<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 2, 1998
REGISTRATION NO. 333-66269
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
CYPRESS BIOSCIENCE, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<CAPTION>
DELAWARE 3845 22-2389839
<S> <C> <C>
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
4350 EXECUTIVE DRIVE, SUITE 325
SAN DIEGO, CA 92121
(619) 452-2323
(Address, including zip code and telephone number, including area code,
of Registrant's principal executive offices)
---------------
JAY D. KRANZLER, M.D., PH.D.
CHAIRMAN OF THE BOARD OF DIRECTORS AND CHIEF EXECUTIVE OFFICER
CYPRESS BIOSCIENCE, INC.
4350 EXECUTIVE DRIVE, SUITE 325
SAN DIEGO, CA 92121
(619) 452-2323
(Name, address, including zip code and telephone number, including
area code, of agent for service)
---------------
COPIES TO:
FREDERICK T. MUTO, ESQ.
D. BRADLEY PECK, ESQ.
LAUREN D. BOYD, ESQ.
COOLEY GODWARD LLP
4365 EXECUTIVE DRIVE, SUITE 1100
SAN DIEGO, CA 92121
---------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
From time to time 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, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
----------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED
PROPOSED MAXIMUM
MAXIMUM AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE OFFERING REGISTRATION
SECURITIES TO BE REGISTERED BE REGISTERED PER SHARE PRICE(1) FEE
--------------------------- ------------- --------- -------- ---
<S> <C> <C> <C> <C>
Common Stock, $.02 par value per share 3,063,561 $2.89 8,853,604.59 2,461.33(2)
</TABLE>
(1) Estimated in accordance with Rule 457(c) solely for the purpose of
calculating the amount of the registration fee based on the average of the high
and low prices of the Registrant's common stock as reported on the Nasdaq
SmallCap Market on October 26, 1998.
(2) Previously paid upon the initial filing of this Registration Statement.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
================================================================================
<PAGE> 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 - DATED NOVEMBER 2, 1998
PROSPECTUS
3,063,561 SHARES
CYPRESS BIOSCIENCE, INC.
COMMON STOCK
In September 1998, we sold shares of our Series A Convertible Preferred
Stock to certain individuals and entities. These shares of preferred stock are
convertible into 3,063,561 shares of our common stock. We have filed this
prospectus to register the shares of common stock underlying the Series A
Convertible Preferred Stock so that the stockholders may offer and sell shares
in the public market and otherwise. The selling stockholders and the number of
shares of our common stock each selling stockholder may sell under this
prospectus are listed on pages 6-7 of this prospectus.
The selling stockholders may offer their Cypress common stock through
public or private transactions, on or off the Nasdaq SmallCap Market, at
prevailing market prices, or at privately negotiated prices.
Our common stock is listed on the Nasdaq SmallCap Market under the
ticker symbol "CYPB." On October 27, 1998, the closing price of one share of
Cypress common stock on the Nasdaq SmallCap Market was $2.69.
----------------
THE SHARES OF CYPRESS COMMON STOCK OFFERED OR SOLD UNDER THIS
PROSPECTUS INVOLVE A HIGH DEGREE OF RISK. SEE "RISK FACTORS" BEGINNING ON PAGE
3.
----------------
THE SHARES OF CYPRESS COMMON STOCK OFFERED OR SOLD UNDER THIS
PROSPECTUS HAVE NOT BEEN APPROVED BY THE SEC OR ANY STATE SECURITIES COMMISSION,
NOR HAVE THESE ORGANIZATIONS DETERMINED THAT THIS PROSPECTUS IS ACCURATE OR
COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
PROSPECTUS DATED _______ __, 1998.
1.
<PAGE> 3
THIS PROSPECTUS IS PART OF A REGISTRATION STATEMENT THAT WE FILED WITH
THE SEC. THE REGISTRATION STATEMENT INCLUDES EXHIBITS AND ADDITIONAL INFORMATION
NOT INCLUDED IN THE PROSPECTUS.
WE HAVE NOT AUTHORIZED ANY PERSON TO GIVE YOU ANY SUPPLEMENTAL
INFORMATION OR MAKE ANY REPRESENTATIONS FOR US. YOU SHOULD NOT RELY UPON ANY
INFORMATION ABOUT CYPRESS THAT IS NOT CONTAINED IN THIS PROSPECTUS OR IN ONE OF
CYPRESS'S PUBLIC REPORTS FILED WITH THE SEC AND INCORPORATED INTO THIS
PROSPECTUS. INFORMATION CONTAINED IN THIS PROSPECTUS OR IN CYPRESS'S PUBLIC
REPORTS MAY BECOME OUTDATED. YOU SHOULD NOT ASSUME THAT THE INFORMATION IN THIS
PROSPECTUS IS ACCURATE OR COMPLETE AS OF ANY DATE OTHER THAN THE DATE ON THE
FRONT OF THIS PROSPECTUS OR OTHER DATE TO WHICH SPECIFIC INFORMATION CONTAINED
HEREIN IS QUALIFIED. WE ARE NOT MAKING AN OFFER OF SECURITIES IN ANY STATE WHERE
THE OFFER IS NOT PERMITTED.
THE COMPANY
At Cypress, we research, develop, manufacture and market medical
devices and therapeutics for the treatment of human immune system disorders, and
we develop novel therapeutic agents for the treatment of blood platelet
disorders. We currently market one product, the Prosorba(R) column, for only one
indication, the treatment of idiopathic thromboxylopene purpura ("ITP"). Our
goal is to continue to market the Prosorba column for the treatment of ITP and
to obtain regulatory approval to market the Prosorba column for the treatment of
rheumatoid arthritis. We also plan to attempt to discover other disease
indications for which the Prosorba column may be used as a treatment and to
market the Prosorba column in those areas. In addition, we intend to continue to
develop Cyplex(R) (Infusible Platelet Membranes), a platelet alternative, as an
alternative to traditional platelet transfusions.
Our principal executive offices are located at 4350 Executive Drive,
Suite 325, San Diego, California 92121, and our telephone number is (619)
452-2323. We were incorporated in Delaware in 1981.
Prosorba column and Cyplex, platelet alternative, are registered
trademarks of the Company. All other brand names or trademarks appearing in this
Prospectus are the property of their respective holders.
2.
<PAGE> 4
RISK FACTORS
Investment in Cypress shares involves a high degree of risk. You should
consider the following discussion of risks as well as other information in this
prospectus before purchasing any Cypress shares.
Except for historical information, the information contained in this
prospectus and in our SEC reports are "forward looking" statements about our
expected future business and performance. Our actual operating results and
financial performance may prove to be very different from what we might have
predicted as of the date of this prospectus. The risks described below address
some of the factors that may affect our future operating results and financial
performance.
OUR NEED FOR ADDITIONAL CAPITAL
We are actively seeking opportunities to raise additional capital to be
used primarily to fund the proposed commercial launch of the Prosorba column for
the rheumatoid arthritis indication, to develop new and complete existing
research, and to further the development and marketing of Cyplex, platelet
alternative. We may need to raise additional capital to complete the launch of
the Prosorba column for the rheumatoid arthritis indication, if approved. In
addition, if we decide to continue the development of products other than the
Prosorba column and Cyplex, platelet alternative, we will be required to raise
additional capital. The amount of capital we will require is difficult to
predict, and we cannot assure you that we will be able to raise any additional
capital from any source. If we are unable to obtain additional financing, we may
have to delay or scale back the launch of the Prosorba column for the rheumatoid
arthritis indication, if approved, and delay, scale back or eliminate some or
all of our research and development activities. In addition, we may be required
to license to third parties technologies that we would otherwise seek to develop
ourselves, to seek financing at potentially higher costs to us or to seek
additional methods of financing. These results may have a detrimental effect on
our financial condition and could prevent us from realizing our long-term goals.
OUR HISTORY OF OPERATING LOSSES
We are operating at a loss and have been operating at a loss since our
formation in October 1981. As of June 30, 1998, we had an accumulated deficit of
approximately $73.5 million. Our ability to become profitable is dependent upon
our obtaining U.S. Food and Drug Administration (the "FDA") marketing approval
of the Prosorba column in rheumatoid arthritis and disease indications other
than ITP in a timely manner, and successfully increasing the sales of the
Prosorba column. If we do not receive marketing approval from the FDA for the
Prosorba column for the treatment of rheumatoid arthritis, or for Cyplex,
platelet alternative, for the treatment of platelet disorders, we will have to
significantly scale back our plans, curtail clinical trials, and limit our
present operations in order to become profitable or operate on a break-even
basis.
PENDING FDA DECISION ON OUR PRE-MARKET APPROVAL APPLICATION
Our only FDA-approved product is the Prosorba column, which the FDA
approved in 1987 for use by patients with ITP. However, sales of the Prosorba
column for use by patients with ITP have declined over the last two years.
3.
<PAGE> 5
We are currently focused on obtaining FDA approval to market the Prosorba column
for the treatment of rheumatoid arthritis. We filed a Pre-Market Approval
application with the FDA in July 1998 to allow us to market the Prosorba column
for use in the treatment of rheumatoid arthritis (the "PMA Application"). The
Company appeared at a hearing before the FDA's Gastroenterology and Urology
Device Advisory Panel (the "FDA Panel") on October 29, 1998. The FDA Panel
recommended on that day to the FDA that the Prosorba column be approved for the
treatment of moderate to severe rheumatoid arthritis, subject to the
requirements that (i) we conduct a post-marketing trial to determine the safety
and efficacy of combination treatment with disease-modifying anti-rheumatic
drugs and to evaluate the safety and efficacy of treatment of rheumatoid
arthritis patients with the Prosorba column and (ii) final labeling of the
Prosorba column for the treatment of rheumatoid arthritis be negotiated by the
end of 1998. However, we cannot assure you that the FDA will follow the FDA
Panel's recommendation and if the PMA Application is not approved and the
Prosorba column is restricted to the treatment of ITP, the Company will be
required to significantly scale back its plans and limit its present operations
and may not otherwise be viable as an independent entity.
OUR SALES FORCE
We have a small domestic sales force that sells the Prosorba column
directly to customers for use in the treatment of ITP. To date, our sales force
has made commercial sales of the Prosorba column only for use in the treatment
of ITP. Our sales force has had no experience in marketing the Prosorba column
for use in the treatment of disease indications other than ITP. Accordingly, if
we receive FDA approval to use the Prosorba column for the treatment of
rheumatoid arthritis or any other disease indications other than ITP, our sales
force may not be able to successfully market the Prosorba column for such uses.
Any failure by our sales force to successfully market the Prosorba column for
rheumatoid arthritis, if approved, would have a material adverse effect on our
overall financial performance.
COMPETITIVE ENVIRONMENT
The healthcare field in general and the particular areas in which we
market our products are extremely competitive. In developing and marketing
medical devices to treat immune-mediated diseases, we compete with other
products, therapeutic techniques and treatments offered by national and
international healthcare and pharmaceutical companies, many of which have
greater marketing, human and financial resources than we do. In addition, we
expect to compete with new products and therapeutic techniques and treatments
that are in various stages of clinical development, some of which are expected
to ultimately receive FDA approval.
The immunological therapy market is characterized by rapid
technological change and potential introductions of new products or therapies.
To respond to these changes, we may be required to develop or purchase new
products to protect our technology from obsolescence. We may not be able to
develop or obtain such products. Even if we develop or obtain new products, such
products may not be commercially viable. In addition, we cannot assure you that
our Prosorba column will prove effective in the treatment of rheumatoid
arthritis or that Cyplex, platelet alternative, if approved for sale by the FDA,
will be an effective alternative to traditional platelet therapy. If the
Prosorba column fails to be effective in the treatment of rheumatoid arthritis
or if Cyplex, platelet alternative, fails to be an effective alternative to
traditional platelet therapy, our entire business will be materially adversely
affected.
UNCERTAINTY OF OUR PATENT PROTECTION
As a policy, we seek to protect our proprietary technology and inventions
which are used in the Prosorba column and Cyplex, platelet alternative, through
patents, trade secret law and other legal protections. We may, however, incur
significant expense in protecting our intellectual property and defending or
assessing claims with respect to intellectual property owned by others.
4.
<PAGE> 6
Any patent or other infringement litigation by or against us could result in
significant expense to us and diversion of our management resources, which in
turn could have an adverse effect on our financial performance. The process used
in manufacturing the Prosorba column is covered by one of various patents that
we hold; however, we cannot assure you that this patent will afford significant
protection of our proprietary technology. We also could be forced to modify or
abandon the Prosorba column or Cyplex, platelet alternative, based upon our
assessment of intellectual property risks or actual or threatened claims by
others. Since the Prosorba column is our only FDA-approved product, our entire
business will be materially adversely affected if we are unable to sell that
product.
Others have filed applications for, or have been issued, patents and may obtain
additional patents and other proprietary rights competing with our products or
process. Although we do not presently know the scope and validity of these
patents, if existing or future patents are upheld as valid by courts, we may
be required to obtain licenses to use technology covered by these patents.
CONCENTRATION OF OUR OWNERSHIP
As of October 16, 1998, Paramount Capital, Inc., through its
affiliates, beneficially owns 19.2% of our outstanding common stock and Allen &
Company Incorporated beneficially owned approximately 13.6% of our outstanding
common stock. Individually or collectively, Paramount Capital, Inc. and Allen &
Company Incorporated may be able to exert substantial influence over the outcome
of matters requiring stockholder approval.
INSURANCE REIMBURSEMENT
Successful commercialization of a new medical product, such as the
Prosorba column or Cyplex, platelet alternative, depends on reimbursement by
public and private health insurers to health care providers for use of such
products. Such reimbursement may not be available due to a variety of factors,
many of which could affect us as we commercialize use of the Prosorba column for
rheumatoid arthritis and continue the development and commercialization of
Cyplex, platelet alternative. We have generally been successful in assisting
health care providers in arranging reimbursement for the use of the Prosorba
column in the treatment of ITP. We cannot assure you, however, that public and
private insurers will continue to reimburse us for the use of the Prosorba
column in the treatment of ITP or in the treatment of any other disease
indications approved by the FDA. In addition, we do not know whether health care
providers will reimburse us for the use of Cyplex, platelet alternative.
PRODUCT LIABILITY FOR OUR PRODUCTS
The use of the Prosorba column and, if approved for use by the FDA,
Cyplex, platelet alternative, may result in adverse side effects to the
end-users that could expose us to product liability claims. We currently hold
product liability insurance of $15 million, which we believe is adequate in
light of our business. However, we cannot predict all the possible harms or side
effects that may result from treatment of patients with our products and
therefore, we cannot assure you that the amount of coverage we currently hold
will be adequate to protect us. We also cannot assure you that we will have
sufficient resources to pay any liability resulting from such a claim beyond our
insurance coverage.
POSSIBLE VOLATILITY OF OUR STOCK PRICE
Like other smaller-capitalization technology companies, our stock price has
fluctuated significantly at times and is subject to a risk of ongoing
volatility. The price of our shares may be adversely affected by our financial
performance or the performance of our competitors, the market for technology
company stocks, the market for small cap company stocks, general economic trends
or other factors that we cannot predict or control.
5.
<PAGE> 7
In addition, in connection with our acquisition of PRP, Inc. in November
1996, we must make a $5 million milestone payment to the former holders of
equity securities of PRP, Inc. when there is a public announcement of an FDA
approval letter relating to the use of Cyplex, platelet alternative, for the
treatment of thrombocytopenia. We have the option to make that payment in cash
or shares of our common stock. If we decide to make that payment in cash, a cash
payment of $5 million might have a material adverse effect on our financial
condition. If we decide to make that payment in common stock, the issuance of
additional shares of common stock with a value of $5 million might have a
significant impact on the market price of our common stock.
USE OF PROCEEDS
All net proceeds from the sale of the Cypress shares which are covered
by this prospectus will go to the selling stockholders who offer and sell their
shares. Cypress will not receive any proceeds from sales of Cypress shares by
the selling stockholders.
SELLING STOCKHOLDERS
Under a Stockholder Rights Agreement dated as of September 15, 1998
among Cypress and certain selling stockholders, we agreed to register the shares
of common stock issued on conversion of the Series A Convertible Preferred Stock
and to use our best efforts to keep the registration statement effective until
the earlier of:
- all securities have been sold under the registration
statement; or
- all securities have been sold under Rule 144.
Our registration of these Cypress shares does not necessarily mean that
the selling stockholders will sell all or any such shares.
<TABLE>
<CAPTION>
Shares Shares
Beneficially Beneficially
Owned Prior to Shares Being Owned After
Offering(1) Percent(2) Offered Offering(1)(3)
----------- ------- ------- --------------
Name of Selling Stockholders Number Number Number
- ---------------------------- ------ ------ ------
<S> <C> <C> <C> <C>
Abbnuzzese, Anthony 95,666 * 66,666 29,000
Adler, Larry D. 30,000 * 30,000 0
Angell, Richard A. 66,667 * 66,667 0
Aries Domestic Fund, L.P. (4) 3,018,700(5) 7.6 173,333 2,845,367
Braziel, Ronald W. 210,000 * 100,000 110,000
Century Publishing Company 133,333 * 133,333 0
Clearwater Fund I, L.P. 200,000 * 200,000 0
Clearwater Offshore Fund Ltd. 973,900 2.5 400,000 573,900
Drobny, Irving 2,000 * 2,000 0
</TABLE>
6.
<PAGE> 8
<TABLE>
<CAPTION>
Shares
Beneficially Shares
Owned Beneficially
Prior to Shares Being Owned After
Offering(1) Percent(2) Offered Offering(1)(3)
----------- ------- ------- --------------
Name of Selling Stockholders Number Number Number
- ---------------------------- ------ ------ ------
<S> <C> <C> <C> <C>
Drueke, Paul Charles 61,000 * 33,000 28,000
Finkelstein, Jerry 13,333 * 13,333 0
Freedman, Rick M. 26,800 * 13,400 13,400
Goulding, Dr. Richard E. 60,291(6) * 26,666 33,625
Goulding, Randall S. 54,000(7) * 24,000 30,000
Hennessy, Paul E. 16,666 * 16,666 0
Higgins, James R., M.D. 91,666 * 66,666 25,000
Holland, James A. 20,000(8) * 15,000 5,000
Hyman Lezell Revocable Trust 39,000 * 34,000 5,000
Jerome P. Seiden, Trustee
of the Jerome P. Seiden
Revocable Trust Agreement
dated 4/22/83 33,333 * 33,333 0
Katzman, Marshall 31,750(9) * 13,000 18,750
Levine, Fred 10,000 * 10,000 0
Levitas, Doron 100,000 * 100,000 0
Lisenby, Sr., S. Alan 33,333 * 33,333 0
Michael T. Jackson Trust- New
Technologies Fund, Michael T.
Jackson TTEE 150,000 * 150,000 0
Morrongiello, John 82,666(10) * 66,666 16,000
Nagler, Steven B. 15,500(11) * 2,000 13,500
Nordruk Partners Investment
Co. Limited Partners 100,000 * 51,500 48,500
Paradigm Group, LLC 161,333 * 161,333 0
Rosin, Joseph A. 163,333 * 143,333 20,000
Samuel D. Anderson and
Mary Ann H. Anderson, Trustees
of the Samuel and Mary Ann
Anderson Trust Dated
March 22, 1979 100,000 * 100,000 0
Savino, Joseph E. 26,666 * 26,666 0
Schachter, Jerome 73,333 * 73,333 0
Schachter, Michael 4,000 * 4,000 0
Schwartz, Sarah 38,650(12) * 25,000 13,650
Sheldon B. Cohen & Samuel
Spiro, as tenants in common 66,667 * 66,667 0
</TABLE>
7.
<PAGE> 9
<TABLE>
<CAPTION>
Shares Shares
Beneficially Beneficially
Owned Prior to Shares Being Owned After
Offering(1) Percent(2) Offered Offering(1)(3)
----------- ------- ------- --------------
Name of Selling Stockholders Number Number Number
- ---------------------------- ------ ------ ------
<S> <C> <C> <C> <C>
Shiman, Stewart A. 258,333(13) * 33,333 225,000
The Aries Trust 5,269,535(14) 13.3 493,334 4,776,201
Vulcano, Michael 18,000 * 18,000 0
Wierenga, Peter Douglas 135,000 * 34,000 101,000
Zerfass, Robb 10,000 * 10,000 0
</TABLE>
* Less than 1%
(1) Unless otherwise indicated below, the persons named in the table have
sole voting and investment power with respect to all shares
beneficially owned by them, subject to community property laws where
applicable.
(2) Applicable percentage of ownership is based on 39,447,397 shares of
common stock outstanding on October 27, 1998.
(3) Assumes the sale of all shares offered hereby.
(4) Paramount Capital Asset Management, Inc. ("PCAM") is the investment
manager of the Aries Fund, a Cayman Island Trust (the "Trust") and the
general partner of Aries Domestic Fund, L.P. (the "Partnership" and
collectively with the Trust, the "Aries Funds"). Lindsay A. Rosenwald,
M.D. is the President and sole shareholder of PCAM. Dr. Rosenwald and
PCAM share voting and dispositive power with respect to the shares held
by the Aries Funds. Dr. Rosenwald and PCAM disclaim beneficial
ownership of the shares held by the Aries Funds except to the extent of
their pecuniary interest therein, if any.
(5) Includes warrants to purchase 37,500 shares of our common stock.
(6) Includes warrants to purchase 3,625 shares of our common stock.
(7) Includes warrants to purchase 30,000 shares of our common stock.
(8) Mr. Holland's brother-in-law is Samuel D. Anderson, a member of our
board of directors.
(9) Includes warrants to purchase 6,250 shares of our common stock.
(10) Includes warrants to purchase 5,000 shares of our common stock.
(11) Includes warrants to purchase 6,250 shares of our common stock.
(12) Includes warrants to purchase 6,250 shares of our common stock.
(13) Includes warrants to purchase 75,000 shares of our common stock.
(14) Includes warrants to purchase 87,500 shares of our common stock.
8.
<PAGE> 10
PLAN OF DISTRIBUTION
The selling stockholders may offer their Cypress shares at various
times in one or more of the following transactions:
- on the Nasdaq SmallCap Market;
- in the over-the-counter market;
- in negotiated transactions other than the Nasdaq SmallCap
Market or the over-the-counter market;
- in connection with short sales of the Cypress shares;
- by pledge to secure debts and other obligations;
- in connection with the writing of call options, in hedge
transactions and in settlement of other transactions in
standardized or over-the-counter options; or
- in a combination of any of the above transactions.
The selling stockholders may sell their shares at market prices at the
time of sale, at prices related to such prevailing market prices, at negotiated
or at fixed prices.
The selling stockholders may use broker-dealers to sell their shares.
If this happens, broker-dealers will either receive discounts or commissions
from the selling stockholders, or they will receive commissions from purchasers
for whom they acted as agents.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and
other information with the SEC. You may read and copy the documents we file at
the SEC's public reference rooms in Washington, D.C., New York, New York and
Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further information
on the public reference rooms. Our SEC filings are also available to the public
from the SEC's website at http://www.sec.gov.
The SEC allows us to "incorporate by reference" the information we file
with them, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
considered to be part of this prospectus, and information that we file later
with the SEC will automatically update and supersede this information. We
incorporate by reference the documents listed below and any future filings we
will make with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the
Securities and Exchange Act of 1934:
1. Annual report on Form 10-K for the fiscal year ended December
31, 1997;
2. Quarterly report on Form 10-Q for the quarter ended March 31,
1998;
3. Quarterly report on Form 10-Q for the quarter ended June 30,
1998; and
4. Current report on Form 8-K/A dated April 16, 1998.
9.
<PAGE> 11
You may request a copy of these filings, at no cost, by writing the
Company at the following address:
Cypress Bioscience, Inc.
Attn: Investor Relations
4350 Executive Drive, Suite 325
San Diego, CA 92121
10.
<PAGE> 12
DESCRIPTION OF CAPITAL STOCK
GENERAL
As of the date of this prospectus, our Certificate of Incorporation
authorizes us to issue 60,000,000 shares of common stock and 15,000,000 shares
of preferred stock, including 3,333,333 shares of Series A Convertible Preferred
Stock. As of October 27, 1998, 39,447,397 shares of common stock and 3,063,561
shares of Series A Convertible were outstanding. The Board of Directors may
issue shares of the preferred stock at any time, in one or more series without
stockholder approval. The Board of Directors determines the designation,
relative rights, preferences and limitations of each series of preferred stock.
COMMON STOCK AND PREFERRED STOCK
Each share of Series A Convertible Preferred has a liquidation
preference of $1.50 per share plus unpaid dividends. Each share of Series A
Convertible Preferred is entitled to any dividends that are declared on the
common stock. Our common stockholders and our preferred stockholders have the
right to receive dividends that our Board of Directors declares in the form of
cash, securities or property.
The Series A Convertible Preferred Stock is not redeemable. The
holders may convert each share of Series A Convertible Preferred Stock into one
share of common stock (subject to anti-dilution adjustments). In addition, if
the price per share in the Company's next equity financing in which the Company
receives aggregate proceeds of at least $7,500,000 (the "Qualified Subsequent
Financing") is less than the applicable conversion price of the Series A
Convertible Preferred Stock, the conversion price will be adjusted to equal the
per share price paid in the Qualified Subsequent Financing.
Common stockholders have the right to vote one vote per share on all
matters that require their vote. This could change if we amend our charter
documents. Holders of Series A Convertible Preferred Stock are entitled to one
vote for each share of preferred and vote together with common stock on all
matters submitted to the common stockholders.
WARRANTS
As of October 27, 1998 there were warrants outstanding to purchase up
to 2,724,149 shares of our common stock at an exercise price of $2.00 per
share, the warrants were registered under the Securities Act. The warrants were
issued in October and November 1996 as a part of a "Unit," which was two shares
of our common stock and one warrant to purchase one share of our common stock.
The warrants were issued in registered form under a Warrant Agreement, dated as
of September 18, 1996 between the Company and American Stock Transfer and Trust
Company, who agreed to serve as the warrant agent for the warrants.
Under certain circumstances, all or any portion of the warrants are
redeemable, in whole or in part, at our option at a redemption price of $0.10
per warrant. If we attempt to redeem any warrants, the warrant may be exercised
until the close of business on the fifth business day preceding the day on which
we call for the redemption, the day on which we call for the redemption will be
specified in a notice of redemption.
The warrants are fully exercisable as of the date of this Prospectus
and will generally expire on October 1, 2001, unless exercised earlier.
COMPENSATION WARRANTS
As of October 27, 1998, there were warrants outstanding to purchase
154,000 shares of our common stock at an exercise price of $1.875 per share. We
originally issued these warrants to our directors, officers, employees and
consultants as compensation for their services (the
11.
<PAGE> 13
"Compensation Warrants"). The Compensation Warrants are fully exercisable as of
the date of this Prospectus and will generally expire in June 2001, unless they
are exercised earlier.
We are obligated to register the shares of common stock underlying the
Compensation Warrants. We will try to keep any such registration statement and
prospectus filed with the SEC to register the Compensation Warrants effective
for the life of the Compensation Warrants. We agreed to pay all the expenses of
registration of the shares underlying the Compensation Warrants.
OTHER WARRANTS
As of October 27, 1998, there were warrants outstanding to purchase
300,000 shares of our common stock at an exercise price of $2.875 per share,
which we originally issued in April 1994 to Allen & Company Incorporated as a
placement agent fee in connection with a private placement of 7% Convertible
Debentures. Such warrants are fully exercisable as of the date of this
prospectus and will expire in April 1999 unless they are exercised earlier. In
addition, as of October 27, 1998, Allen & Company Incorporated held an
additional warrant to purchase 125,000 shares of our common stock at an exercise
price of $2.00 per share. These warrants, which were acquired by Allen & Company
Incorporated in connection with our October 1996 private placement of Units,
are fully exercisable as of the date of this prospectus and generally expire
October 2001, unless exercised earlier.
As of October 27, 1998, there were outstanding warrants to purchase
150,000 shares of our common stock at a weighted average price of $2.27 per
share. The warrants were issued in November 1996 to certain or our consultants
in exchange for consulting services. Such warrants are exercisable as of the
date of this prospectus and expire November 2001, unless exercised earlier.
LEGAL MATTERS
For purposes of this offering, Cooley Godward LLP, San Diego,
California, is giving its opinion on the validity of the shares.
EXPERTS
The consolidated financial statements of the Company as of December 31,
1997 and 1996 and for each of the three years in the period ended December 31,
1997 incorporated herein by reference from the Company's Annual Report
(Form 10-K) have been audited by Ernst & Young LLP, independent auditors, as set
forth in their report thereon included therein and incorporated herein by
reference. Such consolidated financial statements are incorporated herein by
reference in reliance upon such report given upon the authority of such firm as
experts in accounting and auditing.
12.
<PAGE> 14
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth all expenses payable by the Registrant
in connection with the sale of the Securities being registered. All the amounts
shown are estimates except for the SEC registration fee and the Nasdaq SmallCap
Market listing fee.
<TABLE>
<S> <C>
SEC Registration fee...........................................$ 2,461
Nasdaq SmallCap Market listing fee............................. 7,500
Legal fees and expenses........................................ 10,000
Blue sky qualification fees and expenses ...................... 1,000
Accounting fees and expenses................................... 3,000
Printing and engraving expenses................................ 1,000
Miscellaneous 539
------
Total......................................................$ 25,500
======
</TABLE>
ITEM 15. INDEMNIFICATION OF OFFICERS AND DIRECTORS.
Section 145 of the General Corporation Law of the State of Delaware
(the "Delaware Law") empowers a Delaware corporation to indemnify any persons
who are, or are threatened to be made, parties to any threatened, pending or
completed legal action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right of such
corporation), by reason of the fact that such person was an officer or director
of such corporation, or is or was serving at the request of such corporation as
a director, officer, employee or agent of another corporation or enterprise. The
indemnity may include expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement of such action, suit or proceeding, provided that
such officer or director acted in good faith and in a manner he or she
reasonably believed to be in or not opposed to the corporation's best interest,
and, for criminal proceedings, had no reasonable cause to believe his or her
conduct was illegal. A Delaware corporation may indemnify officers and directors
against expenses (including attorney's fees) in connection with the defense or
settlement of an action by or in the right of the corporation under the same
conditions, except that no indemnification is permitted without judicial
approval if the officer or director is adjudged to be liable to the corporation.
Where an officer or director is successful on the merits or otherwise in the
defense of any action referred to above, the corporation must indemnify him or
her against the expenses which such officer or director actually and reasonably
incurred.
The Registrant's Bylaws contain a provision to limit the personal
liability of the directors of the Registrant for violations of their fiduciary
duty, except to the extent such limitation of liability is prohibited by the
Delaware Law. This provision eliminates each director's liability to the
Registrant or its stockholders for monetary damages except (i) for any breach of
the director's
II-1
<PAGE> 15
duty of loyalty to the Registrant or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the Delaware Law providing for
liability of directors for unlawful payment of dividends or unlawful stock
purchases or redemptions, or (iv) for any transaction from which a director
derived an improper personal benefit. The Registrant's Bylaws provide that the
Registrant shall indemnify directors and officers to the fullest extent
permitted by law. The effect of these provisions is to eliminate the personal
liability of directors for monetary damages for actions involving a breach of
their fiduciary duty of care, including any such actions involving gross
negligence.
In addition, Registrant has entered into indemnity agreements with its
executive officers and directors whereby Registrant obligates itself to
indemnify such officers and directors from any amounts which the officer or
director becomes obligated to pay because of any claim made against him or her
arising out of any act or omission committed while he or she is acting in his or
her capacity as a director and/or officer of Registrant.
Registrant maintains directors and officers liability insurance
coverage that insures its officers and directors against certain losses that may
arise out of their positions with the Registrant and insures the Registrant for
liabilities it may incur to indemnify its officers and directors.
ITEM 16. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
<S> <C>
3.1 Certificate of Designations of Series A Convertible Preferred
Stock
* 5.1 Opinion of Cooley Godward LLP
*10.1 Form of Stock Purchase Agreement
*10.2 Form of Stockholder Rights Agreement
23.1 Consent of Ernst & Young LLP, Independent Auditors
*23.2 Consent of Cooley Godward LLP. Reference is made to Exhibit 5.1
*24.1 Power of Attorney. Reference is made to page II-4.
</TABLE>
- -------------
* Previously Filed
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors and executive officers of the Registrant
pursuant to provisions described in Item 15 or otherwise, the Registrant has
been advised that in the opinion of the 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 or executive officer of
II-2
<PAGE> 16
the Registrant in the successful defense of any action, suit or proceeding) is
asserted by such director or executive officer in connection with the securities
being registered, the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement to include any
material information with respect to the plan of distribution not previously
disclosed in the registration statement or any material change to such
information in the registration statement.
(2) 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 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.
(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 caused 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.
(4) That, for the purposes of determining liability under the
Securities Act, each post-effective amendment 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.
(5) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
(6) That, for purposes of determining any liability under the
Securities Act, the information omitted from the form of prospectus filed as
part of this Registration Statement in reliance upon Rule 430A and contained in
a 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 this
Registration Statement as of the time it was declared effective.
(7) 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
II-3
<PAGE> 17
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
II-4.
<PAGE> 18
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this Amendment
No. 1 to Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of San Diego, State of California, on
November 2, 1998.
CYPRESS BIOSCIENCE, INC.
By: /s/ Jay D. Kranzler
---------------------------------
Jay D. Kranzler, M.D., Ph.D
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Jay D. Kranzler, M.D., Ph.D. Chief Executive Officer, November 2, 1998
- --------------------------------- Chief Scientific Officer,
Jay D. Kranzler, M.D., Ph.D. Chief Financial Officer
and Chairman of the Board
(Principal Executive Officer
and Principal Financial
and Accounting Officer)
*/s/ Debby Jo Blank, M.D. President, Chief Operating November 2, 1998
- --------------------------------- Officer and Director
Debby Jo Blank, M.D.
*/s/ Richard M. Crooks, Jr. Director November 2, 1998
- ---------------------------------
Richard M. Crooks, Jr.
*/s/ Philip J. O'Reilly Director November 2, 1998
- ---------------------------------
Philip J. O'Reilly
</TABLE>
II-5
<PAGE> 19
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
*/s/ Jack H. Vaughn Director November 2, 1998
- -------------------------------------
Jack H. Vaughn
*/s/ Samuel D. Anderson Director November 2, 1998
- -------------------------------------
Samuel D. Anderson
*/s/ David Golde Director November 2, 1998
- -------------------------------------
David Golde
*By: /s/ Jay D. Kranzler Director November 2, 1998
- -------------------------------------
Jay D. Kranzler, M.D., Ph.D.
Attorney-in-fact
</TABLE>
II-6
<PAGE> 20
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------ -----------------------
<S> <C>
3.1 Certificate of Designations of Series A Conversion Preferred Stock
* 5.1 Opinion of Cooley Godward LLP
*10.1 Form of Stock Purchase Agreement
*10.2 Form of Stockholder Rights Agreement
23.1 Consent of Ernst & Young LLP, Independent Auditors
*23.2 Consent of Cooley Godward LLP. Reference is made to Exhibit 5.1
*24.1 Power of Attorney. Reference is made to page II-5.
* Previously Filed
</TABLE>
<PAGE> 1
EXHIBIT 3.1
CERTIFICATE OF DESIGNATIONS, PREFERENCES
AND RELATIVE, PARTICIPATING, OPTIONAL AND
OTHER SPECIAL RIGHTS OF PREFERRED STOCK
AND QUALIFICATIONS, LIMITATIONS
AND RESTRICTIONS THEREOF
OF
SERIES A CONVERTIBLE PREFERRED STOCK
OF
CYPRESS BIOSCIENCE, INC.,
A DELAWARE CORPORATION
-------------------------
PURSUANT TO SECTION 151 OF THE
GENERAL CORPORATION LAW OF THE STATE OF DELAWARE
-------------------------
CYPRESS BIOSCIENCE, INC., a Delaware corporation (the "Corporation"),
certifies that pursuant to the authority contained in its Certificate of
Incorporation (the "Certificate of Incorporation") and in accordance with the
provisions of Section 151 of the General Corporation Law of the State of
Delaware, the Board of Directors of the Corporation adopted the following
resolution, which resolution remains in full force and effect on the date
hereof:
RESOLVED, that there is hereby established a series of authorized
preferred stock having a par value of $.02 per share, which series shall be
designated as "Series A Convertible Preferred Stock," shall consist of 3,333,333
shares and shall have the following voting powers, preferences and relative,
participating, optional and other special rights, and qualifications,
limitations and restrictions thereof as follows:
1. DESIGNATION AND AMOUNT. The designation of the series of the Preferred Stock
shall be "Series A Convertible Preferred Stock", par value $.02 per share (the
"Series A Preferred Stock"). The number of authorized shares of Series A
Preferred Stock shall be 3,333,333. The Series A Preferred Stock shall have an
initial issue price of $1.50 per share (the "Original Issue Price"). The date on
which any shares of Series A Preferred Stock are first issued is referred to
herein as the "Original Issue Date."
2. DIVIDENDS. The holders of shares of Series A Preferred Stock shall be
entitled to receive, on an as-if-converted to Common Stock basis, when and if a
cash dividend on the Corporation's common stock, par value $.02 per share (the
"Common Stock") is declared by the Board of Directors out of funds legally
available therefor, a cash dividend in a per share amount per share of Series A
Preferred Stock equal to the amount of the cash dividend declared on the number
of shares of Common Stock into which such Series A Preferred Stock is
convertible (as adjusted for
1.
<PAGE> 2
any stock splits, reverse stock splits, reorganizations, stock dividends,
recapitalizations and the like for such shares).
3. LIQUIDATION.
(a) PREFERENCE UPON LIQUIDATION, DISSOLUTION OR WINDING UP. In the event
of any liquidation, dissolution or winding up of the affairs of the Corporation
(any or all of such events, a "liquidation"), whether voluntary or involuntary,
subject to the prior preferences and other rights of any Senior Stock (as
defined below), if any, the holders of shares of Series A Preferred Stock then
outstanding shall be entitled pari passu as if members of a single class of
securities with the holders of any Parity Stock (as defined below), if any, to
be paid out of the assets of the Corporation before any payment shall be made to
the holders of Junior Stock (as defined below) an amount per share equal to the
Original Issue Price, plus any declared but unpaid dividends (the "Liquidation
Amount"). Except as provided in this Section 3(a), holders of Series A Preferred
Stock shall not be entitled to any distribution in the event of liquidation,
dissolution or winding up of the affairs of the Corporation. The term "Junior
Stock" shall mean Common Stock or any other class or series of stock ranking
junior to the Series A Preferred Stock in respect of the right to receive
dividend or the right to participate in any distribution upon liquidation, the
term "Senior Stock" shall mean any class or series of stock of the Corporation
authorized after the date of issuance of the Series A Preferred Stock ranking
senior to the Series A Preferred Stock in respect of the right to receive
dividends or the right to participate in any distribution upon liquidation and
the term "Parity Stock" shall mean any class or series of stock of the
Corporation authorized after the date of issuance of the Series A Preferred
Stock ranking on a parity with the Series A Preferred Stock in respect of the
right to receive dividends or the right to participate in any distribution upon
liquidation.
(b) MERGER OR SALE OF ASSETS. A merger of the Corporation in which
holders of more than 50% of the outstanding Common Stock of the Corporation
before the merger do not hold more than 50% of the outstanding Common Stock of
the Corporation after the merger, or a sale of all or substantially all of the
Corporation's assets, shall be deemed to be a liquidation for purposes of this
Section 3; provided, however, that a merger, consolidation or reorganization
where the Corporation is the surviving entity, or a merger of the Corporation
into a wholly-owned subsidiary shall not be deemed a liquidation.
(c) PREFERENCE ON MERGER, CONSOLIDATION OR SALE OF ASSETS.
Alternatively, in the event of a liquidation pursuant to Section 3(b) of this
Certificate of Designation, a holder of shares of Series A Preferred Stock may
elect to convert any or all of such holder's shares of Series A Preferred Stock
into shares of Common Stock in accordance with Section 5 of this Certificate of
Designation, in which event the holders electing to convert shall be entitled to
receive (in lieu of any amounts that would have been distributed to such holder
with respect to their shares of Series A Preferred Stock under Section 3(a)),
together with the holders of shares of Common Stock, pro rata based on the
number of shares of Common Stock then outstanding and the number of shares of
Common Stock into which the Series A Preferred Stock shall have been converted
pursuant to such election, the cash, securities and/or other property
distributable to holders of Common Stock if, as and when such cash, securities
and/or other property is distributed by the Corporation.
2.
<PAGE> 3
(d) INSUFFICIENT ASSETS. If, upon any liquidation of the Corporation,
the assets of the Corporation are insufficient to pay the holders of shares of
the Series A Preferred Stock and any Parity Stock, if any, then outstanding the
full amount to which they shall be entitled, such assets shall be distributed to
each holder of the Series A Preferred Stock and Parity Stock, if any, pro rata
based on the number of shares of Common Stock into which the Series A Preferred
Stock and Parity Stock, if any, held by each is convertible.
(e) RIGHTS OF OTHER HOLDERS. In the event of any liquidation, after
payment shall have been made to the holders of the Series A Preferred Stock and
Parity Stock, if any, of all preferential amounts to which they shall be
entitled, the holders of shares of Junior Stock and other capital stock of the
Corporation shall receive such amounts as to which they are entitled by the
terms thereof.
4. VOTING RIGHTS.
(a) The holders of the Series A Preferred Stock shall be entitled to
vote together with the holders of shares of Common Stock and any other class or
series of capital stock entitled to vote with the Common Stock as a single class
on all matters to be voted upon by the Common Stock, except as otherwise
required by law, and shall not have any additional voting rights other than the
rights specified below in this Section 4 or otherwise required by law. Each
holder of Series A Preferred Stock shall be entitled to such number (rounded to
the nearest whole number) of votes as such holder would be entitled if such
holder had converted the shares of Series A Preferred Stock held by such holder
into shares of Common Stock pursuant to Section 5(a) hereof immediately prior to
such vote.
(b) So long as at least fifty percent (50%) of the shares of the
authorized Series A Preferred Stock are outstanding, the Corporation shall not,
without the affirmative consent or approval of the holders of shares
representing at least a majority of the shares of Series A Preferred Stock then
outstanding, voting as a single class (such consent or approval to be given by
written consent in lieu of a meeting if allowable under the Corporation's
Certificate of Incorporation and applicable law or by vote at a meeting called
for such purpose for which notice shall have been given to the holders of the
Series A Preferred Stock):
(i) authorize the issuance of or issue any Senior Stock or
Parity Stock;
(ii) redeem or repurchase outstanding Common Stock except for (1)
repurchases of Common Stock from employees or directors of the Corporation in
connection with the termination of such employee's or director's service with
the Corporation, and (2) redemptions by the Corporation of outstanding
publicly-traded warrants of the Corporation;
(iii) enter into any agreement that would restrict the
Corporation's ability to perform it obligations under the Series A Stock
Purchase Agreement entered into between the Corporation and the holders of the
Series A Preferred Stock; or
(iv) amend its Certificate of Incorporation or Bylaws in any way
which adversely affects the rights and preferences of the holders of the Series
A Preferred Stock as a class (except that the Corporation may complete a
reverse-split of its Common Stock without the consent of the holders of the
Series A Preferred Stock).
3.
<PAGE> 4
5. CONVERSION RIGHTS.
(a) OPTIONAL CONVERSION OF SERIES A PREFERRED STOCK. The holder of any
shares of Series A Preferred Stock shall have the right, at such holder's
option, at any time or from time to time to convert any or all of such holder's
shares of Series A Preferred Stock into such number of fully paid and
nonassessable shares of Common Stock (the "Conversion Shares") as determined for
each share of Series A Preferred Stock by dividing the Original Issue Price by
the "Conversion Price" in effect at the time of such conversion. The "Conversion
Price" shall initially be the Original Issue Price. The Conversion Shares and
the Conversion Price are subject to certain adjustments as set forth herein, and
the terms Conversion Shares and Conversion Price as used herein shall as of any
time be deemed to include all such adjustments to be given effect as of such
time in accordance with the terms hereof; provided, further, that under no
circumstances shall the Conversion Price be reduced to a level that is less than
the par value of the Common Stock.
Upon the exercise of the option of the holder of any shares of
Series A Preferred Stock to convert Series A Preferred Stock into Common Stock,
the holder of such shares of Series A Preferred Stock to be converted shall
surrender the certificates representing the shares of Series A Preferred Stock
so to be converted in the manner provided in Section 5(c) below. Immediately
following such conversion, the rights of the holders of the Series A Preferred
Stock that has been converted (other than the right to receive dividends unpaid
as of the date of such conversion) shall cease and the persons entitled to
receive the Common Stock upon the conversion of Series A Preferred Stock shall
be treated for all purposes (other than the right to receive dividends unpaid as
of the date of such conversion) as having become the owners of such Common
Stock.
(b) AUTOMATIC CONVERSION. Provided that a registration statement for the
resale of the Conversion Shares is in effect, each share of Series A Preferred
Stock shall be automatically converted into shares of Common Stock, at the then
applicable Conversion Price, upon the first to occur of the following events:
(i) completion by the Corporation of a public offering of equity securities
raising gross proceeds of $15 million or more at a price to the public that
equals or exceeds $3.00 per share (in the case of each of (i) and (ii), as
adjusted for any stock splits, reverse stock splits, reorganizations, stock
dividends, recapitalizations and the like for such shares) of such equity
securities being offered; (ii) if the average closing sales price of the Common
Stock as reported by the National Association of Securities Dealers, Inc.
electronic interdealer quotation system ("Nasdaq") on the Nasdaq SmallCap Market
or the Nasdaq National Market System, as applicable, equals or exceeds $3.00 per
share of Common Stock for any twenty (20) trading days within any period of
thirty (30) consecutive trading days; or (iii) upon the written consent of the
holders of a majority of the Series A Preferred Stock then outstanding.
(c) DELIVERY OF STOCK CERTIFICATES. The holder of any shares of Series A
Preferred Stock may exercise the optional conversion right pursuant to Section
5(a) above by delivering to the Corporation or its duly authorized transfer
agent during regular business hours at the office of the Corporation the
certificate or certificates for the shares of Series A Preferred Stock to be
converted, duly endorsed or assigned either in blank or to the Corporation (if
required by it), accompanied by written notice stating that such holder elects
to convert such shares of Series A Preferred Stock and shall provide a
certificate to the Corporation or its duly authorized transfer
4.
<PAGE> 5
agent as to the date of such conversion. Upon the occurrence of an automatic
conversion pursuant to Section 5(b) above, the Corporation shall deliver notice
to each holder of Series A Preferred Stock and the holder of any shares of
Series A Preferred Stock shall deliver to the Corporation at the office of the
Corporation the certificate or certificates for all shares of Series A Preferred
Stock then held by such holder, duly endorsed or assigned either in blank or to
the Corporation (if requested by it). Conversion shall be deemed to have been
effected (1) in the case of an optional conversion pursuant to Section 5(a), on
the date when the aforesaid delivery of stock certificates is made if such day
is a business day and otherwise on the business day following the date of the
aforesaid delivery, and (2) in the case of an automatic conversion pursuant to
Section 5(b), upon the date that any event referenced in Section 5(b)(i) through
(iii) first occurs (provided that a registration statement for the resale of the
Conversion Shares is in effect), and in each case such date is referred to
herein as the "Conversion Date." As promptly as practicable thereafter, the
Corporation, through its transfer agent, shall issue and deliver to or upon the
written order of such holder, to the place designated by such holder, a
certificate or certificates for the number of full shares of Common Stock to
which such holder is entitled and a check or cash in respect of any fractional
interest in a share of Common Stock, as provided below; provided, however, that
in the case of a conversion in connection with liquidation, no such certificates
need be issued. The person in whose name the certificate or certificates for
Common Stock are to be issued shall be deemed to have become the stockholder of
record in respect of such Common Stock on the applicable Conversion Date unless
the transfer books of the Corporation are closed on that date, in which event
such holder shall be deemed to have become the stockholder of record in respect
of such Common Stock on the next succeeding date on which the transfer books are
open, but the Conversion Price shall be that in effect on the Conversion Date.
Upon conversion of only a portion of the number of shares covered by a stock
certificate representing shares of Series A Preferred Stock surrendered for
conversion, the Corporation shall issue and deliver to or upon the written order
of the holder of the stock certificate so surrendered for conversion, at the
expense of the Corporation, a new stock certificate covering the number of
shares of Series A Preferred Stock representing the unconverted portion of the
certificate so surrendered. Any transfer taxes applicable to the above described
transactions shall be paid by such transferee. The Corporation shall not be
required to pay any tax which may be payable in respect of any transfer involved
in the issuance and delivery of Common Stock or the reissuance of the Preferred
Stock in a name other than that in which the shares of Series A Preferred Stock
so converted were registered, and no such issuance or delivery shall be made
unless and until the person requesting such issuance has paid to the Corporation
the amount of any such tax or has established to the satisfaction of the
Corporation that such tax has been paid.
(d) NO FRACTIONAL SHARES OF COMMON STOCK.
(i) No fractional shares of Common Stock shall be issued upon
conversion of shares of Series A Preferred Stock and in lieu thereof, the
Corporation shall pay to the holder of such fractional share interest cash in
respect of such fractional interest in an amount equal to the closing sales
price of a share of Common Stock as reported by Nasdaq on the Nasdaq SmallCap
Market or Nasdaq National Market System, as applicable, on the Conversion Date
multiplied by such fractional interest. The holders of fractional interests
shall not be entitled to any rights as stockholders of the Corporation in
respect of such fractional interests. In determining the number of shares of
Common Stock and the payment, if any, in lieu of fractional shares that a
5.
<PAGE> 6
holder of Series A Preferred Stock shall receive, the total number of shares of
Series A Preferred Stock surrendered for conversion by such holder shall be
aggregated.
(ii) On the date on which dividends are paid in full to all
holders of Series A Preferred Stock following the optional conversion pursuant
to Section 5(a) of all or any portion of the Series A Preferred Stock, the
Corporation shall pay any dividends on such converted Series A Preferred Stock
to the date of such conversion. Dividends with respect to all shares converted
pursuant to Section 5(b) hereof shall be paid in full on the Conversion Date out
of funds legally available therefor.
(e) ADJUSTMENT OF CONVERSION PRICE UPON A QUALIFIED SUBSEQUENT
FINANCING. If the price per share in the Corporation's first equity financing
following the Original Issue Date in which the Corporation receives aggregate
proceeds of at least $7,500,000 (the "Qualified Subsequent Financing") is less
than the then applicable Conversion Price, the Conversion Price shall be
adjusted to an amount equal to the per share price received by the Company in
the Qualified Subsequent Financing. Notwithstanding the foregoing, a Qualified
Subsequent Financing shall not be deemed to include any issuances of equity
securities of the Corporation at fair market value in connection with mergers,
acquisitions, strategic alliances, research collaborations, equipment leases and
routine commercial credit lines.
(f) ADJUSTMENT OF CONVERSION PRICE UPON SUBDIVISION OR COMBINATION OF
STOCK. In case the Corporation shall at any time subdivide its outstanding
shares of Common Stock into a greater number of shares, the Conversion Price in
effect immediately prior to such subdivision shall be proportionately reduced
and, conversely, in case the outstanding shares of Common Stock of the
Corporation shall be combined into a smaller number of shares, the Conversion
Price in effect immediately prior to such combination shall be proportionately
increased.
(g) CHANGES IN COMMON STOCK. If any capital reorganization or
reclassification of the capital stock of the Corporation, or consolidation or
merger of the Corporation with another corporation, or the sale, transfer or
other disposition of all or substantially all of its assets to another
corporation for cash or stock of such other corporation, shall be effected,
then, as a condition of such reorganization, reclassification, consolidation,
merger, sale, transfer or other disposition, lawful and adequate provision shall
be made whereby each holder of Series A Preferred Stock shall thereafter have
the right to purchase and receive upon the basis and upon the terms and
conditions herein specified and in lieu of the shares of the Common Stock of the
Corporation immediately theretofore issuable upon conversion of the Series A
Preferred Stock, such shares of stock, securities or properties as may be
issuable or payable with respect to or in exchange for a number of outstanding
shares of such Common Stock equal to the number of shares of such Common Stock
immediately theretofore issuable upon conversion of the Series A Preferred Stock
had such reorganization, reclassification, consolidation, merger, sale, transfer
or other disposition not taken place, and in any such case appropriate
provisions shall be made with respect to the rights and interests of each holder
of Series A Preferred Stock to the end that the provisions hereof (including
without limitation provisions for adjustment of the Conversion Price) shall
thereafter be applicable, as nearly equivalent as may be practicable in relation
to any shares of stock, securities or properties thereafter deliverable upon the
exercise thereof. The Corporation shall not effect any such consolidation,
merger, sale, transfer or other disposition, unless prior to or simultaneously
with the consummation thereof the successor corporation (if
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other than the Corporation) resulting from such consolidation or merger or the
corporation purchasing or otherwise acquiring such properties shall assume, by
written instrument executed and mailed or delivered to the holders of Series A
Preferred Stock at the last address of such holders appearing on the books of
the Corporation, the obligation to deliver to such holders such shares of stock,
securities or properties as, in accordance with the foregoing provisions, such
holders may be entitled to acquire. The above provisions of this subparagraph
shall similarly apply to successive reorganizations, reclassifications,
consolidations, mergers, sales, transfers, or other dispositions.
(h) ADJUSTMENT FOR COMMON STOCK DIVIDENDS AND DISTRIBUTIONS. If the
Corporation at any time or from time to time after the Original Issue Date
makes, or fixes a record date for the determination of holders of Common Stock
entitled to receive, a dividend or other distribution payable in additional
shares of Common Stock, in each such event the Conversion Price that is then in
effect immediately prior to such dividend or other distribution shall be
decreased as of the time of such issuance or, in the event such record date is
fixed, as of the close of business on such record date, by multiplying the
Conversion Price then in effect by a fraction (i) the numerator of which is the
total number of shares of Common Stock issued and outstanding immediately prior
to the time of such issuance or the close of business on such record date, and
(ii) the denominator of which is the total number of shares of Common Stock
issued and outstanding immediately prior to the time of such issuance or the
close of business on such record date plus the number of shares of Common Stock
issuable in payment of such dividend or distribution; provided, however, that if
such record date is fixed and such dividend is not fully paid or if such
distribution is not fully made on the date fixed therefor, the Conversion Price
shall be recomputed accordingly as of the close of business on such record date
and thereafter the Conversion Price shall be adjusted pursuant to this Section
5(h) to reflect the actual payment of such dividend or distribution.
(i) CERTAIN EVENTS. If any event occurs as to which in the opinion of
the Board of Directors of the Corporation the other provisions of this Section 5
are not strictly applicable or if strictly applicable would not fairly protect
the conversion rights of the holders of the Series A Preferred Stock in
accordance with the essential intent and principles of such provisions, then
such Board of Directors, acting by a vote of at least 51% of the members
thereof, shall provide for the benefit of holders of shares of Series A
Preferred Stock an adjustment, if any, on a basis consistent with such essential
intent and principles, necessary to preserve, without dilution, the rights of
the holders of the Series A Preferred Stock. Upon such vote by the Board of
Directors, the Corporation shall forthwith make the adjustments described
therein; provided, however, that no such adjustment shall have the effect of
increasing the Conversion Price as otherwise determined pursuant to this Section
5 except in the event of a combination of shares of the type contemplated in
Section 5(f) and then in no event to an amount larger than the Conversion Price
as adjusted pursuant to Section 5(f).
(j) STOCK TO BE RESERVED. The Corporation will at all times reserve and
keep available out of its authorized Common Stock, solely for the purpose of
issue upon the conversion of Series A Preferred Stock as herein provided, such
number of shares of Common Stock as shall then be issuable upon the conversion
of all outstanding Series A Preferred Stock. The Corporation covenants that all
shares of Common Stock which shall be so issuable shall, upon issuance, be duly
authorized, validly issued, fully paid and nonassessable, free from
7.
<PAGE> 8
preemptive or similar rights on the part of the holders of any shares of capital
stock or securities of the Corporation, and free from all liens and charges with
respect to the issue thereof; and without limiting the generality of the
foregoing, the Corporation covenants that it will from time to time take all
such action as may be requisite to assure that the par value, if any, per share
of the Common Stock is at all times equal to or less than the then effective
Conversion Price. The Corporation will take all such action as may be necessary
to assure that such shares of Common Stock may be so issued without violation by
the Corporation of any applicable law or regulation or agreement, or of any
requirements of any domestic securities exchange upon which the Common Stock may
be listed. Without limiting the foregoing, the Corporation will take all such
action as may be necessary to assure that, upon conversion of any of the Series
A Preferred Stock, an amount equal to the lesser of (i) the par value of each
share of Common Stock outstanding immediately prior to such conversion, or (ii)
the Conversion Price shall be credited to the Corporation's stated capital
account for each share of Common Stock issued upon such conversion, and that, if
clause (i) above is applicable, the balance of the Conversion Price of Series A
Preferred Stock converted shall be credited to the Corporation's capital surplus
account.
(k) CLOSING OF BOOKS. The Corporation will at no time close its transfer
books against the transfer of any Series A Preferred Stock or of any shares of
Common Stock issued or issuable upon the conversion of any Series A Preferred
Stock in any manner which interferes with the timely conversion of such Series A
Preferred Stock.
(l) STATEMENT OF ADJUSTMENT OF CONVERSION PRICE. Whenever the Conversion
Price shall be adjusted as provided in Sections 5(e), 5(f) or 5(h), the
Corporation shall forthwith file at its office a statement, signed by its
independent certified public accountants, showing in detail the facts requiring
such adjustment and the Conversion Price that shall be in effect after such
adjustment. The Corporation shall also cause a copy of such statement to be sent
by certified mail, return receipt requested, to each holder of shares of Series
A Preferred Stock to such holder's address appearing on the Corporation's
records. Where appropriate, such copy may be given in advance and may be
included as part of a notice required to be mailed under the provisions of
Section 5(m) below.
(m) NOTICE. In the event the Corporation shall propose to take any
action of the types described in Sections 5(e), 5(f) or 5(h), above, the
Corporation shall give notice to each holder of shares of Series A Preferred
Stock which notice shall specify the record date, if any, with respect to any
such action and the date on which such action is to take place. Such notice
shall also set forth such facts with respect thereto as shall be reasonably
necessary to indicate the effect of such action (to the extent such effect may
be known at the date of such notice) on the Conversion Price and the number,
kind or class of shares or other securities or property which shall be
deliverable or purchasable upon the occurrence of such action or deliverable
upon conversion of shares of Series A Preferred Stock. In the case of any action
which would require the fixing of a record date, such notice shall, where
reasonably practicable, be given at least 20 days prior to the date so fixed,
and in case of all other action, such notice shall, where reasonably
practicable, be given at least 30 days prior to the taking of such proposed
action.
(n) TAXES. The Corporation shall pay all documentary, stamp or other
transactional taxes attributable to the issuance or delivery of shares of
capital stock of the Corporation upon conversion of any shares of Series A
Preferred Stock. The Corporation shall not, however, be
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<PAGE> 9
required to pay any tax which may be payable in respect of any transfer involved
in the issuance and delivery of Common Stock or the reissuance of the Preferred
Stock in a name other than that in which the shares of Series A Preferred Stock
so converted were registered, and no such issuance or delivery shall be made
unless and until the person requesting such issuance has paid to the Corporation
the amount of any such tax or has established to the satisfaction of the
Corporation that such tax has been paid.
(o) EXCLUSION OF OTHER RIGHTS. Except as may otherwise be required by
law, the shares of Series A Preferred Stock shall not have any voting powers,
preferences and relative, participating, optional or other special rights, other
than those specifically set forth in this Certificate of Designation and in the
Certificate of Incorporation.
(p) LIMITATION ON ISSUANCE OF CONVERSION SHARES; REDEMPTION.
Notwithstanding any adjustment of the Conversion Price made under this Section
5, and except as provided below, the Corporation shall not be obligated to issue
upon conversion of the Series A Preferred Stock, in the aggregate, more than
that number of shares of Common Stock equal to 19.99% of the number of shares of
Common Stock of the Corporation outstanding on the Original Issue Date (such
amount to be proportionately and equitably adjusted from time to time in the
event of stock splits, stock dividends, combinations, reverse stock splits,
reclassifications, capital reorganization and similar events relating to the
Common Stock) (the "Maximum Share Amount") if the issuance of shares of Common
Stock in excess of the Maximum Share Amount (such number of excess shares
referred to in the aggregate as the "Excess Shares") would constitute a breach
or violation of the Corporation's obligations under the rules or regulations of
Nasdaq or any other principal securities exchange or market upon which the
Common Stock is or becomes traded (the "Exchange Rules"). To the extent the
Corporation will be required, or it appears likely to the Board of Directors of
the Corporation that it will be required, to issue any Excess Shares as a result
of an adjustment to the Conversion Price, the Corporation shall, at its option,
either (i) promptly take such action that would enable it to issue such Excess
Shares without breaching or violating any Exchange Rules, including without
limitation, obtaining stockholder approval, or (ii) redeem the Excess Shares at
a redemption price equal to the Conversion Price then in effect as soon as
reasonably practicable. The number of shares comprising the Maximum Share Amount
(and if applicable, any Excess Shares to be issued) shall be allocated among the
holders of the shares of Series A Preferred Stock pro rata based on the total
number of shares of Series A Preferred Stock then outstanding.
IN WITNESS WHEREOF, Cypress Bioscience, Inc. has caused these presents
to be signed in its name and on its behalf by its Chief Executive Officer on
September 10th 1998.
CYPRESS BIOSCIENCE, INC.
By
-----------------------------------------
Name: Jay D. Kranzler, M.D., Ph.D.
Title: Chief Executive Officer
9.
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EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated February 13, 1998, in the Registration Statement
(Amendment No.1 to Form S-3) and related Prospectus of Cypress Bioscience, Inc.
for the registration of shares of its common stock.
ERNST & YOUNG LLP
San Diego, California
October 31, 1998
