased
 ------------                                ---------------
 <S>                                         <C>
 PaineWebber Incorporated

 Invemed Associates, Inc.

 Total   . . . . . . . . . . . . . . . . . .      
                                                ---------
                                                2,000,000
                                                =========
</TABLE>


                                      -1-

<PAGE>   17
                                                                       EXHIBIT A

                                   VIVUS, INC.

                              _____________________

                          PRICE DETERMINATION AGREEMENT

                                                                   June __, 1996

PAINEWEBBER INCORPORATED
INVEMED ASSOCIATES, INC.
  As Representatives of the several Underwriters
c/o PaineWebber Incorporated
1285 Avenue of the Americas
New York, New York 10019

Ladies and Gentlemen:

         Reference is made to the Underwriting Agreement, dated June, 1996 (the
"Underwriting Agreement"), among VIVUS, Inc., a Delaware corporation (the
"Company") and the several Underwriters named in Schedule I thereto or hereto
(the "Underwriters"), for whom PaineWebber Incorporated and Invemed Associates,
Inc. are acting as representatives (the "U.S. Representatives"). The
Underwriting Agreement provides for the purchase by the Underwriters from the
Company, subject to the terms and conditions set forth therein, of an aggregate
of 2,000,000 shares (the "Firm Shares") of the Company's Common Stock, par value
$0.001 per share. This Agreement is the Price Determination Agreement referred
to in the Underwriting Agreement.

         Pursuant to Section 1 of the Underwriting Agreement, the undersigned
agree with the Representatives as follows:

         The initial public offering price per share for the Firm Shares shall
be $_______.

         The purchase price per share for the Firm Shares to be paid by the
several Underwriters shall be $_______ representing an amount equal to the
initial public offering price set forth above, less $______ per share.

         The Company represents and warrants to each of the Underwriters that
the representations and warranties of the Company set forth in Section 3 of the
Underwriting Agreement are accurate as though expressly made at and as of the
date hereof.

         As contemplated by the Underwriting Agreement, attached as Schedule I
is a completed list of the several Underwriters, which shall be a part of this
Agreement and the Underwriting Agreement.

  THIS AGREEMENT SHALL BE GOVERNED BY THE LAW OF THE STATE OF NEW YORK WITHOUT
REGARD TO THE CONFLICT OF LAWS PRINCIPLES OF SUCH STATE.

         If the foregoing is in accordance with your understanding of the
agreement among the Underwriters and the Company, please sign and return to the
Company a counterpart hereof, whereupon this instrument

                                       A-1

<PAGE>   18
along with all counterparts and together with the Underwriting Agreement shall
be a binding agreement among the Underwriters and the Company in accordance with
its terms and the terms of the Underwriting Agreement.

                                                     Very truly yours,

                                                     VIVUS, INC.

                                                     By:________________________
                                                        Title:

Confirmed as of the date first 
above mentioned:

PAINEWEBBER INCORPORATED
INVEMED ASSOCIATES, INC.
Acting on behalf of
themselves and as the
Representatives of the
other several Underwriters
named in Schedule I hereof.

By:  PAINEWEBBER INCORPORATED


By:  ________________________                                                
     Title:


INVEMED ASSOCIATES, INC.


By:  ________________________                                                
     Title:

                                       A-2

<PAGE>   19
                                                                       EXHIBIT B

                                                                   june __, 1996

PAINEWEBBER INCORPORATED
INVEMED ASSOCIATES, INC.
 As Representatives of the
 several Underwriters

c/o PaineWebber Incorporated
1285 Avenue of the Americas
New York, New York  10019

Ladies and Gentlemen:

         In consideration of the agreement of the several Underwriters, for
which PaineWebber Incorporated and Invemed Associates, Inc. (the
"Representatives") intend to act as Representatives to underwrite a proposed
public offering (the "Offering") of 2,000,000 shares of Common Stock, par value
$0.001 per share (the "Common Stock") of VIVUS, Inc., a Delaware corporation, as
contemplated by a registration statement with respect to such shares filed with
the Securities and Exchange Commission on Form S-3 (Registration No.
333-______), the undersigned hereby agrees that the undersigned will not, for a
period of 90 days after the commencement of the public offering of such shares,
without the prior written consent of PaineWebber Incorporated, offer to sell,
sell, contract to sell, grant any option to sell, or otherwise dispose of, or
require the Company to file with the Securities and Exchange Commission a
registration statement under the Securities Act of 1933 to register any shares
of Common Stock or securities convertible into or exchangeable for Common Stock
or warrants or other rights to acquire shares of Common Stock of which the
undersigned is now, or may in the future become, the beneficial owner within the
meaning of Rule 13d-3 under the Securities Exchange Act of 1934) (other than
pursuant to employee stock option plans or in connection with other employee
incentive compensation arrangements).

                                                     Very truly yours,

                                                     By:________________________

                                                     Print Name:________________

                                       B-1

<PAGE>   20
                                                                       EXHIBIT C

                               Form of Opinion of
                             Counsel to the Company

         The Company and each of its Subsidiaries is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation and has full corporate power and authority to
conduct all the activities conducted by it, to own or lease all the assets owned
or leased by it and to conduct its business as described in the Registration
Statement and the Prospectus. The Company is the sole record owner and, to our
knowledge, the sole beneficial owner of all of the capital stock of each of its
Subsidiaries.

          All of the outstanding shares of Common Stock have been, and the
Shares, when paid for by the Underwriters in accordance with the terms of the
Agreement, will be, duly authorized, validly issued, fully paid and
nonassessable and will not be subject to any preemptive or similar right under
(i) the statutes, judicial and administrative decisions, and the rules and
regulations of the governmental agencies of the State of Delaware, (ii) the
Company's certificate of incorporation or by-laws or (iii) any instrument,
document, contract or other agreement referred to in the Registration Statement
or any instrument, document, contract or agreement filed as an exhibit to, or
incorporated as an exhibit by reference in, the Registration Statement. Except
as described in the Registration Statement or the Prospectus, to the best of our
knowledge, there is no commitment or arrangement to issue, and there are no
outstanding options, warrants or other rights calling for the issuance of, any
share of capital stock of the Company or any Subsidiary to any person or any
security or other instrument that by its terms is convertible into, exercisable
for or exchangeable for capital stock of the Company.

          No consent, approval, authorization or order of, or any filing or
declaration with, any court or governmental agency or body is required in
connection with the authorization, issuance, transfer, sale or delivery of the
Shares by the Company, in connection with the execution, delivery and
performance of the Agreement including the Price Determination Agreement by the
Company or in connection with the taking by the Company of any action
contemplated thereby or, if so required, all such consents, approvals,
authorizations and orders, have been obtained and are in full force and effect,
except such as have been obtained under the Act and the Rules and Regulations
and such as may be required under state securities or "Blue Sky" laws or by the
by-laws and rules of the NASD in connection with the purchase and distribution
by the Underwriters of the Shares to be sold by the Company. All references in
this opinion to the Agreement shall include the Price Determination Agreement.

          The authorized, issued and outstanding capital stock of the Company is
as set forth in the Registration Statement and the Prospectus under the caption
"Capitalization." The description of the Common Stock contained in the
Prospectus is complete and accurate in all material respects. The form of
certificate used to evidence the Common Stock is in due and proper form and
complies with all applicable statutory requirements.

          The Registration Statement and the Prospectus (including any documents
incorporated by reference into the Prospectus, at the time they were filed)
comply in all material respects as to form with the requirements of the Act, the
Exchange Act, the Exchange Act Rules and Regulations and the Rules and
Regulations (except that we express no opinion as to financial statements,
schedules and other financial data contained in the Registration Statement or
the Prospectus or incorporated by reference therein).

          To the best of our knowledge, any instrument, document, lease,
license, contract or other agreement (collectively, "Documents") required to be
described or referred to in the Registration Statement or the Prospectus has
been properly described or referred to therein and any Document required to be
filed as an exhibit to the Registration Statement has been filed as an exhibit
thereto or has been incorporated as an exhibit by reference in the Registration
Statement; and no default exists in the due performance or observance of any
material obligation, agreement, covenant or condition contained in any Document
filed or required to be filed as an exhibit to the Registration Statement.

                                       C-1

<PAGE>   21
          To the best of our knowledge, except as disclosed in the Registration
Statement or the Prospectus, no person or entity has the right to require the
registration under the Act of shares of Common Stock or other securities of the
Company by reason of the filing or effectiveness of the Registration Statement.

          To the best of our knowledge, the Company is not in violation of, or
in default with respect to, any law, rule, regulation, order, judgment or
decree, except as may be described in the Prospectus or such as in the aggregate
do not now have and will not in the future have a material adverse effect upon
the operations, business or assets of the Company and the Subsidiaries, taken as
a whole.

          All descriptions in the Prospectus of statutes, regulations or legal
or governmental proceedings are accurate and fairly present the information
required to be shown.

          The Company has full corporate power and authority to enter into the
Agreement, and the Agreement has been duly authorized, executed and delivered by
the Company, is a valid and binding agreement of the Company and, except for the
indemnification and contribution provisions thereof, as to which we express no
opinion, is enforceable against the Company in accordance with the terms
thereof.

          The execution and delivery by the Company of, and the performance by
the Company of its agreements in, the Agreement do not and will not (i) violate
the certificate of incorporation or by-laws of the Company, (ii) breach or
result in a default under, cause the time for performance of any obligation to
be accelerated under, or result in the creation or imposition of any lien,
charge or encumbrance upon any of the assets of the Company or any of its
Subsidiaries pursuant to the terms of, (x) any indenture, mortgage, deed of
trust, loan agreement, bond, debenture, note agreement, capital lease or other
evidence of indebtedness of which we have knowledge, (y) any voting trust
arrangement or any contract or other agreement to which the Company is a party
that restricts the ability of the Company to issue securities and of which we
have knowledge or (z) any Document filed as an exhibit to, or incorporated as an
exhibit by reference in, the Registration Statement, (iii) breach or otherwise
violate any existing obligation of the Company under any court or administrative
order, judgment or decree of which we have knowledge or (iv) violate applicable
provisions of any statute or regulation in the States of Delaware, _________, or
of the United States.

          Delivery of certificates for the Shares will transfer valid and
marketable title thereto to each Underwriter that has purchased such Shares in
good faith and without notice of any adverse claim with respect thereto.

          The Company is not an "investment company" or an "affiliated person"
of, or "promoter" or "principal underwriter" for, an "investment company," as
such terms are defined in the Investment Company Act of 1940, as amended.

          The Shares have been duly authorized for listing by the NASDAQ
National Market upon official notice of issuance.

          We hereby confirm to you that we have been advised by the Commission
that the Registration Statement has become effective under the Act and that no
order suspending the effectiveness of the Registration Statement has been issued
and no proceeding for that purpose has been instituted or is pending, threatened
or contemplated.

          We hereby further confirm to you that there are no actions, suits,
proceedings or investigations pending or, to our knowledge, overtly threatened
in writing against the Company or any of its Subsidiaries, or any of their
respective officers or directors in their capacities as such, before or by any
court, governmental agency or arbitrator which (i) seek to challenge the
legality or enforceability of the Agreement, (ii) seek to challenge the legality
or enforceability of any of the Documents filed, or required to be filed, as
exhibits to the Registration Statement, (iii) seek damages or other remedies
with respect to any of the Documents filed, or required to be filed, as exhibits
to the Registration Statement, (iv) except as set forth in or contemplated by
the Registration Statement and the Prospectus, seek money damages in excess of
$50,000 or seek to impose

                                       C-2

<PAGE>   22
criminal penalties upon the Company, any of its Subsidiaries or any of their
respective officers or directors in their capacities as such and of which we
have knowledge or (v) seek to enjoin any of the business activities of the
Company or any of its Subsidiaries or the transactions described in the
Prospectus and of which we have knowledge.

          We have participated in the preparation of the Registration Statement
and the Prospectus and, without assuming any responsibility for the accuracy,
completeness or fairness of the statements contained in the Registration
Statement or the Prospectus or in any amendment or supplement thereto or in any
document incorporated by reference into the Prospectus, nothing has come to our
attention that causes us to believe that, both as of the Effective Date and as
of the Closing Date and the Option Closing Date, the Registration Statement or
any amendment thereto contained or contains any untrue statement of a material
fact or omitted or omits to state a material fact required to be stated therein
or necessary to make the statements therein not misleading or that any
Prospectus or any amendment or supplement thereto including any documents
incorporated by reference into the Prospectus, at the time such Prospectus was
issued, at the time any such amended or supplemented Prospectus was issued, at
the Closing Date and the Option Closing Date, contained or contains any untrue
statement of a material fact or omitted or omits to state a material fact
necessary in order to make the statements therein, in the light of the
circumstances in which they were made, not misleading (except that we express no
opinion as to financial statements, schedules and other financial data contained
in the Registration Statement or the Prospectus or incorporated by reference
therein).

          The foregoing opinion is subject to the qualification that the
enforceability of the Agreement may be: (i) subject to bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting creditors' rights
generally; and (ii) subject to general principles of equity (regardless of
whether such enforceability is considered in a proceeding at law or in equity)
including principles of commercial reasonableness or conscionability and an
implied covenant of good faith and fair dealing.

          This letter is furnished by us solely for your benefit in connection
with the transactions referred to in the Agreement and may not be circulated to,
or relied upon by, any other person, except that this letter may be relied upon
by your counsel in connection with the opinion letter to be delivered to you
pursuant to Section 5(g) of the Agreement.

          In rendering the foregoing opinion, counsel may rely, to the extent
they deem such reliance proper, on the opinions (in form and substance
reasonably satisfactory to Underwriters' counsel) of other counsel reasonably
acceptable to Underwriters' counsel as to matters governed by the laws of
jurisdictions other than the United States and the State of Delaware, and as to
matters of fact, upon certificates of officers of the Company, the Selling
Shareholders and of government officials; provided that such counsel shall state
that the opinion of any other counsel is in form satisfactory to such counsel.
Copies of all such opinions and certificates shall be furnished to counsel to
the Underwriters on the Closing Date.

                                       C-3



<PAGE>   1
                                                                     EXHIBIT 5.1





                                  May 31, 1996


VIVUS, Inc.
545 Middlefield Road
Suite 200
Menlo Park, California 94025

         Re:      Registration Statement on Form S-3

Ladies and Gentlemen:

         We have examined the Registration Statement on Form S-3 to be filed
with the Securities and Exchange Commission (the "Registration Statement"), in
connection with the registration under the Securities Act of 1933, as amended,
of 2,300,000 shares (including an over-allotment option granted to the
underwriter to purchase 300,000 shares) of your Common Stock (the "Shares"), all
of which are authorized. The Shares are to be sold to the underwriter for resale
to the public as described in the Registration Statement and pursuant to the
Underwriting Agreement being filed as an exhibit thereto. As your counsel, we
have examined the proceedings proposed to be taken in connection with the sale
and issuance of the Shares.

         It is our opinion that, upon completion of the proceedings being taken
or contemplated by us, as your counsel, to be taken prior to the issuance of the
Shares, and upon completion of the proceedings being taken in order to permit
such transactions to be carried out in accordance with the securities laws of
the various states, where required, the Shares,
 when issued and sold in the
manner referred to in the Registration Statement, will be legally and validly
issued, fully paid and nonassessable.

         We consent to the use of this opinion as an exhibit to the Registration
Statement, and further consent to the use of our name wherever appearing in the
Registration Statement, including the Prospectus constituting a part thereof,
and any amendment thereto.

                                             Very truly yours,

                                              WILSON, SONSINI, GOODRICH & ROSATI
                                              Professional Corporation