<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 24, 1996
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
SHAMAN PHARMACEUTICALS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 2834 94-3095806
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Classification Identification
incorporation or Code Number) Number)
organization)
</TABLE>
213 EAST GRAND AVENUE
SOUTH SAN FRANCISCO, CALIFORNIA 94080
(415) 952-7070
(Address, including zip code, and telephone number, including
area code, of the Registrant's principal executive offices)
------------------------
LISA A. CONTE
PRESIDENT AND CHIEF EXECUTIVE OFFICER
SHAMAN PHARMACEUTICALS, INC.
213 EAST GRAND AVENUE
SOUTH SAN FRANCISCO, CALIFORNIA 94080
(415) 952-7070
(Name and address, including zip code, and telephone number, including area
code, of agent for service)
------------------------
COPIES TO:
<TABLE>
<S> <C>
J. STEPHAN DOLEZALEK, ESQ. J. CASEY MCGLYNN, ESQ.
BROBECK, PHLEGER & HARRISON LLP WILSON, SONSINI, GOODRICH & ROSATI
TWO EMBARCADERO PLACE PROFESSIONAL CORPORATION
2200 GENG ROAD 650 PAGE MILL ROAD
PALO ALTO, CALIFORNIA 94301 PALO ALTO, CALIFORNIA 94304
(415) 424-0160 (415) 493-9300
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
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 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. / /
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 MAXIMUM PROPOSED 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
<S> <C> <C> <C> <C>
Common Stock, $0.001 par value per share......... 2,000,000 shares $6.125 $12,250,000 $3,713
</TABLE>
(1) The price of $6.125 per share, which was the average of the high and low bid
prices of the Common Stock reported by The Nasdaq Stock Market on December
18, 1996, is set forth solely for the purpose of calculating the
registration fee in accordance with Rule 457(c) of the Securities Act of
1933, as amended.
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 THE 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.
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- --------------------------------------------------------------------------------
<PAGE>
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.
<PAGE>
SUBJECT TO COMPLETION, DATED DECEMBER 24, 1996
PROSPECTUS
2,000,000 SHARES
SHAMAN PHARMACEUTICALS, INC.
COMMON STOCK
All of the 2,000,000 shares of Common Stock offered hereby are being sold by
Shaman Pharmaceuticals, Inc. ("Shaman" or the "Company"). The Company's Common
Stock is quoted on the Nasdaq National Market under the Symbol SHMN. On December
19, 1996, the last reported sale price for the Common Stock was $6.00 per share.
See "Price Range of Common Stock."
--------------
THE SHARES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" COMMENCING ON PAGE 7.
-------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE 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>
<CAPTION>
PRICE TO PLACEMENT PROCEEDS TO
PUBLIC FEES (1) COMPANY (2)(3)
<S> <C> <C> <C>
Per Share................................. $ $ $
Total..................................... $ $ $
</TABLE>
(1) The shares are being offered by the Company principally to selected
institutional investors. Hambrecht & Quist LLC (the "Placement Agent") has
been retained to act, on a best efforts basis, as agent for the Company in
connection with the arrangement of this transaction. The Company has agreed,
among other things, (i) to pay the Placement Agent a fee in connection with
the arrangement of this financing and (ii) to indemnify the Placement Agent
against certain liabilities, including liabilities under the Securities Act
of 1933, as amended. See "Plan of Distribution."
(2) Prior to the closing date of this best efforts, all or nothing offering, all
investor funds will promptly be placed in escrow with First Trust of
California as escrow agent (the "Escrow Agent") for funds collected in
connection with the offering, in an escrow account established for the
benefit of the investors. Upon receipt of notice from the Escrow Agent that
investors have deposited the requisite funds in the escrow account, the
Company will deposit with the Depository Trust Company the shares to be
credited to the accounts of the investors and will collect the investor
funds from the Escrow Agent. In the event that investor funds are not
received in the full amount necessary to satisfy the requirements of the
offering, all funds deposited with the Escrow Agent will promptly be
returned to the investors. See "Plan of Distribution."
(3) Before deducting expenses payable by the Company estimated at $280,000.
--------------
HAMBRECHT & QUIST
, 1996
<PAGE>
NO DEALER, SALES REPRESENTATIVE OR ANY OTHER PERSON HAS BEEN AUTHORIZED IN
CONNECTION WITH THE OFFERING MADE HEREBY TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN AS CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR THE PLACEMENT AGENT. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES
OTHER THAN THE SHARES OF COMMON STOCK OFFERED HEREBY, NOR DOES IT CONSTITUTE AN
OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SHARES OFFERED
HEREBY TO ANY PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION
WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE
HEREOF.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary......................................................................................... 4
Risk Factors............................................................................................... 7
Use of Proceeds............................................................................................ 15
Price Range of Common Stock................................................................................ 15
Dividends.................................................................................................. 16
Capitalization............................................................................................. 17
Dilution................................................................................................... 18
Selected Financial Data.................................................................................... 19
Management's Discussion and Analysis of Financial Condition and Results of Operations...................... 21
Business................................................................................................... 24
Management................................................................................................. 37
Principal Stockholders..................................................................................... 41
Plan of Distribution....................................................................................... 42
Legal Matters.............................................................................................. 43
Experts.................................................................................................... 43
Available Information...................................................................................... 43
</TABLE>
--------------
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents or portions of documents filed by the Company (File
No. 0-21022) with the Commission are hereby incorporated herein by reference:
(1) the Company's Annual Report on Form 10-K for the year ended December 31,
1995; (2) the Company's Quarterly Reports on Form 10-Q for the quarters ended
March 31, 1996, June 30, 1996, as amended, and September 30, 1996, as amended;
(3) the Company's Proxy Statement for its Annual Meeting of Stockholders held on
May 23, 1996; and (4) the description of the Company's Common Stock contained in
its Registration Statement on Form 8-A, as amended, filed with the Commission on
December 18, 1992, including any amendments or reports filed for the purpose of
updating such description.
All reports and other documents subsequently filed by the Company pursuant
to Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), prior to the filing of a post-effective amendment
which indicates that all securities offered hereby have been sold or which
deregisters all securities remaining unsold, shall be deemed to be incorporated
by reference herein and to be a part hereof from the date of filing of such
reports and documents. Any statement contained in a document incorporated by
reference herein shall be deemed modified or superseded for purposes of this
Prospectus to the extent that a statement contained or incorporated by reference
herein modifies or supersedes such statement. Any statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus.
The Company will provide without charge to each person to whom this
Prospectus is delivered, upon written or oral request of such person, a copy of
any and all of the information that has been or may be incorporated by reference
in this Prospectus, other than exhibits to such documents (unless such exhibits
are specifically incorporated by reference into such documents). Such requests
should be directed to Shaman
2
<PAGE>
Pharmaceuticals, Inc., 213 East Grand Avenue, South San Francisco, California
94080-4812, telephone (415) 952-7070, facsimile (415) 873-8367, Attn: Vice
President, Corporate Communications.
Shaman Pharmaceuticals-TM-, the Company's stylized logo and Provir-TM- are
trademarks of the Company, and Virend-Registered Trademark- is a registered U.S.
trademark of the Company.
IN CONNECTION WITH THIS OFFERING, THE PLACEMENT AGENT MAY ENGAGE IN PASSIVE
MARKET MAKING TRANSACTIONS IN THE COMMON STOCK ON THE NASDAQ NATIONAL MARKET IN
ACCORDANCE WITH RULE 10B-6A UNDER THE EXCHANGE ACT. SEE "PLAN OF DISTRIBUTION."
3
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND FINANCIAL STATEMENTS, INCLUDING NOTES THERETO, APPEARING
ELSEWHERE HEREIN OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS. THIS
PROSPECTUS CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF
SECTION 27A OF THE SECURITIES ACT AND SECTION 21E OF THE EXCHANGE ACT. ACTUAL
RESULTS COULD DIFFER MATERIALLY FROM THOSE PROJECTED IN THE FORWARD-LOOKING
STATEMENTS AS A RESULT OF CERTAIN OF THE RISK FACTORS SET FORTH ELSEWHERE IN
THIS PROSPECTUS. INVESTORS SHOULD CAREFULLY CONSIDER THE INFORMATION SET FORTH
UNDER THE HEADING "RISK FACTORS."
THE COMPANY
Shaman is a leader in the identification and development of novel
pharmaceutical products for the treatment of human diseases through the
isolation and optimization of active compounds found in tropical plants. The
Company believes that by focusing on drugs extracted from plants with a long
history of medicinal use, its drug discovery efforts will be quicker and more
likely to lead to safe and effective pharmaceuticals. Shaman has human clinical
trials under way for its three lead product candidates: Provir, Virend and
nikkomycin Z. Shaman has completed Phase II trials showing preliminary efficacy
for Provir for the treatment of watery diarrhea and Virend for the treatment of
recurrent genital herpes. An additional dose-optimizing Phase II trial for
Provir and an additional Phase II trial for Virend in combination with oral
acyclovir will commence in the first quarter of 1997. In addition, nikkomycin Z,
an orally-active, in-licensed product for the treatment of endemic mycoses and
other systemic fungal infections, is currently in Phase I trials in the U.K. and
the Company expects to file an IND in the United States with respect thereto in
1997. Shaman's research and preclinical development is principally focused on
the identification and optimization of compounds to treat Type II (adult onset)
diabetes, an effort that has led to the identification of 10 chemically
distinct, orally-active compounds which have demonstrated glucose lowering
effects in preclinical testing. Significant funding, as well as milestone
payments for this program, are provided through collaborations with Lipha,
Lyonnaise Industrielle Pharmaceutique s.a., a wholly-owned subsidiary of Merck
KGaA, Darmstadt, Germany ("Lipha/Merck"), and Ono Pharmaceutical Co., Ltd.
("Ono").
Watery diarrhea is usually caused by an insult to the small intestine (as a
consequence of bacterial or viral infection) which results in fluid accumulation
in the small intestine, leading to dehydration and sometimes fatal diarrhea.
According to the International Marketing Service ("IMS"), worldwide, 26 million
prescriptions are written annually for watery diarrhea. Moreover, approximately
100 million over-the-counter units are sold annually worldwide. Current
treatment for watery diarrhea consists of antibiotics, which can take up to two
to five days to have a therapeutic effect and can result in the creation or
propagation of antibiotic-resistant strains of bacteria, or antimotility agents,
which inhibit the natural muscular contractions of the intestinal tract,
allowing the invading agent to remain in the intestine for a prolonged period.
No current primary treatment for infectious diarrhea addresses dehydration or
can reverse water accumulation. Based on preclinical mechanistic studies, Provir
appears to treat watery diarrhea by inhibiting chloride ion secretion and thus
preventing the electrolyte imbalance that causes excess water secretion into the
lumen of the small intestine resulting in diarrhea.
Genital herpes, for which there is currently no cure, is caused by the
herpes simplex virus which infects the ganglions of the nerve cells and results
in painful lesions that can last for three to 21 days. After an initial outbreak
of lesions, the virus typically remains dormant but may resurface when the
immune system becomes stressed or compromised. Genital herpes afflicts over 30
million people in the United States alone, with up to 500,000 new cases
diagnosed each year. Current treatment for recurrent genital herpes consists of
nucleoside analogs, including oral formulations of acyclovir and famciclovir,
which generally provide effective treatment of herpes lesions by interfering
with viral replication. Virend reduces the duration of herpes lesion outbreaks
by preventing the herpesvirus from crossing the cell membrane and becoming
absorbed into healthy tissue.
Endemic mycoses are caused by coccidioidomycycosis (valley fever),
histoplasmosis and blastomycoses ("cocci," "histo" and "blasto") found in the
soil of certain regions of the United States. When the soil is disturbed (such
as during crop planting or harvesting), the fungi become airborne and may be
inhaled into the lungs. Once infected, otherwise healthy individuals will
experience mild flu-like symptoms but may never be diagnosed with the disease.
In more severe cases, the fungus spreads systemically and results in
disseminated fungal infections.
4
<PAGE>
Currently, two classes of drugs are commonly prescribed for the treatment of
endemic mycoses: azoles, which are fungistatic (inhibit the growth of the
fungus, but do not kill it) and polyenes (including amphotericin B), which are
fungicidal (kill the fungus), but often cannot be tolerated in high enough doses
to kill the fungi. Nikkomycin Z treats endemic mycoses by interfering with the
synthesis of chitin, a key element of the cell wall of these fungi, a process
which ultimately destroys the fungi. Based on synergistic activity with azoles
in 1997, the Company plans to supply nikkomycin Z to Pfizer Corporation
("Pfizer") to conduct a combination nikkomycin Z plus fluconazole human clinical
study in 1997 in azole-resistant esophageal candidiasis patients.
Type II diabetes (also known as adult onset diabetes) is a chronic disease
in which the tissues of the body are resistant to the actions of insulin and the
pancreas cannot secrete enough insulin to overcome this resistance. This disease
is the result of multiple causes, many of which are undefined at the molecular
level. In the United States alone, the Centers for Disease Control ("CDC")
estimates that 16 million people (over five percent of the population) have
diabetes and approximately 625,000 new cases are diagnosed each year. To date,
the Company has identified 10 proprietary, orally-active, chemically distinct
compounds to be evaluated for the treatment of Type II diabetes.
RISK FACTORS
In addition to the other information contained in this Prospectus, the
discussion of risk factors on pages 4 to 10 of this Prospectus should be
considered carefully in evaluating an investment in the Common Stock. The risks
of investing in the Common Stock include the following factors: "Early Stage of
Development; Technological Uncertainty," "History of Operating Losses; Products
Still in Development; Future Profitability Uncertain," "No Assurance of
Successful Product Development," "Future Capital Needs; Uncertainty of
Additional Financing," "Uncertainties Associated with Clinical Trials,"
"Dependence on Collaborative Relationships," "Rapid Technological Change and
Substantial Competition," "Government Regulation; No Assurance of Regulatory
Approvals," "Dependence on Sources of Supply," "Limited Manufacturing and
Marketing Experience and Capacity," "Uncertainty Regarding Patents and
Proprietary Rights," "Uncertainty of Product Pricing, Reimbursement and Related
Matters," "Possible Volatility of Stock Price," "Environmental Regulation,"
"Anti-Takeover Provisions," "Product Liability Exposure; Limited Insurance
Coverage," "Limitation of Liability and Indemnification," "Shares Eligible for
Future Sale," "Dilution" and "Dependence on Key Personnel."
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company.... 2,000,000 shares
Common Stock to be outstanding after
the offering......................... 15,906,634 shares (1)
Use of proceeds........................ For research and development, including preclinical
and clinical testing and related regulatory
activities, and for general corporate purposes.
Nasdaq National Market symbol.......... SHMN
</TABLE>
- ------------------------
(1) Based on shares outstanding as of November 30, 1996. Excludes (i) 2,115,188
shares of Common Stock issuable upon the exercise of options outstanding
under the Company's stock option plan at a weighted average exercise price
of $5.48 per share; (ii) 641,705 shares of Common Stock issuable upon
exercise of outstanding warrants at a weighted average exercise price of
$9.40 per share; and (iii) 400,000 shares of Common Stock issuable upon the
conversion of Series A Preferred Stock.
5
<PAGE>
SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------------------------------- --------------------
1991 1992 1993 1994 1995 1995 1996
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenue from collaborative agreements... $ -- $ 425 $ 2,050 $ 1,360 $ 2,210 $ 1,710 $ 1,531
Operating expenses (1):
Research and development.............. 4,397 5,449 13,646 18,643 17,635 12,570 14,225
General and administrative............ 519 1,016 2,659 3,545 3,705 2,760 2,635
--------- --------- --------- --------- --------- --------- ---------
Total operating expenses............ 4,916 6,465 16,305 22,188 21,340 15,330 16,860
Loss from operations.................... (4,916) (6,040) (14,255) (20,828) (19,130) (13,620) (15,329)
Interest income......................... 73 224 1,543 2,045 1,695 1,304 834
Interest expense........................ (271) (156) (315) (698) (569) (419) (472)
--------- --------- --------- --------- --------- --------- ---------
Net loss................................ $ (5,114) $ (5,972) $ (13,027) $ (19,481) $ (18,004) $ (12,735) $ (14,967)
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Net loss per share (2).................. $ (1.32) $ (0.85) $ (1.30) $ (1.50) $ (1.37) $ (0.97) $ (1.12)
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Shares used in calculation of net loss
per share (2)......................... 3,884 7,060 10,036 12,986 13,161 13,134 13,381
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
-------------------------
AS ADJUSTED
ACTUAL (3)
--------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments................................... $ 20,405 $ 31,405
Working capital..................................................................... 13,609 24,609
Total assets........................................................................ 26,653 37,653
Long-term obligations, excluding current installments............................... 3,157 3,157
Accumulated deficit................................................................. (78,799) (78,799)
Stockholders' equity................................................................ 15,664 26,664
</TABLE>
- ------------------------
(1) Certain expenses have been reclassified to conform to 1996 presentation.
(2) Net loss per share is based on the weighted average number of common shares
outstanding in 1993, 1994, 1995 and for the nine months ended September 30,
1996. Pro forma net loss per share in 1991 and 1992 is computed as above,
and also gives effect to the conversion of the preferred stock into Common
Stock as if converted at the original date of issuance.
(3) Adjusted to reflect the sale by the Company of 2,000,000 shares of Common
Stock at the assumed public offering price of $6.00 per share and the
application of the net proceeds therefrom of approximately $11,000,000. See
"Use of Proceeds" and "Capitalization."
6
<PAGE>
RISK FACTORS
THE SHARES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. THE FOLLOWING RISK
FACTORS SHOULD BE CONSIDERED CAREFULLY IN ADDITION TO THE OTHER INFORMATION IN
THIS PROSPECTUS BEFORE PURCHASING THE SHARES OF COMMON STOCK OFFERED HEREBY. IN
ADDITION TO THE HISTORICAL INFORMATION CONTAINED HEREIN, THE DISCUSSION IN THIS
PROSPECTUS CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES, SUCH AS STATEMENTS OF THE COMPANY'S PLANS, OBJECTIVES,
EXPECTATIONS AND INTENTIONS. THE CAUTIONARY STATEMENTS MADE IN THIS PROSPECTUS
SHOULD BE READ AS BEING APPLICABLE TO ALL RELATED FORWARD-LOOKING STATEMENTS
WHEREVER THEY APPEAR IN THIS PROSPECTUS. THE COMPANY'S ACTUAL RESULTS COULD
DIFFER MATERIALLY FROM THOSE DISCUSSED IN THIS PROSPECTUS. FACTORS THAT COULD
CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES INCLUDE THOSE DISCUSSED BELOW AS WELL AS
THOSE CAUTIONARY STATEMENTS AND OTHER FACTORS SET FORTH ELSEWHERE HEREIN.
EARLY STAGE OF DEVELOPMENT; TECHNOLOGICAL UNCERTAINTY
Shaman has not yet completed the development of any products. The Company's
products will require significant additional clinical testing and investment
prior to commercialization. Products for therapeutic use in human healthcare
must be evaluated in extensive human clinical trials to determine their safety
and efficacy as part of a lengthy process to obtain government approval. The
Company's lead products, Provir, Virend and nikkomycin Z, are each in clinical
development. Positive results for any of these products in a clinical trial do
not necessarily assure that positive results will be obtained in future clinical
trials or that government approval to commercialize the products will be
obtained. Clinical trials may be terminated at any time for many reasons,
including toxicity or adverse event reporting. There can be no assurance that
any of the Company's products will be successfully developed, prove to be safe
and efficacious in clinical trials, meet applicable regulatory standards, obtain
required regulatory approvals, be capable of being produced in commercial
quantities at reasonable costs or be successfully marketed or that the Company
will not encounter problems in clinical trials that will cause the Company to
delay or suspend product development.
HISTORY OF OPERATING LOSSES; PRODUCTS STILL IN DEVELOPMENT; FUTURE PROFITABILITY
UNCERTAIN
Shaman was incorporated in 1989 and has experienced significant operating
losses in each of its fiscal years since operations began. As of September 30,
1996, the Company's accumulated deficit was approximately $78.8 million. The
Company has not generated any product revenues and expects to incur substantial
operating losses over the next several years. Shaman's potential products are in
research and development. In order to generate revenues or profits, the Company,
alone or with others, must successfully develop, test, obtain regulatory
approval for and market its potential products. No assurance can be given that
these product development efforts will be successful, that required regulatory
approvals will be obtained, or that the products, if developed and introduced,
will be successfully marketed or will achieve market acceptance.
NO ASSURANCE OF SUCCESSFUL PRODUCT DEVELOPMENT
The Company's research and development programs are at various stages of
development, ranging from the research stage to clinical trials. Substantial
additional research and development will be necessary in order for the Company
to move its diabetes product candidates into clinical testing, and there can be
no assurance that any of the Company's research and development efforts on these
or other potential products, including Provir, Virend and nikkomycin Z, will
lead to development of products that are shown to be safe and effective in
clinical trials. In addition, there can be no assurance that any such products
will meet applicable regulatory standards, be capable of being produced in
commercial quantities at acceptable costs, be eligible for third party
reimbursement from governmental or private insurers, be successfully marketed or
achieve market acceptance. Further, the Company's products may prove to have
undesirable or unintended side effects that may prevent or limit their
commercial use. The Company may find, at any stage of this complex process, that
products that appeared promising in preclinical studies or Phase I and Phase II
clinical trials do not demonstrate efficacy in larger-scale, Phase III clinical
trials and do not receive regulatory approvals. Accordingly, any product
development program undertaken by the Company may be curtailed, redirected or
eliminated at any time. In addition, there can be no assurance that the
Company's expected testing and development schedules will be met. Any failure to
meet such schedules could have a material adverse effect on the Company's
business, financial condition and results of
7
<PAGE>
operations. The rate of completion of the Company's clinical trials may be
delayed by many factors, including slower than anticipated patient enrollment,
difficulty in finding a sufficient number of patients fitting the appropriate
trial profile or in the acquisition of sufficient supplies of clinical trial
materials or adverse events occurring during the clinical trials. Completion of
testing, studies and trials may take several years, and the length of time
varies substantially with the type, complexity, novelty and intended use of the
product. In addition, data obtained from preclinical and clinical activities are
susceptible to varying interpretations, which could delay, limit or prevent
regulatory approval. Delays or rejections may be encountered based upon many
factors, including changes in regulatory policy during the period of product
development. See "Business-- Government Regulation."
FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FUNDING
The Company will require substantial additional funds to conduct the
development and testing of its potential products and to manufacture and market
any products that may be developed. The Company's future capital requirements
will depend on numerous factors, including the progress of its research and
development programs, the progress of preclinical and clinical testing, the time
and costs involved in obtaining regulatory approvals, the cost of filing,
prosecuting, defending and enforcing patent claims and other intellectual
property rights, competing technological and market developments, changes in the
Company's existing collaborative and licensing relationships, the ability of the
Company to establish additional collaborative relationships for the manufacture
and marketing of its potential products, and the purchase of additional capital
equipment. The Company will need to raise substantial additional capital to fund
its operations. The Company intends to seek such additional funding through
public or private financings, collaborative arrangements or from other sources.
If additional funds are raised by issuing equity securities, significant
dilution to existing stockholders may result. There can be no assurance that
additional financing will be available on acceptable terms or at all. If
adequate funds are not available, the Company may be required to delay, scale
back or eliminate one or more of its research, discovery or development
programs. See "Use of Proceeds" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
UNCERTAINTIES ASSOCIATED WITH CLINICAL TRIALS
Shaman has conducted, and plans to continue to conduct, extensive and costly
clinical trials to assess the safety and efficacy of its potential products. The
rate of completion of the Company's clinical trials is dependent upon, among
other factors, the rate of patient enrollment. Patient enrollment is a function
of many factors, including the nature of the Company's clinical trial protocols,
existence of competing protocols, size of patient population, proximity of
patients to clinical sites and eligibility criteria for the study. Delays in
patient enrollment will result in increased costs and delays, which could have a
material adverse effect on the Company. The Company cannot assure that patients
enrolled in its clinical trials will respond to the Company's product
candidates. Setbacks are to be expected in conducting human clinical trials.
Failure to comply with the U.S. Food and Drug Administration ("FDA") regulations
applicable to such testing can result in delay, suspension or cancellation of
such testing, and/or refusal by the FDA to accept the results of such testing.
In addition, the FDA or the Company may suspend clinical trials at any time if
either of them concludes that any patients participating in any such trial are
being exposed to unacceptable health risks. Further, there can be no assurance
that human clinical testing will demonstrate that any current or future product
candidate is safe or effective or that data derived from any such study will be
suitable for submission to the FDA or other regulatory authorities.
DEPENDENCE ON COLLABORATIVE RELATIONSHIPS
The Company's research and development efforts in its diabetes program and,
to a lesser extent, in its other programs, is dependent upon its arrangements
with Lipha/Merck and Ono and the compliance of such partners with the terms and
conditions of such collaborative agreements including, without limitation,
providing funding for research and development efforts and the achievement of
milestones and assisting the Company in its research and development efforts.
These partners may develop products that may compete with those of the Company.
Although Shaman believes that its partners have an economic incentive to perform
their obligations, the amount and timing of resources they allocate to these
programs is not within the Company's control. There
8
<PAGE>
can be no assurance that these partners will perform their obligations as
expected or that any meaningful revenues will ultimately be derived from such
agreements. The Company's agreement with Ono may be terminated at any time and
the Lipha/Merck agreement may be terminated after two years if no compound
discovered under the collaboration has entered human clinical trials Termination
of either agreement is subject to certain surviving obligations. If one or more
such partners elected to terminate their relationships with the Company, or if
the Company or its partners fail to achieve targeted milestones, it could have a
material adverse effect on the Company's ability to fund such programs, or to
develop any products on a collaborative basis with such partners. See
"Business--Collaborative Relationships and License Agreements."
RAPID TECHNOLOGICAL CHANGE AND SUBSTANTIAL COMPETITION
The pharmaceutical industry is subject to rapid and substantial
technological change. Technological competition from pharmaceutical and
biotechnology companies and universities is intense. Many of these entities have
significantly greater research and development capabilities, as well as
substantial marketing, manufacturing, financial and managerial resources, and
represent significant competition for the Company. There can be no assurance
that developments by others will not render the Company's products or
technologies noncompetitive or that the Company will be able to keep pace with
technological developments. Competitors have developed or are in the process of
developing technologies that are, or in the future may be, the basis for
competitive products. Some of these products may have an entirely different
approach or means of accomplishing the desired therapeutic effect than products
developed by the Company. These competing products may be more effective and
less costly than the products developed by the Company. In addition, other forms
of medical treatment may offer competition to the Company's products. See
"Business--Competition."
GOVERNMENT REGULATION; NO ASSURANCE OF REGULATORY APPROVALS
All new drugs, including the Company's products under development, are
subject to extensive and rigorous regulation by the federal government,
principally the FDA, and comparable agencies in state and local jurisdictions
and in foreign countries. These authorities impose substantial requirements upon
the preclinical and clinical testing, manufacturing and marketing of
pharmaceutical products. The steps required before a drug may be approved for
marketing in the United States generally include (i) preclinical laboratory and
animal tests, (ii) the submission to the FDA of an Investigational New Drug
Application ("IND") for human clinical testing, (iii) adequate and well
controlled human clinical trials to establish the safety and efficacy of the
drug, (iv) submission to the FDA of a New Drug Application ("NDA") and (v)
satisfactory completion of an FDA inspection of the manufacturing facility or
facilities at which the drug is made to assess compliance with Good
Manufacturing Practices ("GMP"). Lengthy and detailed preclinical and clinical
testing, validation of manufacturing and quality control processes, and other
costly and time-consuming procedures are required. Satisfaction of these
requirements typically takes several years and the time needed to satisfy them
may vary substantially, based on the type, complexity and novelty of the
pharmaceutical product. The effect of government regulation may be to delay or
to prevent marketing of potential products for a considerable period of time and
to impose costly procedures upon the Company's activities. There can be no
assurance that the FDA or any other regulatory agency will grant approval for
any products developed by the Company on a timely basis, or at all. Success in
preclinical or early stage clinical trials does not assure success in later
stage clinical trials. Data obtained from preclinical and clinical activities
are susceptible to varying interpretations which could delay, limit or prevent
regulatory approval. If regulatory approval of a product is granted, such
approval may impose limitations on the indicated uses for which a product may be
marketed. Further, even if regulatory approval is obtained, later discovery of
previously unknown problems with a product may result in restrictions on the
product, including withdrawal of the product from the market. Any delay or
failure in obtaining regulatory approvals would have a material adverse effect
on the Company's business, financial condition and results of operation.
Among the conditions for FDA approval of a pharmaceutical product is the
requirement that the manufacturer's (either the Company's own or a third-party
manufacturer) quality control and manufacturing procedures conform to current
Good Manufacturing Practices ("GMP"), which must be followed at all times. The
FDA strictly enforces GMP requirements through periodic unannounced inspections.
There can be no assurance that
9
<PAGE>
the FDA will determine that the facilities and manufacturing procedures of the
Company or any third-party manufacturer of the Company's planned products will
conform to GMP requirements. Additionally, the Company or its third-party
manufacturer must pass a preapproval inspection of its manufacturing facilities
by the FDA before obtaining marketing approval. Failure to comply with
applicable regulatory requirements may result in penalties such as restrictions
on a product's marketing or withdrawal of a product from the market.
The FDA's policies may change and additional government regulations may be
promulgated which could prevent or delay regulatory approval of the Company's
potential products. Moreover, increased attention to the containment of
healthcare costs in the United States could result in new government regulations
which could have a material adverse effect on the Company's business. The
Company is unable to predict the likelihood of adverse governmental regulation
which might arise from future legislative or administrative action, either in
the United States or abroad. See "Business--Government Regulation."
DEPENDENCE ON SOURCES OF SUPPLY
The Company currently imports all of the plant materials from which its
products are derived from countries in South and Latin America, Africa and
Southeast Asia. To the extent that its products cannot be economically
synthesized or otherwise produced, the Company will continue to be dependent
upon a supply of raw plant material. The Company does not have formal agreements
in place with all of its suppliers. In addition, a continued source of plant
supply is subject to the risks inherent in international trade. These risks
include unexpected changes in regulatory requirements, exchange rates, tariffs
and barriers, difficulties in coordinating and managing foreign operations,
political instability and potentially adverse tax consequences. Interruptions in
supply or material increases in the cost of supply could have a material adverse
effect on the Company's financial condition and results of operations. In
addition, tropical rain forests, and certain irreplaceable plant resources
therein, are currently threatened with destruction. In the event portions of the
rain forests are destroyed which contain the source material from which Shaman's
current or future products are derived, such destruction could have a material
adverse effect on the Company's business, results of operations and financial
condition.
LIMITED MANUFACTURING AND MARKETING EXPERIENCE AND CAPACITY
The Company currently produces products only in quantities necessary for
clinical trials and does not have the staff or facilities necessary to
manufacture products in commercial quantities. As a result, the Company must
rely on collaborative partners or third-party manufacturing facilities, which
may not be available on commercially acceptable terms adequate for Shaman's
long-term needs. If the Company should encounter delays or difficulties in
establishing relationships with qualified manufacturers to produce, package and
distribute its finished products, clinical trials, regulatory filings, market
introduction and subsequent sales of such products could be adversely affected.
Contract manufacturers must adhere to GMP regulations strictly enforced by
the FDA on an ongoing basis through its facilities inspection program. Contract
manufacturing facilities must pass a pre-approval plant inspection before the
FDA will approve an NDA. Certain material manufacturing changes that occur after
approval are also subject to FDA review and clearance or approval. There can be
no assurance that the FDA or other regulatory agencies will approve the process
or the facilities by which any of the Company's products may be manufactured.
The Company's dependence on third parties for the manufacture of products may
adversely affect the Company's ability to develop and deliver products on a
timely and competitive basis. Should the Company be required to manufacture
products itself, the Company will be subject to the regulatory requirements
described above, to similar risks regarding delays or difficulties encountered
in manufacturing any such products and will require substantial additional
capital. There can be no assurance that the Company will be able to manufacture
any such products successfully or in a cost-effective manner.
The Company currently has no marketing or sales staff. To the extent that
the Company does not or is unable to enter into co-promotion agreements or to
arrange for third party distribution of its products, significant additional
resources will be required to develop a marketing and sales force. There can be
no assurance that the Company will be able to enter into collaborative
agreements or establish a marketing and sales force.
10
<PAGE>
UNCERTAINTY REGARDING PATENTS AND PROPRIETARY RIGHTS
The Company's success will depend in large part on its ability to obtain and
maintain patents, protect trade secrets and operate without infringing upon the
proprietary rights of others. Moreover, competitors may have filed patent
applications, may have been issued patents or may obtain additional patents and
proprietary rights relating to products or processes competitive with those of
the Company. There can be no assurance that the Company's patent applications
will be approved, that the Company will develop additional proprietary products
that are patentable, that any issued patents will provide the Company with
adequate protection for its inventions or will not be challenged by others, or
that the patents of others will not impair the ability of the Company to
commercialize its products. The patent position of firms in the pharmaceutical
industry generally is highly uncertain, involves complex legal and factual
questions, and has recently been the subject of much litigation. No consistent
policy has emerged from the U.S. Patent and Trademark Office or the courts
regarding the breadth of claims allowed or the degree of protection afforded
under pharmaceutical patents. There can be no assurance that others will not
independently develop similar products, duplicate any of the Company's products
or design around any patents of the Company.
A number of pharmaceutical companies and research and academic institutions
have developed technologies, filed patent applications or received patents on
various technologies that may be related to the Company's business. Some of
these technologies, applications or patents may conflict with the Company's
technologies or patent applications. The European Patent Office, the French
Patent Office, the German Patent Office and the Australian Patent Office, have
each granted a patent containing broad claims to proanthocyanidin polymer
compositions (and methods of use of such compositions), which are similar to the
Company's specific proanthocyanidin polymer composition, to Leon Cariel and the
Institut des Substances Vegetales. The effective filing date of these patents is
prior to the effective filing date of the Company's foreign pending patent
application in Europe. The Company has instituted an Opposition in the European
Patent Office against granted European Patent No. 472531 owned by Leon Cariel
and Institut des Substances Vegetales. Based on opinions of foreign counsel, the
Company believes that the granted claims are invalid and intends to vigorously
prosecute the Opposition. There can be no assurance that the Company will be
successful in having the granted European patent revoked or the claims
sufficiently narrowed so as not to potentially cover the Company's
proanthocyanidin polymer composition and methods of use. There can be no
assurance that Leon Cariel and the Institut des Substances Vegetales will not
assert claims relating to this patent against the Company. There can be no
assurance that the Company would be able to obtain a license to this patent at
all, or at reasonable cost, or be able to develop or obtain alternative
technology to use in Europe or elsewhere. The earlier effective filing date of
this patent could limit the scope of the patents, if any, that the Company may
be able to obtain or result in the denial of the Company's patent applications
in Europe or elsewhere. In the United States, the Patent and Trademark Office
has very recently declared an Interference between the Company's issued patent
covering its specific proanthocyanidin polymer composition and a U.S.
application corresponding to the granted European patent of Leon Cariel and the
Institut des Substances Vegetales by Daniel Jean and Leon Cariel. The
declaration of the Interference indicates that, at present, the U.S. Patent and
Trademark Office believes the Company's patent and the pending third party
patent application claim the same subject matter. The Interference will seek to
determine who is the first inventor of such subject matter under the U.S. patent
laws. The Company believes that the Daniel Jean and Leon Cariel application is
not entitled to claims covering the subject matter of the Company's patent.
There can be no assurance, however, that the Company will prevail. Additionally,
at this very early stage of the Interference proceeding, the Company has not had
an opportunity to review the claims and file history of the Daniel Jean and Leon
Cariel patent application which, under U.S. patent law, are kept confidential.
In view of the analysis conducted in connection with the corresponding European
patent, the Company believes that the U.S. patent application of Daniel Jean and
Leon Cariel is not entitled to claims covering the subject matter of the
Company's patent. In addition, if patents that cover the Company's activities
have been or are issued to other companies, there can be no assurance that the
Company would be able to obtain licenses to these patents at a reasonable cost,
or at all, or be able to develop or obtain alternative technology. If the
Company does not obtain such licenses, it could encounter delays or be precluded
from introducing products to the market. Litigation may be necessary to defend
against or assert claims of infringement, to enforce patents issued to the
Company or to protect trade secrets or know-how owned by the Company. Additional
interference proceedings may be declared or necessary to determine issues of
invention; such litigation and/or interference
11
<PAGE>
proceedings could result in substantial cost to and diversion of effort by, and
may have a material adverse effect on, the Company. In addition, there can be no
assurance that these efforts by the Company will be successful.
The Company's competitive position is also dependent upon unpatented trade
secrets. There can be no assurance that others will not independently develop
substantially equivalent proprietary information and techniques or otherwise
gain access to the Company's trade secrets, that such trade secrets will not be
disclosed or that the Company can effectively protect its rights to unpatented
trade secrets. To the extent that the Company or its consultants or research
collaborators use intellectual property owned by others in their work for the
Company, disputes also may arise as to the rights in related or resulting
know-how and inventions. See "Business--Patents and Proprietary Rights."
UNCERTAINTY OF PRODUCT PRICING, REIMBURSEMENT AND RELATED MATTERS
The Company's business may be materially adversely affected by the
continuing efforts of governmental and third party payors to contain or reduce
the costs of healthcare through various means. For example, in certain foreign
markets, the pricing or profitability of healthcare products is subject to
government control. In the United States, there have been, and the Company
expects there will continue to be, a number of federal and state proposals to
implement similar government control. While the Company cannot predict whether
any such legislative or regulatory proposals or reforms will be adopted, the
announcement of such proposals or reforms could have a material adverse effect
on the Company's ability to raise capital or form collaborations, and the
adoption of such proposals or reforms could have a material adverse effect on
the Company.
In addition, in both the United States and elsewhere, sales of healthcare
products are dependent in part on the availability of reimbursement from third
party payors, such as government and private insurance plans. Significant
uncertainty exists as to the reimbursement status of newly approved healthcare
products, and 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 reimbursement from
third party payors will be available or will be sufficient to allow the Company
to sell its products on a competitive basis.
POSSIBLE VOLATILITY OF STOCK PRICE
From time to time, the stock market has experienced significant price and
volume fluctuations that may be unrelated to the operating performance of
particular companies. In addition, the market price of the Company's Common
Stock, like the stock prices of many publicly traded biotechnology and smaller
pharmaceutical companies, has been and may continue to be highly volatile.
Announcements of technological innovations, regulatory matters or new commercial
products by the Company or its competitors, developments or disputes concerning
patent or proprietary rights, publicity regarding actual or potential medical
results relating to products under development by the Company or its
competitors, regulatory developments in both the United States and foreign
countries, public concern as to the safety of pharmaceutical products, and
economic and other external factors, as well as period-to-period fluctuations in
financial results, may have a significant impact on the market price of Shaman's
Common Stock. See "Price Range of Common Stock."
ENVIRONMENTAL REGULATION
In connection with its research and development activities and manufacturing
of clinical trial materials, the Company is subject to federal, state and local
laws, rules, regulations and policies governing the use, generation,
manufacture, storage, air emission, effluent discharge, handling and disposal of
certain materials and wastes. Although the Company believes that it has complied
with these laws and regulations in all material respects and has not been
required to take any action to correct any noncompliance, there can be no
assurance that the Company will not be required to incur significant costs to
comply with environmental and health and safety regulations in the future. The
Company's research and development activities involve the controlled use of
hazardous materials, chemicals, viruses and various radioactive compounds.
Although the Company believes that its safety procedures for handling and
disposing of such materials comply with the standards prescribed by state and
federal regulations, the risk of accidental contamination or injury from these
materials cannot be
12
<PAGE>
completely eliminated. In the event of such an accident, the Company could be
held liable for any damages that result and such liability could exceed the
resources of the Company.
ANTI-TAKEOVER PROVISIONS
The ability of the Board of Directors of the Company to issue shares of
Preferred Stock without stockholder approval may have certain anti-takeover
effects. The Company is also subject to provisions of the Delaware General
Corporation Law ("Delaware Law") that may make certain business combinations
more difficult.
PRODUCT LIABILITY EXPOSURE; LIMITED INSURANCE COVERAGE
The Company's business exposes it to potential product liability risks which
are inherent in the development, testing, manufacture, marketing and sale of
pharmaceutical products. Product liability insurance for the pharmaceutical
industry generally is expensive. There can be no assurance that the Company's
present product liability insurance coverage is adequate. Such existing coverage
will not be adequate as the Company further develops its products, and no
assurance can be given that adequate insurance coverage against all potential
claims will be available in sufficient amounts or at a reasonable cost.
LIMITATION OF LIABILITY AND INDEMNIFICATION
The Company's Certificate of Incorporation limits, to the maximum extent
permitted by Delaware Law, the personal liability of directors for monetary
damages for breach of their fiduciary duties as a director. The Company's Bylaws
provide that the Company shall indemnify its officers and directors and may
indemnify its employees and other agents to the fullest extent permitted by law.
The Company has entered into indemnification agreements with its officers and
directors containing provisions which are in some respects broader than the
specific indemnification provisions contained in Delaware Law. The
indemnification agreements may require the Company, among other things, to
indemnify such officers and directors against certain liabilities that may arise
by reason of their status or service as directors or officers (other than
liabilities arising from willful misconduct of a culpable nature), to advance
their expenses incurred as a result of any proceeding against them as to which
they could be indemnified, and to obtain directors' and officers' insurance, if
available on reasonable terms. Section 145 of the Delaware Law provides that a
corporation may indemnify a director, officer, employee or agent made or
threatened to be made a party to an action by reason of the fact that he was a
director, officer, employee or agent of the corporation or was serving at the
request of the corporation against expenses actually and reasonably incurred in
connection with such action if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. Delaware Law does not
permit a corporation to eliminate a director's duty of care, and the provisions
of the Company's Certificate of Incorporation have no effect on the availability
of equitable remedies, such as injunction or rescission, for a director's breach
of the duty of care.
SHARES ELIGIBLE FOR FUTURE SALE
Future sales of shares by existing stockholders could adversely affect the
prevailing market price of the Company's Common Stock. Directors, officers and
certain stockholders of the Company, holding in the aggregate approximately %
of the shares of the Company's capital stock outstanding prior to this offering
have agreed that, for a period of 90 days after the effective date of the
Registration Statement, they will not, without the prior written consent of
Hambrecht & Quist, LLC, offer for sale, sell, distribute or otherwise dispose of
any shares of Common Stock.
DILUTION
The public offering price will exceed the Company's net tangible book value
per share immediately after the offering. New investors will experience an
immediate dilution in net tangible book value as of September 30, 1996 of
approximately $4.52 per share. See "Dilution." Additional dilution may occur
upon the exercise of outstanding options and warrants. Investors may also suffer
additional dilution if the Company exercises its right
13
<PAGE>
to put additional shares of its Common Stock to one certain investor, pursuant
to its agreements with such investor. See "Description of Capital Stock."
DEPENDENCE ON KEY PERSONNEL
The Company's ability to maintain its competitive position depends in part
upon the continued contributions of its key senior management. The Company's
future performance also depends on its ability to attract and retain qualified
management and scientific personnel. Competition for such personnel is intense,
and there can be no assurance that the Company will be able to continue to
attract, assimilate or retain other highly qualified technical and management
personnel in the future. The loss of key personnel or the failure to recruit
additional personnel or to develop needed expertise could have a material
adverse effect on the Company's business, financial condition and results of
operations.
14
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,000,000 shares of
Common Stock being offered hereby are estimated to be approximately $11 million,
after deducting the placement fee and expenses of the offering.
Through December 31, 1997, the Company anticipates that the proceeds of this
offering, together with the Company's current working capital, committed funding
from corporate collaborations and rights to sell Common Stock at specified
intervals, will be used as follows: (i) approximately $12 million for clinical
testing and related regulatory activities for Provir, Virend and nikkomycin Z,
(ii) approximately $11 million for diabetes research and compound development
and (iii) for general corporate purposes. Pending application of the proceeds as
described above, the Company plans to invest the net proceeds of the offering
primarily in U.S. government securities and other short-term, investment grade,
interest-bearing securities.
The amounts and timing of the Company's expenditures may vary significantly
depending upon numerous factors, including the progress of Shaman's research and
development programs, the results of clinical studies, the timing of regulatory
approvals, the status of competitive products and the availability of
alternative financing, including agreements with other companies relating to the
development and marketing of the Company's products. Based on its current
operating plan, the Company anticipates that its existing capital resources and
committed funding, along with the proceeds of this offering and the interest
thereon, will be adequate to satisfy its capital needs into the second quarter
of 1998. 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 quoted on the Nasdaq National Market
("Nasdaq") under the symbol "SHMN." Prior to its initial public offering on
January 26, 1993, there was no public market for the Company's Common Stock. The
following table sets forth the high and low closing sale prices for the Common
Stock as reported by Nasdaq for the periods indicated. These prices do not
include retail mark-ups, mark-downs or commissions.
<TABLE>
<CAPTION>
HIGH LOW
--------- ---------
<S> <C> <C>
1994
First Quarter......................................................................... $ 12.75 $ 9.75
Second Quarter........................................................................ 10.00 6.50
Third Quarter......................................................................... 8.25 6.38
Fourth Quarter........................................................................ 7.13 3.13
1995
First Quarter......................................................................... 4.25 3.19
Second Quarter........................................................................ 6.19 3.25
Third Quarter......................................................................... 7.00 4.63
Fourth Quarter........................................................................ 7.88 5.00
1996
First Quarter......................................................................... 7.32 5.13
Second Quarter........................................................................ 9.00 6.13
Third Quarter......................................................................... 8.63 5.75
Fourth Quarter (through December 20, 1996)............................................ 7.38 5.38
</TABLE>
On December 20, 1996, the last sale price reported on the Nasdaq National
Market for the Company's Common Stock was $6.0625 per share. As of such date,
there were approximately 720 stockholders of record for the Company's Common
Stock.
15
<PAGE>
DIVIDEND POLICY
The Company has never declared or paid any dividends on its capital stock
and does not intend to pay any dividends in the foreseeable future. The Company
currently intends to retain its earnings, if any, for the growth and development
of its business. Any future determination to pay cash dividends will be at the
discretion of the Company's Board of Directors and will depend upon the earnings
of the Company, its financial condition, capital requirements and such other
factors as the Company's Board of Directors may deem relevant.
16
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company (i) as of
September 30, 1996 and (ii) on an as adjusted basis to give effect to the
receipt by the Company of the net proceeds from the sale of the 2,000,000 shares
of Common Stock offered hereby at an assumed public offering price of $6.00 per
share (after deducting estimated offering expenses, including placement agent
fees):
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
----------------------
ACTUAL AS ADJUSTED
--------- -----------
(IN THOUSANDS)
<S> <C> <C>
Long-term debt and capital lease obligations, excluding current installments... $ 3,157 $ 3,157
Stockholders' equity:
Preferred Stock, $0.001 par value per share, 1,000,000 shares authorized;
400,000 shares Series A Preferred Stock designated, issued and
outstanding................................................................ -- --
Common Stock, $0.001 par value per share, 25,000,000 shares authorized,
13,788,238 shares issued and outstanding, actual; 15,788,238 shares issued
and outstanding, as adjusted (1)........................................... 14 16
Additional paid-in capital................................................... 94,531 105,529
Deferred compensation........................................................ (29) (29)
Unrealized losses on marketable securities................................... (53) (53)
Accumulated deficit.......................................................... (78,799) (78,799)
--------- -----------
Total stockholders' equity..................................................... 15,664 26,664
--------- -----------
Total capitalization........................................................... $ 18,821 $ 29,821
--------- -----------
--------- -----------
</TABLE>
- ------------------------
(1) Excludes, as of September 30, 1996, (i) 2,110,198 shares of Common Stock
issuable upon the exercise of options outstanding under the Company's stock
option plan; (ii) 641,705 shares of Common Stock issuable upon exercise of
outstanding warrants; and (iii) 400,000 shares of Common Stock issuable upon
the conversion of Series A Preferred Stock. To the extent outstanding
options or warrants are exercised, there may be further dilution to new
investors.
17
<PAGE>
DILUTION
At September 30, 1996, the net tangible book value of the Company's Common
Stock was approximately $12,405,000, or $0.90 per share. "Net tangible book
value per share" is equal to the Company's total tangible assets less its total
liabilities and less the $3,259,000 liquidation preference of the Preferred
Stock, divided by the total number of outstanding shares of Common Stock.
After giving effect to the sale of the Common Stock offered hereby at an
assumed public offering price of $6.00 per share and the receipt of the
estimated net proceeds therefrom, the pro forma net tangible book value of the
Company as of September 30, 1996 would have been approximately $23,405,000, or
$1.48 per share. This represents an immediate increase in net tangible book
value of $0.58 per share of Common Stock held by the existing stockholders of
the Company and an immediate dilution of $4.52 per share to new investors. The
following table illustrates the dilution to new investors as of September 30,
1996:
<TABLE>
<S> <C> <C>
Public offering price per share (1)................................... $ 6.00
Net tangible book value per share before offering................... $ 0.90
Increase per share attributable to new investors.................... 0.58
---------
Pro forma net tangible book value per share after offering............ 1.48
---------
Dilution per share to new investors................................... $ 4.52
---------
---------
</TABLE>
- ------------------------
(1) Before deduction of placement agent fees and estimated offering expenses
associated with the offering to be paid by the Company.
The foregoing table assumes no exercise of outstanding options or warrants
to purchase Common Stock. At November 30, 1996, options to purchase 2,115,188
shares of Common Stock at a weighted average exercise price of $5.48 per share
were outstanding, which are subject to vesting requirements under the Company's
stock option plan. Warrants to purchase 641,705 shares of Common Stock at a
weighted average exercise price of approximately $9.40 were also outstanding at
November 30, 1996. To the extent that certain of these options or warrants are
exercised, there could be further dilution to the new investors.
18
<PAGE>
SELECTED FINANCIAL DATA
The selected financial data set forth below with respect to the Company's
statements of operations for each of the three years in the period ended
December 31, 1995, and with respect to the Company's balance sheets at December
31, 1994 and 1995, are derived from the financial statements of the Company that
have been audited by Ernst & Young LLP, independent auditors, which are
incorporated herein by reference and are qualified by reference to such
Financial Statements and Notes thereto. The selected financial data set forth
below with respect to the statements of operations for the years ended December
31, 1991 and 1992, and with respect to the balance sheet data at December 31,
1991, 1992 and 1993 are derived from audited financial statements not
incorporated by reference herein. The balance sheet data as of September 30,
1996 and the statements of operations data for the nine months ended September
30, 1995 and 1996 are derived from unaudited financial statements incorporated
by reference herein. The unaudited financial statements include all adjustments,
consisting only of normal recurring adjustments, which the Company considers
necessary for a fair presentation of its financial position and results of
operations for these periods. Operating results for the nine months ended
September 30, 1996 are not necessarily indicative of the results that may be
expected for the entire year ending December 31, 1996. The data presented below
should be read in conjunction with the financial statements, related notes and
other financial information incorporated herein by reference.
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED DECEMBER 31, ENDED SEPTEMBER 30,
----------------------------------------------------- --------------------
1991 1992 1993 1994 1995 1995 1996
--------- --------- --------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenue from collaborative
agreements..................... $ -- $ 425 $ 2,050 $ 1,360 $ 2,210 $ 1,710 $ 1,531
Operating expenses (1):
Research and development....... 4,397 5,449 13,646 18,643 17,635 12,570 14,225
General and administrative..... 519 1,016 2,659 3,545 3,705 2,760 2,635
--------- --------- --------- --------- --------- --------- ---------
Total operating expenses......... 4,916 6,465 16,305 22,188 21,340 15,330 16,860
Loss from operations............. (4,916) (6,040) (14,255) (20,828) (19,130) (13,620) (15,329)
Interest income.................. 73 224 1,543 2,045 1,695 1,304 834
Interest expense................. (271) (156) (315) (698) (569) (419) (472)
--------- --------- --------- --------- --------- --------- ---------
Net loss......................... $ (5,114) $ (5,972) $ (13,027) $ (19,481) $ (18,004) $ (12,735) $ (14,967)
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Net loss per share (2)........... $ (1.32) $ (0.85) $ (1.30) $ (1.50) $ (1.37) $ (0.97) $ (1.12)
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Shares used in calculation of net
loss per share (2)............. 3,884 7,060 10,036 12,986 13,161 13,134 13,381
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
DECEMBER 31, ----------------------
----------------------------------------------------- ADJUSTED
1991 1992 1993 1994 1995 ACTUAL (3)
--------- --------- --------- --------- --------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and
investments................. $ 6,534 $ 14,258 $ 57,333 $ 39,843 $ 26,665 $ 20,405 $ 31,405
Working capital............... 5,636 13,025 36,711 33,422 22,850 13,609 24,609
Total assets.................. 8,221 15,964 67,229 49,673 33,810 26,653 37,653
Long-term obligations,
excluding current
installments................ 686 473 3,261 3,932 4,930 3,157 3,157
Accumulated deficit........... (7,348) (13,320) (26,348) (45,828) (63,832) (78,799) (78,799)
Stockholders' equity.......... 6,356 13,747 60,436 41,300 24,205 15,664 26,664
</TABLE>
- ------------------------
(1) Certain expenses have been reclassified to conform to 1996 presentation.
19
<PAGE>
(2) Net loss per share is based on the weighted average number of common shares
outstanding in 1993, 1994, 1995 and for the nine months ended September 30,
1996. Pro forma net loss per share in 1991 and 1992 is computed as above,
and also gives effect to the conversion of the preferred stock into Common
Stock as if converted at the original date of issuance. The Company has not
paid dividends since inception.
(3) Adjusted to reflect the sale by the Company of 2,000,000 shares of Common
Stock at the assumed public offering price of $6 per share and the
application of the net proceeds therefrom of approximately $11,000,000. See
"Use of Proceeds" and "Capitalization."
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THIS MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS AND OTHER PARTS OF THIS PROSPECTUS CONTAIN FORWARD-LOOKING
STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT AND SECTION
21E OF THE EXCHANGE ACT. ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE
PROJECTED IN THE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN OF THE RISK
FACTORS SET FORTH BELOW AND ELSEWHERE IN THIS PROSPECTUS. SEE "RISK FACTORS."
The following discussion should be read in conjunction with the financial
statements and notes thereto incorporated herein by reference.
OVERVIEW
Shaman is a leader in the identification and development of novel
pharmaceutical products for the treatment of human diseases through the
isolation and optimization of active compounds found in tropical plants. The
Company has three compounds in clinical development: Provir, an oral product for
the treatment of secretory diarrhea; Virend, a topical antiviral for the
treatment of herpes; and nikkomycin Z, an oral antifungal for the treatment of
endemic mycoses. Shaman has collaborations for the development of diabetes drugs
with Lipha, Lyonnaise Industrielle Pharmaceutique s.a., a wholly owned
subsidiary of Merck KGaA, Darmstadt, Germany ("Lipha/Merck"), and with Ono
Pharmaceutical Co., Ltd. ("Ono") of Osaka, Japan.
The Company began operations in March 1990. To date, Shaman has not sold any
products and does not anticipate receiving product revenue in the near future.
The Company's accumulated deficit at September 30, 1996, was approximately $78.8
million. Shaman expects to continue to incur substantial losses over the next
several years, due primarily to the expense of preclinical studies, clinical
trials and its on-going research program. The Company expects that losses will
fluctuate from quarter to quarter and that such fluctuations could be
substantial. Shaman has financed its research, development and administrative
activities through various private placements of its equity securities, an
initial public offering of Common Stock in January 1993, a secondary offering in
December 1993, collaborative agreements with pharmaceutical companies and, to a
lesser extent, through equipment and leasehold improvement financings.
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
The Company recorded revenues of $1.5 million and $1.7 million for the nine
month periods ended September 30, 1996 and 1995, respectively. Collaborative
revenues in 1995 resulted solely from the Company's relationship with Ono and
included a one-time access fee associated with the commencement of that
agreement. Revenues for the nine months ended September 30, 1996 resulted from
the Company's continued research funding from Ono as well as revenue from the
recently announced collaboration with Lipha/Merck.
For the nine months ended September 30, 1996, research and development
expenses were $14.2 million, representing an increase of approximately $1.7
million over the same period in 1995. The year-to-date increase is primarily
attributable to the Company's additional research and development activities
with respect to nikkomycin Z and further development of the compounds identified
in its diabetes research effort. Research and development expenses are likely to
increase in upcoming quarters as products enter clinical trials and the Company
continues research and development activities for various product candidates.
General and administrative expenses were $2.6 million and $2.8 million for
the nine month periods ended September 30, 1996 and 1995, respectively. Current
general and administrative expenses are in line with the Company's plan. The
Company's expanded research and clinical activities are not expected to require
commensurate increases in general and administrative support.
Interest income was $834,000 and $1.3 million for the nine months ended
September 30, 1996 and 1995, respectively. Interest income decreased for the
period ended September 30, 1996, compared with the period ended September 30,
1995, due to lower average cash and investment balances as the Company continues
to
21
<PAGE>
fund its operations. The increase in interest expense for the nine-month period
ended September 30, 1996 over the same period in 1995 resulted from higher
average debt balances in 1996, the impact of which was partially offset by a
lower average interest rate on Company debt during 1996.
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
The Company had revenues of $2.2 million, $1.4 million and $2.1 million for
1995, 1994 and 1993, respectively. Revenues for 1995 represent a one-time access
fee plus ongoing funding for research activities performed under the
collaborative agreement with Ono. Revenues for 1994 and 1993 were attributable
to an antifungal joint research and development agreement with Eli Lilly and
Company ("Lilly"). The agreement, signed in October 1992, had a four-year term,
subject to renewal after two years. Lilly committed to fund the Company's
research efforts with respect to certain antifungal agents at agreed upon levels
through October 1994. In October 1994, Lilly decided not to renew the
collaboration. Shaman incurred no costs upon termination of the agreement and
retains worldwide rights to the compounds that were subject to the alliance. The
Company expects that revenues from collaborative agreements will fluctuate in
the future as development of its various compounds proceeds and new products are
partnered for development and commercialization.
The Company incurred research and development expenses of approximately
$17.6 million, $18.6 million and $13.6 million for 1995, 1994 and 1993,
respectively. These expenses include salaries for scientific personnel, clinical
development costs, laboratory supplies, patent protection and consulting fees,
travel, plant collections, facilities expenses and other expenditures relating
to research and product development. Research and development expenses decreased
$1.0 million in 1995 compared with 1994, and increased $5.0 million in 1994
compared with 1993. The decrease in 1995 was due primarily to the Company's
restructuring late in 1994, its specific focus on diabetes as its primary basic
research program, and its reduced efforts in infectious disease research. The
increase in 1994 compared with 1993 was due principally to additional research
and development personnel, plant collections, screening of raw plant materials,
patent costs, expanded preclinical studies and clinical trial activities.
Research and development expenses in the future are expected to increase as
products enter clinical trials and the Company continues research and
development activities for various product candidates.
General and administrative expenses were approximately $3.7 million, $3.5
million and $2.7 million in 1995, 1994 and 1993, respectively. These expenses
include administrative salaries, consulting, legal, travel and other operating
expenses. General and administrative expenses increased approximately $160,000
in 1995 compared with 1994, and approximately $886,000 in 1994 compared with
1993. These increases were incurred to develop the Company's corporate
partnering opportunities and to enhance information systems and other support
functions in response to the Company's expanding research and development
activities. Going forward, the Company's expanded research and clinical
activities are not expected to require commensurate increases in general and
administrative support.
Interest income was $1.7 million, $2.0 million and $1.5 million for 1995,
1994 and 1993, respectively. Interest income fluctuations were consistent with
changes in average cash and investment balances which reflected the proceeds of
two public offerings in 1993 from which the Company substantially funded its
operations in 1993, 1994 and 1995. The balances of cash, cash equivalents and
investments were $26.7, $39.8 and $57.3 million at December 31, 1995, 1994 and
1993, respectively.
Interest expense was $569,000, $698,000 and $315,000 in the years ended
December 31, 1995, 1994 and 1993, respectively. Interest expense increased in
1994 as the Company entered into capital leases and equipment loans to fund $1.8
million of equipment acquisitions. Interest expense decreased in 1995 as various
leases terminated during the year, and the Company did not close its term debt
until the fourth quarter. The Company's general policy is to finance capital
equipment and tenant improvements on a long-term basis, and interest expense in
the future will be dependent on the Company's capacity to finance its future
equipment needs.
At December 31, 1995, the Company had federal net operating loss
carryforwards of approximately $59.5 million. The federal net operating loss
carryforwards will expire at various dates beginning in 2004 through 2010, if
not sooner utilized. Utilization of the net operating losses and credits is
subject to a substantial annual
22
<PAGE>
limitation due to the "change in ownership" provisions of the Internal Revenue
Code of 1986. The annual limitation may result in the expiration of net
operating losses and credits before utilization.
Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes ("Statement 109").
Under Statement 109, the liability method is used for accounting for income
taxes. There was no effect of adoption as the Company has incurred losses since
inception, and no benefit has been recorded for operating loss carryforwards.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1996, the Company's cash, cash equivalents and
investments totaled approximately $20.4 million, compared with $26.7 million at
December 31, 1995. The net decrease is attributable to sales and maturities in
the Company's investment portfolio to fund operations, partially offset by funds
received from the Lipha/Merck collaboration in September 1996, a private
placement of preferred stock in July 1996, and Ono's annual research funding.
In September 1996, the Company entered into a five-year collaborative
agreement with Lipha/Merck to develop antidiabetic drugs jointly. In exchange
for development and marketing rights in all countries except Japan, South Korea
and Taiwan (which are covered under an earlier agreement between Shaman and
Ono), Lipha/Merck will provide up to $9 million in research payments and up to
$10.5 million in equity investments priced at a 20% premium to the average
market price of the Company's Common Stock at the time of purchase. Complete
research funding under the collaboration is dependent upon the initiation of
human clinical trials of at least one compound by September 23, 1998. The
agreement also provides for additional preclinical and clinical milestone
payments to the Company in excess of $10 million per compound for each
antidiabetic drug developed and commercialized. To date, Shaman has identified
10 proprietary, orally active compounds which show preclinical activity as
treatments for Type II diabetes. Lipha/Merck will bear all pre-clinical,
clinical, regulatory and other development expenses associated with the
compounds selected under the agreement. In addition, as products are
commercialized, Shaman will receive royalties on all product sales outside the
United States and up to 50% of the profits (if the Company exercises its
co-promotion rights) or royalties on all product sales in the United States.
Certain of the milestone payments will be credited against future royalty
payments, if any, due to the Company from sales of products developed pursuant
to the agreement.
In July 1996, in a private placement pursuant to Regulation S under the
Securities Act of 1933, as amended, the Company received gross proceeds of $3.3
million for 400,000 shares of Series A Convertible Preferred Stock and a
six-year warrant to purchase 550,000 shares of the Company's Common Stock at a
price of $10.184 per share. The Preferred Stock does not carry a dividend
obligation and will convert into Common Stock no later than July 23, 1999 at a
price per share between $6.00 and $8.147, depending on the market value of the
Company's Common Stock during the period prior to conversion. In addition to the
sale of Preferred Stock and warrant, the Company has the right, from time to
time during the period beginning January 1997 and ending July 2000, to sell up
to 1,200,000 additional shares of Common Stock to the investor at a formula
price of 100% or 101% of a multi-day average of the Common Stock price at the
time of sale. The investor has the option to increase the total shares purchased
by up to an aggregate of 527,500 shares at the same price per share as at the
date of purchase.
The Company expects to incur substantial additional costs relating to the
continued preclinical and clinical testing of its products, regulatory
activities and research and development programs. The Company anticipates that
its cash, cash equivalents and investment balances of approximately $20.4
million at September 30, 1996, the collaborative revenues committed by
Lipha/Merck and Ono, Lipha/Merck's commitment to purchase additional equity,
Shaman's additional rights to sell Common Stock through its private placement
and the net proceeds from this offering will be adequate to fund operations into
the second quarter of 1998. Milestone payments which may be received by the
Company from Ono and Lipha/Merck would extend the Company's capacity to finance
its operations beyond that time. However, there can be no assurance that
additional funding, if needed, will be available on terms attractive to the
Company, or at all.
23
<PAGE>
BUSINESS
Shaman is a leader in the identification and development of novel
pharmaceutical products for the treatment of human diseases through the
isolation and optimization of active compounds found in tropical plants. The
Company believes that by focusing on drugs extracted from plants with a long
history of medicinal use, its drug discovery efforts will be quicker and more
likely to lead to safe and effective pharmaceuticals. Shaman has human clinical
trials under way for its three lead product candidates: Provir, Virend and
nikkomycin Z. Shaman has completed Phase II trials showing preliminary efficacy
for Provir for the treatment of watery diarrhea and Virend for the treatment of
recurrent genital herpes. An additional dose-optimizing Phase II trial for
Provir and an additional trial using Virend in combination with oral acyclovir,
will commence in the first quarter of 1997. Provir is an oral drug which acts as
a specific inhibitor of fluid loss via an antisecretory mechanism, and Virend is
a topical agent which acts by an antiviral mechanism of action; both products
incorporate the same active drug substance, SP-303. In addition, nikkomycin Z,
an orally-active, in-licensed product for the treatment of endemic mycoses and
other systemic fungal infections, is currently in Phase I trials in the U.K. and
the Company expects to file an IND in the United States with respect thereto in
1997. Shaman's research and preclinical development is principally focused on
the identification and optimization of compounds to treat Type II (adult onset)
diabetes, an effort that has led to the identification of 10 chemically
distinct, orally-active compounds which have demonstrated glucose lowering
effects in preclinical testing. Significant funding, as well as milestone
payments for this program, are provided through collaborations with Lipha,
Lyonnaise Industrielle Pharmaceutique s.a., a wholly-owned subsidiary of Merck
KGaA, Darmstadt, Germany ("Lipha/ Merck"), and Ono Pharmaceutical Co., Ltd.
("Ono").
Watery diarrhea is usually caused by an insult to the small intestine (as a
consequence of bacterial or viral infection) which results in fluid accumulation
in the small intestine, leading to dehydration and sometimes fatal diarrhea.
According to the International Marketing Service ("IMS"), worldwide, 26 million
prescriptions are written annually for watery diarrhea. Moreover, approximately
67 million over-the-counter units are sold annually worldwide. Current treatment
for watery diarrhea consists of antibiotics, which can take up to two to five
days to have a therapeutic effect and can result in the creation or propagation
of antibiotic-resistant strains of bacteria, or antimotility agents, which
inhibit the natural muscular contractions of the intestinal tract, allowing the
invading agent to remain in the intestine for a prolonged period. No current
primary treatment for infectious diarrhea addresses dehydration or can reverse
water accumulation. Based on preclinical mechanistic studies, Provir appears to
treat watery diarrhea by inhibiting chloride ion secretion and thus preventing
the electrolyte imbalance that causes excess water accumulation into the lumen
of the small intestine resulting in diarrhea.
Genital herpes, for which there is currently no cure, is caused by the
herpes simplex virus which infects the ganglions of the nerve cells and results
in painful lesions that can last for three to 21 days. After an initial outbreak
of lesions, the virus typically remains dormant but may resurface when the
immune system becomes stressed or compromised. Genital herpes afflicts over 30
million people in the United States alone, with up to 500,000 new cases
diagnosed each year. Current treatment for recurrent genital herpes consists of
nucleoside analogs, including oral formulations of acyclovir and famciclovir
that generally provide effective treatment of herpes lesions by interfering with
viral replication. Virend reduces the duration of herpes lesion outbreaks by
preventing adsorption of the herpesvirus into healthy tissue, thus preventing it
from crossing the cell membrane and infecting healthy tissue.
Endemic mycoses are caused by coccidioidomycosis (valley fever),
histoplasmosis and blastomycoses ("cocci," "histo" and "blasto") found in the
soil of certain regions of the United States. When the soil is disturbed (such
as during crop planting or harvesting), the fungi become airborne and may be
inhaled into the lungs. Once infected, otherwise healthy individuals will
experience mild flu-like symptoms but may never be diagnosed with the disease.
In more severe cases, the fungus spreads systemically and results in
disseminated fungal infections. Currently, two classes of drugs are commonly
prescribed for the treatment of endemic mycoses: azoles, which are fungistatic
(inhibit the growth of the fungus, but do not kill it) and polyenes (including
amphotericin B), which are fungicidal (kill the fungus), but often cannot be
tolerated in high enough doses to kill the fungi. Nikkomycin Z treats endemic
mycoses by interfering with the synthesis of chitin, a key element of the cell
wall of these fungi, which ultimately destroys the fungi. Based on synergistic
activity with azoles, the Company plans
24
<PAGE>
to supply nikkomycin Z to Pfizer Corporation ("Pfizer") to conduct a combination
nikkomycin Z plus fluconazole human clinical study in 1997 in azole-resistant
esophageal candidiasis patients.
Type II diabetes (also known as adult onset diabetes) is a chronic disease
in which the tissues of the body are resistant to the actions of insulin and the
pancreas cannot secrete enough insulin to overcome this resistance. This disease
is the result of multiple causes, many of which are undefined at the molecular
level. In the United States alone, the Centers for Disease Control ("CDC")
estimates that 16 million people (over five percent of the population) have
diabetes and approximately 625,000 new cases are diagnosed each year. To date,
the Company has identified 10 proprietary, orally-active, chemically distinct
compounds to be evaluated for the treatment of Type II diabetes.
BACKGROUND
Shaman builds on the knowledge and expertise of ethnobotanist and physician
teams who work with traditional healers to identify effective treatments for the
therapeutic areas targeted by the Company. These teams gather comparative data
on traditional medicinal uses of plants from geographically diverse tropical
areas and prioritize plant drug candidates based on common use among cultures,
as well as a number of other factors. These factors include a cross-check of
field-derived information against the results of literature searches as to
chemical constituents, previously discovered biological activity and other
reported medicinal uses. Shaman isolates and identifies the active compounds
from plant extracts by testing for activity in whole animal models at each step
of its purification process. The Company's natural product chemists use
chromatography, spectroscopy, nuclear magnetic resonance ("NMR") and other
proven technologies to identify and isolate compounds and structures. Because
these compounds reflect the previously untapped plant diversity of the rain
forests they have, to date, also exhibited significant diversity of chemical
structure. In addition, the Company's whole animal screening approach provides
the opportunity to discover novel methods of treatment for diseases in which the
underlying mechanism of action of a disease is not well understood.
THE SHAMAN STRATEGY
Shaman's strategy is to employ a drug discovery process focused on diseases
which:
- appear to be the result of multiple and, in many cases, unknown causes and
therefore may not be amenable to a targeted IN VITRO drug discovery
process;
- occur in the rain forests and are readily recognized and treated by
traditional healers (E.G., foot ulcers, sweet urine, poor eyesight and
fungal infections are often predictive of Type II diabetes); and
- allow the plant extract treatment to be confirmed in a whole animal model
and then purified to isolate the active compound.
Shaman believes this drug discovery process provides it with the opportunity
to:
- identify novel methods of treating diseases with therapeutic relevance;
- discover new chemical entities or new classes of compounds to treat
disease; and
- provide early confirmation of efficacy and safety.
Shaman intends to commercialize its products through out-licensing when
safety and efficacy have been demonstrated in humans. Shaman will out-license
broad applications worldwide while retaining the opportunity to directly access
markets through niche applications and/or co-promotion.
25
<PAGE>
CLINICAL AND RESEARCH PROGRAMS
Shaman has established and is continuing to build a portfolio of product
candidates. The table below describes the major therapeutic areas in which the
Company is conducting its product development and research:
<TABLE>
<CAPTION>
PRODUCT INDICATION STATUS COMMERCIAL RIGHTS
- -------------------- -------------------- ------------------------------ ------------------------------------
<S> <C> <C> <C>
Provir.............. Watery diarrhea Initial Phase II efficacy Shaman
study completed; Phase II
dosing trial to commence in Q1
1997
Provir.............. AIDS diarrhea Phase II (studying preliminary Shaman
efficacy) to commence in Q1
1997
Provir.............. Pediatric diarrhea Formulation Development Shaman
Virend.............. Genital herpes Initial Phase II completed; Shaman
combination study to commence
in Q1 1997
Nikkomycin Z........ Endemic mycoses Phase I under U.K. law; IND to Shaman
be filed in the United States
Nikkomycin Z and
azoles............. Azole-resistant Initiation pending completion Shaman
Candida of Phase I above (1)
Oral antihyper-
glycemics compounds
(in development)... Diabetes Preclinical Ono (Japan, Taiwan, South Korea)
Lipha/Merck and Shaman (co-
promotion and equal profit
sharing on U.S. sales)
Shaman receives royalties on
sales outside the United States
</TABLE>
- ------------------------
(1) Initiation of this combination clinical trial is dependent upon the
successful completion of the Phase I study of nikkomycin Z.
The Shaman-patented compound, SP-303, is the active ingredient in both
Provir and Virend. SP-303 is extracted from the latex of the Croton tree, which
grows abundantly in Latin America. This latex is used by many native cultures
throughout Latin America for a variety of medicinal purposes, including
respiratory infections and gastrointestinal problems. It is also used topically
for wound healing. Shaman's initial drug development efforts for SP-303 were
focused on respiratory syncytial virus ("RSV") while it explored other
traditional uses of the latex. In Phase II trials, the Company determined that
Provir was not effective for the treatment of RSV because it was not
systemically absorbed. Shaman's continuing exploration of other traditional uses
of the latex from the Croton tree resulted in both Virend, the topical product
in Phase II clinical testing for genital herpes, and in the isolation of a
patent-pending reformulation of SP-303 in Phase II testing for the treatment of
watery diarrhea (which benefits from the nonabsorptive characteristics of the
drug).
PROVIR
Watery diarrhea is often caused by infectious agents such as V. CHOLERAE and
E. COLI. These agents secrete toxins which adhere to the intestinal wall and
cause increased secretion of chloride ions from intestinal cells,
26
<PAGE>
resulting in fluid accumulation in the small intestine. This in turn leads to
severe and, in some cases, life-threatening diarrhea. According to the IMS, over
26 million prescriptions are written annually for watery diarrhea. Moreover,
approximately 67 million over-the-counter product units are sold worldwide.
Current primary treatments for watery diarrhea do not address the
dehydration or fluid accumulation caused by the illness. Watery diarrhea is
typically treated with one of two treatment regimens: antibiotics or
antimotility agents. Antibiotics kill the bacteria, while antimotility agents
reduce diarrhea frequency by inhibiting peristaltic action (natural muscular
contraction of the intestinal tract). For mild to moderate cases of watery
diarrhea, the use of antibiotics is discouraged by the World Health Organization
and the CDC due to adverse side effects and issues related to emerging
resistance by bacteria to antibiotics. Furthermore, antibiotics reduce the
ability to build natural immunities to disease and increase the likelihood of
reinfection.
While antimotility agents are effective in reducing the severity of watery
diarrhea, they often cause severe constipation. In addition, because of reduced
motility in the intestine, the bacteria are often not eliminated and remain in
the gut. When the treatment is stopped, the patient often experiences rebound
diarrhea. Moreover, these agents are contraindicated in children and the
elderly, who cannot tolerate a potential resulting systemic infection.
Provir has demonstrated safety in Phase I trials and preliminary evidence of
efficacy in Phase II trials for the treatment of watery diarrhea in a Phase II
trial. IN VITRO and IN VIVO preclinical studies indicate that Provir treats
watery diarrhea by inhibiting the secretion of chloride ions from intestinal
cells, specifically countering the mechanism causing diarrhea. Provir does not
affect the normal motility of the intestine and its nonabsorption from the
intestine contributes to its safety and specificity of site of action.
[Graphic illustrating Provir mechanism of action]
The Company has conducted Phase I clinical trials for Provir in more than
150 adults, children and infants as young as three months of age, in both single
and multiple doses. These trials demonstrated that Provir is safe and can be
easily tolerated in doses up to two grams per day for two days. The results also
indicated no significant adverse effects of the drug. In November 1996, the
Company completed a Phase II trial to determine the efficacy of Provir in the
treatment of traveler's and non-specific diarrheas. This open-label Phase II
study was conducted by Dr. Herbert DuPont, a world recognized expert in travel
medicine, of the University of Texas at Houston and Baylor College of Medicine.
It included American subjects traveling to Mexico as well as native Mexicans
suffering from diarrhea of unknown etiology.
Eighty-nine percent of the 75 patients treated with Provir responded
favorably (returned to normal bowel function) after 48 hours of treatment, with
over 60% of those patients returning to normal after just 24 hours. Moreover, of
the 71 patients available for follow up, none of the patients experienced
worsening of the diarrhea illness once resolution of the disease began. In
addition, no significant adverse reactions were reported. Of 25 patients with
traveler's diarrhea receiving one or two grams of Provir per day, effectiveness
(measured as a combination of stool frequency, stool consistency and
gastrointestinal symptoms) was demonstrated in 72% of patients over the course
of the study. Within this patient group, the mean time to last unformed
stool--the most significant indicator of therapeutic effect--was 58% less than
historical controls would indicate. Traveler's diarrhea left untreated usually
lasts five to seven days. The patients experiencing non-specific diarrhea of
unknown etiology received either a one or two gram dose per day for two days. In
the group of 15 patients receiving the one gram dose, all patients responded to
therapy, and 87% returned to normal stool frequency after
27
<PAGE>
24 hours of treatment. In the group of 35 patients receiving the two gram dose,
34 patients responded to therapy, and 80% returned to normal stool frequency
after 24 hours of treatment. The mean time to last unformed stool was reduced by
50% in the one gram dose group and 32% in the two gram dose group compared to
the historical control in a cure study. Non-specific diarrhea usually lasts
three to four days.
Shaman has initiated discussions with potential corporate partners for the
development and commercialization of Provir for the traveler's and non-specific
diarrhea indications. As part of setting its overall strategy for
commercialization of Provir, the Company intends to assess the market
opportunities for additional indications such as diarrhea in patients with AIDS
and pediatric diarrhea. Ninety percent of patients with AIDS suffer from
diarrhea, with over 30% suffering from chronic diarrheas. Diarrhea is a
significant factor contributing to malnutrition and mortality in AIDS patients,
even when such patients are treated with protease inhibitors. Many of these
patients do not respond to standard therapy for the treatment of their diarrheal
symptoms and, therefore, an effective alternative treatment could prove
beneficial to this patient population.
According to the Journal of Pediatrics, in the United States alone, between
21 and 37 million episodes of diarrhea occur annually in children under five
years of age. In addition, there are over one billion episodes of pediatric
diarrhea worldwide annually and four million deaths per year among children less
than five years old in developing countries. Current recommended therapies for
pediatric diarrhea are designed to replace water and electrolytes. Antibiotics
and prescription antimotility agents are contraindicated in children. Currently
there is no safe, effective therapeutic for treatment of this patient
population.
VIREND
Genital herpes is caused by herpes simplex virus which affects nerve cell
ganglia and results in painful lesions that typically last from 3 to 21 days.
According to the Centers for Disease Control ("CDC"), genital herpes afflicts
approximately 30 million people in the United States with up to 500,000 new
cases diagnosed each year. Immunocompromised patients, such as patients with
AIDS, or those undergoing chemotherapy or transplantation, generally experience
more severe herpes lesions and outbreaks of greater duration than
immunocompetent patients.
Current treatment for recurrent genital herpes consists of nucleotide
analogs, including oral formulations of acyclovir and famciclovir that generally
provide effective treatment of herpes lesions by interfering with viral
replication. In 1994, worldwide sales of the oral formulation of acyclovir were
$836 million. While acyclovir accounts for the majority of sales for the
treatment of genital herpes, other oral nucleoside analogs with mechanisms of
action similar to that of acyclovir have recently been approved for the
treatment of genital herpes.
Virend, a topical agent, has demonstrated preliminary evidence of safety and
efficacy against genital herpes in clinical studies in patients with AIDS. It is
a topical agent that inhibits attachment of herpes simplex virus to healthy
cells, thus reducing the time to complete lesion healing. Because Virend's
antiviral mechanism of action differs from that of acyclovir, this drug was
initially tested in patients resistant to acyclovir treatment.
[Graphic illustrating Virend mechanism of action]
In September 1995, the Company completed a randomized double-blind,
placebo-controlled Phase II study involving 45 patients with AIDS. Complete
healing of lesions was achieved in 38% (9 of 24) of patients receiving Virend
versus 14% (3 of 21) of patients in the placebo-controlled group (p=0.077). In
addition, the
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study results indicate that Virend may be effective in reducing the spread of
herpesvirus. Of the Virend treated group, 50% tested culture negative for
herpesvirus at the end of the treatment period versus 19% of the placebo treated
group (p=0.06). Although not statistically significant, the Company believes
that these results indicate that Virend may be efficacious in healing herpes
lesions. Although the Company originally intended to conduct a Phase III study
with Virend alone in 1996, in the course of corporate partnering discussions,
the Company concluded that a study of Virend in combination with oral acyclovir
would create greater value in out-licensing the product. In the first quarter of
1997, the Company intends to initiate a study to determine treatment outcome of
combination therapy, Virend plus oral acyclovir, compared with a placebo gel and
oral acyclovir. The study is planned to be a U.S. multicenter, randomized
double-blind, placebo-controlled trial to treat recurrent genital herpes in
patients with AIDS. Shaman believes that, because of the differing mechanisms of
action, a combination trial that tests Virend plus acyclovir in patients with
AIDS could result in more effective treatment of herpes lesion outbreaks. Shaman
intends to seek a corporate partner to enable testing of Virend in the broader
immunocompetent patient population.
NIKKOMYCIN Z
Endemic mycoses are systemic fungal infections concentrated in the
southwest, central and northeast regions of the United States. There are three
basic forms of endemic mycoses: coccidioidomycosis (valley fever),
histoplasmosis and blastomycosis ("cocci," "histo" and "blasto"). The Western
Journal of Medicine has estimated that endemic mycoses afflicts approximately
300,000 people in the United States each year. The Company believes that the
annual market for treatment of endemic mycoses in the United States is
approximately $150 million.
Currently, two classes of drugs are commonly prescribed for the treatment
for endemic mycoses: azoles, which are fungistatic (inhibit the growth of the
fungus, but do not kill it) and polyenes (including amphotericin B), which are
fungicidal (kill the fungus), but often cannot be tolerated in high enough doses
to kill the fungi.
Nikkomycin Z was licensed in 1995 from Bayer AG. See
"Business--Collaborative Relationships and Licenses." Nikkomycin Z is an
orally-administered product designed for the treatment of endemic mycoses.
Nikkomycin Z is novel in its mechanism of action against endemic mycoses.
Preclinical studies of nikkomycin Z indicate that it is fungicidal and could
prove superior to current treatments. By inhibiting chitin synthetase, which is
found in the cell walls of most fungi, but not in mammalian cells, nikkomycin Z
inhibits cell wall synthesis, ultimately causing fungal cells to expand and
burst. The lack of chitin in mammalian cells should prevent similar damage to
normal cells in tissues affected by these fungal infections.
[Graphic illustrating nikkomycin Z mechanism of action]
Candidiasis is a fungal infection that can result in serious systemic
disease. Approximately 300,000 patients worldwide are treated annually for
systemic candidiasis. Nikkomycin Z also has the properties of interacting in a
synergistic fashion with a number of known antifungal compounds, including
fluconazole (Diflucan) and itraconazole (Sporonox), the two largest selling
antifungals in the world. Based on this synergistic activity, the Company plans
to supply nikkomycin Z to Pfizer Corporation for a combination study that tests
nikkomycin Z in combination with fluconazole in treating azole-resistant
esophageal candidiasis. The estimated total market of antifungal agent sales for
systemic fungal infections is $1.7 billion in 1996.
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Shaman initiated Phase I human clinical trials in the U.K. in December 1996.
Following this Phase I safety trial under U.K. law, the Company plans to submit
an IND and conduct multidose Phase I and Phase II studies in the United States
in patients suffering from endemic mycoses.
DRUG DISCOVERY RESEARCH
DIABETES
Type II diabetes (also known as adult onset diabetes) is a chronic disease
in which the tissues of the body are resistant to the actions of insulin (a
hormone produced by the pancreas), and the pancreas cannot secrete enough
insulin to overcome this resistance. When this happens, the ability of insulin
to carry out its normal action on the
liver, muscle and adipose tissues is lost and the consequence is an abnormal
increase in circulating blood glucose. Because the function of insulin is
different in each of these tissues, there are many potential therapeutic targets
for the treatment of Type II diabetes.
Shaman is focused on the development of oral antihyperglycemic (blood
glucose lowering) agents for the treatment of Type II diabetes. The program
involves IN VIVO screening of plants by oral administration in animal models,
followed by the fractionation of active extracts, the isolation and
identification of active compounds, and the capability to profile and prioritize
promising candidates for clinical development. In the first 24 months of this
program, the Company has identified 10 orally active compounds for which
original U.S. patent applications and a number of international patent
applications have been filed. These compounds represent new classes and,
potentially, new methods for treating Type II diabetes.
The Company currently plans to file its first IND for diabetes in 1997.
Significant funding, as well as milestone payments for this program, are
provided through collaborations with Lipha/Merck and Ono. See
"Business--Collaborative Relationships and License Agreements."
COLLABORATIVE RELATIONSHIPS AND LICENSE AGREEMENTS
In September 1996, the Company entered into a five-year collaborative
agreement with Lipha/Merck to develop Shaman's antihyperglycemic drugs jointly.
In exchange for development and marketing rights in all countries except Japan,
South Korea and Taiwan (which are covered under an earlier agreement between
Shaman and Ono), Lipha/Merck will provide up to $9 million in research payments
and up to $10.5 million (including a $1.5 million up-front payment) in equity
investments priced at a 20% premium to the average market price of the Company's
Common Stock at the time of purchase. Complete research funding under the
collaboration is dependent upon the initiation of human clinical trials of at
least one compound by September 23, 1998. The agreement also provides for
additional preclinical and clinical milestone payments to the Company in excess
of $10 million per compound for each antihyperglycemic drug developed and
commercialized. To date, Shaman has identified 10 proprietary, orally active
compounds which show preclinical activity as treatments for Type II diabetes.
Lipha/Merck will bear all pre-clinical, clinical, regulatory and other
development expenses associated with the compounds selected under the agreement.
In addition, as products are commercialized, Shaman will receive royalties on
all product sales outside the United States and up to 50% of the profits (if the
Company exercises its co-promotion rights) or royalties on all product sales in
the United States. Certain of the milestone payments will be credited against
future royalty payments, if any, due to the Company from sales of products
developed pursuant to the agreement.
In May 1995, the Company entered into a three-year collaborative agreement
with Ono for the research and development of compounds for the treatment of Type
II diabetes. Under the terms of the agreement, Shaman will screen 100
diabetes-specific plants per year IN VIVO, isolate and identify active
compounds, and participate in any medicinal chemistry modification. In turn, Ono
will provide Shaman with access to Ono's preclinical and clinical development
capabilities through proprietary IN VITRO assays and medicinal chemistry
efforts. Ono's development and commercialization rights are for the countries of
Japan, South Korea and Taiwan. Under the terms of the Agreement, Ono will
provide $7 million (including a $1 million up-front payment) in collaborative
research funding over the three year term of the Agreement. In addition, Ono
will pay preclinical and clinical milestone payments of $4 million per compound
for each antidiabetic drug that is commercialized.
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Shaman received an additional $1 million payment in December 1996 for enhanced
access rights to these compounds.
In June 1995, the Company licensed several patents from Bayer AG relating to
the use of nikkomycin Z and the composition and use of nikkomycin Z in
combination with other antifungal compounds for the development of antifungal
agents. Under the terms of the agreement, the Company has paid Bayer AG a
licensing fee and may be required, upon the occurrence of certain events, to
make clinical milestone payments and to pay royalties on any commercialized
products derived from the agreement.
Under the terms of an agreement signed in September 1991, the Company has
granted non-exclusive co-marketing rights to sell SP-303 products in Italy to
Synthelabo, a French company. Under the agreement, Synthelabo is obligated to
pay Shaman royalties on SP-303 product sales, including Provir and Virend.
In February 1990, the Company entered into a license agreement with Dr.
Michael Tempesta. There currently exists a dispute with Dr. Tempesta over the
scope and coverage, if any, of the license. The maximum royalty claimed by Dr.
Tempesta is two percent on net sales of a certain antiviral agent. A demand for
arbitration was filed by the Company to address a claim made by Dr. Tempesta
that the royalty will be payable with respect to either or both of Provir and
Virend. See "--Legal Proceedings."
As the Company continues its product development and commercialization, it
intends to enter into additional corporate alliances which may include licenses
and/or marketing rights to selected products and markets.
MANUFACTURING
Shaman intends to conduct both pilot-scale and commercial manufacturing of
its future products either in-house, with collaborative partners, or through
contract manufacturing facilities. The Company has created an in-house facility
which operates under Good Manufacturing Practices ("GMP") and has conducted
pilot-scale manufacturing of SP-303. The Company has a sufficient quantity of
raw material for SP-303 and SP-303 manufacturing capacity to complete currently
planned clinical trials. In addition, Shaman also expects to establish a second
source manufacturing facility to produce clinical and early commercial lots in
1997.
In September 1991, the Company entered into a long-term manufacturing
agreement with Indena SpA ("Indena"). If Indena achieves certain price targets,
then Shaman has agreed to purchase at least 40% of its commercial requirements
of SP-303 bulk drug from Indena for five years after Shaman receives NDA
approvals from the FDA for Provir and Virend.
In January 1996, the Company entered into an agreement with Abbott
Laboratories ("Abbott") for the development of a manufacturing process for the
production of nikkomycin Z. Abbott has developed processes and initiated the
manufacture of nikkomycin Z in compliance with GMP guidelines for the Company's
clinical trial programs.
MARKETING
At the present time, Shaman has no marketing or sales staff. The Company's
general strategy is to develop corporate alliances with large pharmaceutical
companies for some of its programs in order to take advantage of such companies'
abilities to reach broad-based markets. Shaman is also evaluating the
opportunity to retain certain marketing rights. See "Business--Collaborative
Relationships and License Agreements."
PATENTS AND PROPRIETARY TECHNOLOGY
Proprietary protection for the Company's product candidates, processes and
know-how is important to the Company's business. The Company's policy is to file
patent applications to protect technology, inventions and improvements that are
considered commercially important to the development of its business. The
Company also relies upon trade secrets, know-how and continuing technological
innovation to develop and maintain its competitive position. The Company plans
to aggressively prosecute and defend its patents and proprietary technology.
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The Company has been issued two U.S. patents related to its specific
proanthocyanidin polymer compositions designated SP-303 contained in the
Company's Virend product. One patent contains composition of matter claims and
the other contains claims directed to methods of use of the composition as an
anti-viral agent.
The Company has also filed foreign applications corresponding to its issued
U.S. patents relating to its proanthocyanidin polymer composition. The Company
has been granted patents in Australia, Mexico and New Zealand and has patent
applications pending in Canada, Europe, Japan, the Republic of Korea and
Singapore. The Company is aware of certain foreign patents and at least one
pending patent application, granted or pending, owned by Leon Cariel and the
Institut des Substances Vegetales with broad claims directed to proanthocyanidin
polymer compositions and methods of use. In particular, patents have been
granted to Leon Cariel and the Institut des Substances Vegetales in Australia,
Europe, France, Germany and an application is pending in Japan. The effective
filing date of these patents is prior to the effective filing date of the
Company's foreign filed pending patent applications in Europe. The Company has
instituted an Opposition in the European Patent Office against the granted
European Patent No. 472531 owned by Leon Cariel and Institut des Substances
Vegetales. Based on opinions of foreign counsel, the Company believes that the
granted claims are invalid and intends to vigorously prosecute the Opposition.
There can be no assurance that the Company will be successful in having the
granted European patent revoked or the claims sufficiently narrowed so as not to
cover potentially the Company's proanthocyanidin polymer compositions and
methods of use.
The Patent and Trademark Office has very recently declared an Interference
between the Company's issued patent covering its specific proanthocyanidin
polymer composition and a U.S. application corresponding to a granted European
patent of Leon Cariel and the Institut des Substances Vegetales by Daniel Jean
and Leon Cariel. The declaration of the Interference indicates that, at present,
the U.S. Patent and Trademark Office believes the Company's patent and the
pending third party patent application claim the same subject matter. The
Interference will seek to determine who is the first inventor of such subject
matter under the U.S. patent laws. The Company believes that the Daniel Jean and
Leon Cariel application is not entitled to claims covering the subject matter of
the Company's patent. There can be no assurance, however, that the Company will
prevail. Additionally, at this very early stage of the Interference proceeding,
the Company has not had an opportunity to review the claims and file history of
the Daniel Jean and Leon Cariel patent application which, under U.S. patent law,
are kept confidential. In view of the analysis conducted in connection with the
corresponding European patent, the Company believes that the U.S. patent
application of Daniel Jean and Leon Cariel is not entitled to claims covering
the subject matter of the Company's patent.
The Company has also recently filed a U.S. patent application directed to
new formulations and methods of using its specific proanthocyanidin polymer
composition for treatment of watery diarrhea. These formulations are contained
in the Company's Provir product.
The Company has also filed a number of U.S. patent applications relating to
compositions and methods for treating Type II diabetes as well as reducing
hyperglycemia associated with other etiologies. Several of the U.S. patent
applications have been indicated to be allowed by the U.S. Patent and Trademark
Office. The Company has filed foreign applications, I.E., international
applications under the Patent Cooperation Treaty designating a number of foreign
countries, as well as applications in Taiwan, corresponding to a number of the
U.S. applications and plans to file additional corresponding foreign
applications within the relevant convention periods.
The Company has also filed two U.S. patent applications and a corresponding
international patent application designating a number of foreign countries
relating to methods for administering and sustained release formulations for
anti-fungal agents like nikkomycins, including in particular nikkomycin Z. The
methods and compositions are useful for treatment of fungal infections,
particularly those associated with CANDIDA spp. The Company has licensed several
patents from Bayer AG relating to the use of nikkomycin Z and the composition
and use of nikkomycin Z in combination with other antifungal compounds for the
development of antifungal agents.
There can be no assurance that the Company's pending patent applications
will result in patents being issued or that, if issued, patents will afford
protection against competitors with similar technology; nor can there be any
assurance that others will not obtain patents that the Company would need to
license or circumvent. See "Risks--Uncertainty Regarding Patents and Proprietary
Rights."
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Patent applications in the United States are generally maintained in secrecy
until patents are issued. Since publication of discoveries in the scientific or
patent literature tends to lag behind actual discoveries by several months,
Shaman cannot be certain that it was the first to discover compositions covered
by its pending patent applications or the first to file patent applications on
such compositions. There can be no assurance that the Company's patent
applications will result in issued patents or that any of its issued patents
will afford comprehensive protection against potential infringement.
The Company is prosecuting its patent applications with the U.S. Patent and
Trademark Office but the Company does not know whether any of its applications
will result in the issuance of any patents or, if any patents are issued,
whether any issued patent will provide significant proprietary protection or
will be circumvented or invalidated. During the course of patent prosecution,
patent applications are evaluated, inter alia, for utility, novelty,
nonobviousness and enablement. The U.S. Patent and Trademark Office may require
that the claims of an initially filed patent application be amended if it is
determined that the scope of the claims includes subject matter that is not
useful, novel, nonobvious or enabled. Furthermore, in certain instances, the
practice of a patentable invention may require a license from the holder of
dominant patent rights. In cases where one party believes that it has a claim to
an invention covered by a patent application or patent of a second party, the
first party may provoke an interference proceeding in the U.S. Patent and
Trademark Office or such a proceeding may be declared by the U.S. Patent and
Trademark Office. In general, in an interference proceeding, the Patent and
Trademark Office would review the competing patents and/or patent applications
to determine the validity of the competing claims, including but not limited to
determining priority of invention. Any such determination would be subject to
appeal in the appropriate U.S. federal courts.
There can be no assurance that additional patents will be obtained by the
Company or that issued patents will provide a substantial protection or be of
commercial benefit to the Company. The issuance of a patent is not conclusive as
to its validity or enforceability, nor does it provide the patent holder with
freedom to operate without infringing the patent rights of others. A patent
could be challenged by litigation and, if the outcome of such litigation were
adverse to the patent holder, competitors could be free to use the subject
matter covered by the patent, or the patent holder may license the technology to
others in settlement of such litigation. The invalidation of patents owned by or
licensed to the Company or non-approval of pending patent applications could
create increased competition, with potential adverse effects on the Company and
its business prospects. In addition, there can be no assurance that any
applications of the Company's technology will not infringe patents or
proprietary rights of others or that licenses that might be required as a result
of such infringement for the Company's processes or products would be available
on commercially reasonable terms, if at all.
The Company cannot predict whether its or its competitors' patent
applications will result in valid patents being issued. Litigation, which could
result in substantial cost to the Company, may also be necessary to enforce the
Company's patent and proprietary rights and/or to determine the scope and
validity of others' proprietary rights. The Company is participating in one
declared Interference proceeding and may participate in interference proceedings
that may in the future be declared by the U.S. Patent and Trademark Office,
which could result in substantial cost to the Company. There can be no assurance
that the outcome of any such litigation or interference proceedings will be
favorable to the Company or that the Company will be able to obtain licenses to
technology that it may require or that, if obtainable, such technology can be
licensed at a reasonable cost.
The patent position of pharmaceutical and biopharmaceutical firms generally
is highly uncertain and involves complex legal and factual questions. To date,
no consistent policy has emerged regarding the breadth of claim allowed in
pharmaceutical and biopharmaceutical patents. Accordingly, there can be no
assurance that patents will afford protection against competitors with similar
technology. See "Risks--Uncertainty Regarding Patents and Proprietary Rights."
In addition to seeking the protection of patents and licenses, the Company
also relies on trade secrets to maintain its competitive position. The Company
has adopted and adheres to procedures for maintaining the proprietary aspects of
its trade secret and know-how information. No assurance can be given, however,
that these measures will prevent the unauthorized disclosure or use of such
information.
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RAW MATERIAL SUPPLY
The Company imports all of the plant material it screens from foreign
countries, particularly Latin and South America, Southeast Asia and Africa.
Shaman's relationships with botanical organizations in tropical regions have
enabled the Company to set up large-scale supply arrangements for the raw
material from which some of its lead products are derived. For example, the
plant material required for SP-303 is found in at least seven Latin and South
American countries and can be harvested in a sustainable manner where work
forces already exist. Presently, Shaman is harvesting approximately 8,000
kilograms of the SP-303 source plant per year in Ecuador and Peru pursuant to
supply agreements with corporations in those countries. The SP-303 source plant
occurs naturally in these areas and, after harvesting, can be regenerated to
maturity in seven years.
Shaman requires that all large-scale plant collections be conducted in a
sustainable manner, which could include replanting in areas of intensive wild
harvesting. In the case of SP-303, the source plant can be sustainably harvested
because it grows spontaneously with minimal management. Shaman works with
communities and cooperatives in South and Latin America to harvest the SP-303
source plant and other source plants in a regenerable manner. These communities
and cooperatives, many of which receive support from national and international
government agencies, are experienced in the sustainable harvest of other
tropical forest products, including natural rubber, nuts and fruits. Company
policy also requires that each source plant targeted for large-scale compound
isolation must have multi-country sources of supply or be economically
synthesizable. This policy reduces the risks associated with using foreign
suppliers, such as political or economic instability.
Shaman has entered into supply agreements with companies in both Peru and
Ecuador pursuant to which they will supply certain quantities of Shaman's
commercial requirements of SP-303 from their countries. These companies work
with cooperatives of indigenous peoples to supply source plants to Shaman, to
transfer material information to Shaman relating to improvements in the
collection and harvesting of the raw material, and to improve sustainable
harvesting techniques in order to create a model of sustainable production in
tropical forests. Although the Company has developed multi-country sources of
supply for its key plant materials and has entered into long-term supply
agreements for the source material for SP-303, there can be no assurance of a
continual source of supply of these materials. See "Risk Factors--Dependence on
Sources of Supply."
When it is economically advantageous and technically feasible to synthesize
a compound rather than extract it from raw plant material, the Company will
utilize large-scale chemical synthesis to obtain a sufficient supply of such
compound in order to satisfy its commercial requirements. However, there can be
no assurance that the Company will be successful in synthesizing any such
products.
COMPETITION
Competition in the pharmaceutical industry is extremely intense. The
principal factors upon which such competition is based include therapeutic
efficacy, side-effect profile, ease of use, safety, physician acceptance,
patient compliance, marketing, distribution and price. Many treatments for
infectious and metabolic diseases exist and additional therapeutics are under
development, including other naturally-sourced pharmaceuticals. To the extent
these therapeutics address the disease indications on which the Company has
focused, they may represent significant competition. Many pharmaceutical
companies have significantly greater research and development capabilities, as
well as substantially greater marketing, financial and human resources than the
Company. In addition, many of these competitors have significantly greater
experience than the Company in undertaking preclinical testing and human
clinical trials of new pharmaceutical products and obtaining regulatory
approvals of such products. These companies may represent significant long-term
competition for the Company.
There can be no assurance that developments by other pharmaceutical
companies will not render Shaman's products or technologies obsolete or
noncompetitive, or that the Company will be able to keep pace with technological
developments of its competitors. Many of the Company's competitors have
developed, or are in the process of developing, technologies that are, or in the
future may be, the basis for competitive products. Some of these products may
have an entirely different approach or means of accomplishing the desired
therapeutic effect than products being developed by the Company. These competing
products may be more effective and less costly than the products developed by
Shaman.
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GOVERNMENT REGULATION
The research and development, manufacture and marketing of Shaman's products
are subject to substantial regulation by the FDA in the United States and by
comparable authorities in other countries. These national agencies and other
federal, state and local entities regulate, among other things, research and
development activities and the testing, manufacture, safety, effectiveness,
labeling, storage, record keeping, approval, advertising and promotion of the
Company's products.
The process required by the FDA before the Company's products may be
marketed in the United States generally involves the following: (i) preclinical
laboratory and animal tests; (ii) submission to the FDA of an IND application,
which must become effective before human clinical testing may commence; (iii)
adequate and well-controlled human clinical trials to establish the safety and
efficacy of the proposed drug for its intended indications; (iv) the submission
to the FDA of an NDA; (v) satisfactory completion of an FDA inspection of the
manufacturing facilities at which the product is made to assess compliance with
GMP. The testing and approval process requires substantial time, effort and
financial resources, and there can be no assurance that an approval will be
granted on a timely basis, if at all.
Preclinical tests include laboratory evaluation of the product as well as
animal studies to assess the potential safety and efficacy of the product. The
results of the preclinical tests, together with manufacturing information and
analytical data, are submitted to the FDA as part of the IND, which must become
effective before human clinical trials may commence. The IND will automatically
become effective 30 days after receipt by the FDA, unless the FDA before that
time raises concerns or questions about the conduct of the trials as outlined in
the IND. In such cases the IND sponsor and the FDA must resolve any outstanding
concerns before clinical trials can proceed. 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 products
to healthy volunteers or patients under the supervision of a qualified principal
investigator. Further, each clinical study must be reviewed and approved by an
independent Institutional Review Board ("IRB") at each 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 which may
overlap. Phase I usually involves the initial introduction of the drug into
healthy human subjects where the product is tested for safety, dosage tolerance,
absorption, metabolism, distribution and excretion. Phase II involves studies in
a limited patient population to (i) determine the efficacy of the product for
specific targeted indications, (ii) determine dose tolerance and optimal dose
and (iii) identify possible adverse effects and safety risks. When Phase II
evaluations demonstrate that the product is effective and has an acceptable
safety profile, Phase III trials are undertaken to further evaluate clinical
efficacy and to further test for safety in an expanded patient population at
geographically-dispersed clinical study sites. The FDA or the sponsor may
suspend clinical trials at any point in this process for a variety of reasons,
including either party's belief that clinical subjects are being exposed to an
unacceptable health risk.
Occasionally, the FDA will require a Phase IV "Post-Marketing Trial" which
is conducted after FDA clearance to gain additional experience from the
treatment of patients in the intended therapeutic area.
After completion of the required testing, generally an NDA is submitted. FDA
approval of the NDA is required before marketing may begin in the United States.
The NDA must include the results of extensive clinical and other testing and the
compilation of data relating to the product's chemistry, pharmacology and
manufacture, the cost of all of which is substantial. The FDA reviews all NDAs
submitted before it accepts them for filing and may request additional
information rather than accept an NDA for filing. In such an event, the NDA must
be resubmitted with the additional information and, again, is subject to review
before filing. Once the submission is accepted for filing, the FDA begins an
in-depth review of the NDA. Under the Federal Food, Drug and Cosmetic Act, the
FDA has 180 days in which to review the NDA and respond to the applicant. The
review is often significantly extended by FDA requests for additional
information or clarification regarding information already provided in the
submission. The FDA may refer the application to the appropriate advisory
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committee (typically a panel of clinicians) for review, evaluation and a
recommendation as to whether the application should be approved. The FDA is not
bound by the recommendation of an advisory committee, but generally follows the
committee's recommendation. If evaluations of the NDA and the manufacturing
facilities are favorable, the FDA may issue either an approval letter or an
approvable letter, which usually contains a number of conditions that must be
met in order to secure final approval of an NDA. When and if those conditions
have been met to the FDA's satisfaction, the FDA will issue an approval letter,
authorizing commercial marketing of the drug for certain indications. If the
FDA's evaluation of the NDA submission or manufacturing facilities is not
favorable, the FDA may refuse to approve the NDA or issue a not approvable
letter. Notwithstanding the submission of any requested additional data or
information in response to an approvable or not approvable letter, the FDA may
decide that the application does not meet the regulatory criteria for approval.
Each drug product manufacturing establishment that supplies drugs to the
U.S. market must be registered with, and be approved by, the FDA prior to
commencing commercial production, and is subject to biennial inspections by the
FDA for GMP compliance after an NDA has been approved. In addition, drug product
manufacturing establishments located in California also must be licensed by the
State of California.
The Company will also be subject to a variety of foreign regulations
governing clinical trials, registrations and sales of its products. Whether or
not FDA approval has been obtained, approval of a product by comparable
regulatory authorities of foreign countries must be obtained prior to marketing
the product in those countries. The approval process varies from country to
country and the time needed to secure approval may be longer or shorter than
that required for FDA approval.
EMPLOYEES
As of November 30, 1996, the Company had 83 employees. Of these employees,
66 are dedicated to research, development, quality assurance and quality
control, regulatory affairs and preclinical testing. Twenty-four of the
Company's employees hold a Ph.D. or M.D.
FACILITIES
Shaman's headquarters are located in South San Francisco, California. The
Company leases approximately 73,000 square feet for offices, laboratories, pilot
manufacturing and preclinical testing in three adjacent buildings. An additional
building with approximately 43,000 square feet becomes available to the Company
late in 1999. The lease on these spaces expires February 28, 2003, and the
Company has an option to renew the lease for two additional five-year periods.
The South San Francisco facility serves as the principal site for preclinical
research, clinical trial management, process development, quality assurance and
quality control, regulatory and other affairs. The Company believes that its
current facilities are suitable and adequate to meet its needs for the
foreseeable future. Shaman anticipates it will be able to expand its facilities
to nearby locations as the need develops. There can be no assurance however,
that such space will be available on favorable terms, if at all.
LEGAL PROCEEDINGS
The Company has recently initiated arbitration against Dr. Michael Tempesta
with respect to a February 1990 license agreement. See "--Collaborative
Relationships and License Agreements." With the exception of the patent
opposition proceeding in Europe and the Interference proceeding in the U.S.
Patent and Trademark Office, the Company is not party to any other material
legal proceedings. See "Risk Factors--Uncertainty Regarding Patents and
Proprietary Rights."
36
<PAGE>
MANAGEMENT
The names, ages and positions of the Company's executive officers and
directors, as of December 20, 1996, are set forth below:
<TABLE>
<CAPTION>
NAME AGE TITLE
- ------------------------------------------------ --- ---------------------------------------------------------
<S> <C> <C>
Lisa A. Conte................................... 37 President, Chief Executive Officer and Director
Barbara J. Goodrich............................. 43 Vice President and Chief Financial Officer
Atul S. Khandwala, Ph.D......................... 54 Senior Vice President, Development
Steven R. King, Ph.D............................ 39 Senior Vice President, Ethnobotany and Conservation
Gerald M. Reaven, M.D........................... 68 Senior Vice President, Research
Jacqueline Cossmon.............................. 41 Vice President, Corporate Communications
G. Kirk Raab.................................... 61 Chairman of the Board
Herbert H. McDade, Jr........................... 69 Director
M. David Titus.................................. 39 Director
John A. Young................................... 64 Director
</TABLE>
LISA A. CONTE founded the Company in May 1989 and currently serves as
President, Chief Executive Officer and Director. From 1987 to 1989, Ms. Conte
was Vice President at Technology Funding Inc., a venture capital firm, where she
was responsible for the analysis and management of healthcare industry
investments. From 1985 to 1987, she conducted risk and strategy audits for
venture capital portfolio companies at Strategic Decisions Group, a management
consulting firm. Ms. Conte received an A.B. in Biochemistry from Dartmouth
College, an M.S. in Physiology/Pharmacology from the University of California,
San Diego and an M.B.A. from The Amos Tuck School, Dartmouth College.
BARBARA J. GOODRICH joined the Company in June 1995 and currently serves as
its Vice President and Chief Financial Officer. Prior to joining the Company,
from April 1994 to May 1995, Ms. Goodrich served as Controller of Quasar
Engineering, a privately-held engineering and architectural company. Ms.
Goodrich served as Director of Finance at Digital Generation Systems, Inc. from
November 1992 to January 1994 and as Client Accounting Manager at Arthur
Andersen LLP from February 1989 to October 1992. Ms. Goodrich worked as an
independent consultant from 1984 through 1988. From 1978 to 1983, Ms. Goodrich
held a series of successively responsible audit positions with Arthur Andersen
LLP. Ms. Goodrich received a B.S. and an M.S. in Accounting from the University
of Illinois at Urbana. Ms. Goodrich is a Certified Public Accountant.
ATUL S. KHANDWALA, PH.D. joined Shaman in March 1996 as Senior Vice
President, Development from Block Drug Company, where he served as Vice
President for Ethical Product Development since August 1995. Prior to joining
Block Drug Company, from 1986 to August 1995, Dr. Khandwala held various
positions, most recently Executive Vice President, with Chemex Pharmaceuticals,
Inc. From 1976 to 1986, Dr. Khandwala held various positions with Revlon
Healthcare Group Research and Development Division. Dr. Khandwala has
successfully defended two FDA applications for market approval. Dr. Khandwala
received a B.Sc. in Chemistry from Gujarat University in India and a Ph.D. in
Pharmaceutical Chemistry from the University of Wisconsin.
STEVEN R. KING, PH.D. joined Shaman in March 1990. He currently serves as
Senior Vice President, Ethnobotany and Conservation. He is responsible for
coordinating the Company's Scientific Strategy Team. From 1989 to 1990, Dr. King
was the chief botanist for Latin America at Arlington, Virginia's Nature
Conservancy. He worked in 1988 as Research Associate for the Committee on
Managing Global Genetic Resources at the National Academy of Sciences, and was a
Doctoral Fellow from 1983 to 1988 at The New York Botanical Garden's Institute
of Economic Botany. Dr. King received a B.A. in Human Ecology from the College
of the Atlantic and M.S. and Ph.D. degrees in Biology from City University of
New York.
GERALD M. REAVEN, M.D. joined Shaman as a consultant in February 1995 and
became an employee in July 1995. He currently serves as Senior Vice President,
Research. Dr. Reaven came to Shaman from the Stanford University School of
Medicine where he served as a faculty member since 1960 and a Professor of
Medicine
37
<PAGE>
since 1970. Over the last 20 years, Dr. Reaven served as head of the Division of
Endocrinology and Metabolic Diseases, Division of Gerontology and director of
the General Clinical Research Center. Most recently, Dr. Reaven served as head
of the Division of Endocrinology, Gerontology and Metabolism at Stanford
University School of Medicine, and director of the Geriatric Research, Education
and Clinical Center, at the Palo Alto Veterans Affairs Medical Center. Dr.
Reaven received his A.B., B.S. and M.D. from the University of Chicago.
JACQUELINE COSSMON joined the Company in May 1996 as Vice President,
Corporate Communications. From February 1996 to May 1996, she acted as an
investor relations consultant to Shaman. From January 1994 to December 1995, Ms.
Cossmon was Director of Corporate Communications at Applied Immune Sciences, a
Santa Clara, California based biotechnology company. From February 1986 to
January 1994, Ms. Cossmon held various positions at Applied Biosystems, a market
leader in the development and delivery of biotechnology equipment, including
National Sales Manager for biochemical and bioseparation products, National
Accounts Manager and Director of Corporate Communications. Ms. Cossmon received
a B.S. in Nutritional Science from Northern Arizona University and an M.B.A.
from Santa Clara University.
G. KIRK RAAB has been a director of the Company since January 1992 and
Chairman of the Board since August 1995. Mr. Raab was President, Chief Executive
Officer and a director of Genentech, Inc. ("Genentech") from February 1990 to
July 1995 and President, Chief Operating Officer and a director from February
1985 to January 1990. Before joining Genentech, Mr. Raab was associated with
Abbott Laboratories, serving as President, Chief Operating Officer and director.
Mr. Raab earned a B.A. from Colgate University, where he currently serves as a
trustee. Mr. Raab is also Chairman of the Board of Connective Therapeutics, Inc.
and a director of Applied Imaging Corp., as well as chairman of the board and
director of several privately held biotechnology companies. Mr. Raab is also a
member of the advisory board of Hambrecht & Quist LLC, the Placement Agent for
this offering.
HERBERT H. MCDADE, JR. has been a director of the Company since October
1991. Mr. McDade served as Chairman of the Board, Chief Executive Officer of
Chemex Pharmaceuticals, Inc. ("Chemex") from June 1989 through January 1996,
when Chemex merged with Access Pharmaceutical Corporation ("Access") and the
combined entity changed its name to Access. From October 1986 to January 1988,
Mr. McDade served as Chairman, President and Chief Executive Officer of Armour
Pharmaceuticals, Inc., after previously serving as President, International
Healthcare Division of the Revlon Healthcare Group. Mr. McDade holds a B.S. in
Biology from the University of Notre Dame and a B.P.H. in Theology and
Philosophy from Laval University. Mr. McDade is Chairman of the Board of Access
and a director of Cytrx, Inc., Discovery Ltd. and several privately held
companies.
M. DAVID TITUS has been a director of the Company since April 1990. Mr.
Titus is currently Managing Director of Windward Ventures, a venture capital
consulting and investment firm, which he founded in 1993. From May 1986 to
December 1992, Mr. Titus served in various capacities at Technology Funding,
Inc., a venture capital firm located in San Mateo, California, including Group
Vice President of Technology Funding, Inc. and General Partner of Technology
Funding Limited. Prior to joining Technology Funding, Inc. in May 1986, Mr.
Titus was a founder and Senior Vice President of the Technology Division of
Silicon Valley Bank. Mr. Titus earned a B.A. in Economics from the University of
California, Santa Barbara. Mr. Titus is a director of several privately held
companies.
JOHN A. YOUNG has been a director of the Company since September 1993. From
1978 until October 1992, Mr. Young served as President and Chief Executive
Officer of the Hewlett-Packard Company, an international manufacturer of
measurement and computation products and systems, which he joined in 1958. Mr.
Young is now retired. Mr. Young received a B.S. in Electrical Engineering from
Oregon State University and an M.B.A. from Stanford University. Mr. Young is
Chairman of the Board of Directors of Novell, Inc., and a director of Wells
Fargo & Company, Chevron Corporation, SmithKline Beecham plc, Affymetrix, Inc.,
Lucent Technologies, Inc. and several privately held companies.
SCIENTIFIC STRATEGY TEAM
Shaman's Scientific Strategy Team ("SST") consists of an interdisciplinary
group of ethnobotanists, scientists, pharmacologists, physicians, pharmacists
and Company personnel. Several members of the SST who are
38
<PAGE>
actively working in the field have agreed to exclusively advise the Company in
connection with medical and ethnobotanical matters and to refrain from
consulting with other pharmaceutical companies on all ethnobotanical matters.
Some members may have collaborative relationships with other pharmaceutical
firms for random collection of plants on a contract basis.
The principal criteria used in selecting members of the SST are breadth of
the scientific discipline, recognized scientific excellence in their fields, and
ability to contribute to the team evaluation process. The Company relies on the
SST to identify plant candidates for Shaman's botanical screening process and to
evaluate the information obtained about these candidates, both in the field and
in literature. SST members who are not employees of the Company are compensated
with stock options for their general contributions throughout the year, and are
paid $1,000 per day for participation at the SST meetings, which occur
approximately every 12 months. Shaman also pays SST members for any additional
consulting services and field expeditions conducted on behalf of the Company.
The SST includes the following members:
EDWARD F. ANDERSON, PH.D. is a Senior Research Botanist at the Desert
Botanical Gardens in Phoenix, Arizona. Formerly, he was a Professor of Biology
at the Whitman College in Walla Walla, Washington. Dr. Anderson received a B.A.
in Biology from Pomona College in California and an M.A. and a Ph.D. in Botany
from Claremont Graduate School and Rancho Santa Ana Botanic Garden,
respectively.
PAUL S. AUERBACH, M.D. is Chief Operating Officer of The Sterling Healthcare
Group in Coral Gables, Florida. Dr. Auerbach was formerly Chief, Division of
Emergency Medicine at Stanford University Hospital in Stanford, California. Dr.
Auerbach earned an A.B. in Religion from Duke University, an M.D. from Duke
University School of Medicine, and was a Sloan fellow, M.S.M. at Stanford
University Graduate School of Business.
MICHAEL J. BALICK, PH.D. is Director of the Institute of Economic Botany at
The New York Botanical Garden. Dr. Balick holds a B.S. in Agriculture and Plant
Science from the University of Delaware and both an A.M. and a Ph.D. in Biology
from Harvard University.
BARUCH S. BLUMBERG, M.D., PH.D. is Associate Director of Clinical Research
at the Fox Chase Cancer Center in Philadelphia and the first American dean of a
college at Oxford University. Dr. Blumberg became a Nobel laureate in 1976 for
his discovery of the hepatitis B antigen. He received a B.S. from Union College
in New York, an M.D. from the College of Physicians and Surgeons at Columbia
University and a Ph.D. in Biochemistry from Oxford University.
ANTHONY CONTE is a retired pharmacist and former proprietor of the Gilliar
Drug Company, Inc. Mr. Conte has 30 years of experience in commercializing
pharmaceuticals. He received a B.S. in Pharmacy from Long Island University,
Brooklyn College of Pharmacy and an M.S. in Pharmaceutical Chemistry from
Columbia University. Mr. Conte is the father of Ms. Conte, President, Chief
Executive Officer and a director of Shaman.
JAMES A. DUKE, PH.D. is a recently retired research scientist at the
Agricultural Research Service of the United States Department of Agriculture.
Dr. Duke earned his A.B., B.S. and Ph.D. in Botany from the University of North
Carolina.
ELAINE ELISABETSKY, PH.D. is a research fellow of the Brazilian Research
Council, Associate Professor at the Universidade Federal do Rio Grande do Sul
and a board member of the International Society of Ethnopharmacology. Dr.
Elisabetsky holds a B.S. in Biomedical Sciences from the Escola de Medicina in
Sao Paulo, Brazil, a Ph.D. in Pharmacology from the Departmento de Farmacologia
e Bioquimica, Escola Paulista de Medicina in Brazil, and has received
post-doctorate training in ethnobotany and ethnopharmacology from The New York
Botanical Garden.
NORMAN R. FARNSWORTH, PH.D. is Research Professor of Pharmacognosy and
Director of the Program for Collaborative Research in the Pharmaceutical
Sciences at the College of Pharmacy, University of Illinois at Chicago. Dr.
Farnsworth received a B.S. and an M.S. in Pharmacy from the Massachusetts
College of Pharmacy and a Ph.D. in Pharmacognosy from the University of
Pittsburgh.
39
<PAGE>
MAURICE M. IWU, PH.D. is founder and director of BioResources Development
Conservation Programme and Professor of Pharmacognosy and Medicinal Chemistry at
the University of Nigeria, Nsukka. Dr. Iwu earned a Ph.D. in Pharmacognosy from
the University of Bradford, England.
CHARLES F. LIMBACH, M.D. is a practitioner of family medicine in Salinas,
California. Dr. Limbach earned a B.A. in Biology from the University of Michigan
and an M.D. from Michigan State University.
KOJI NAKANISHI, PH.D. is Centennial Professor of Chemistry at Columbia
University and formerly Director of the Suntory Institute for Bioorganic
Research in Osaka, Japan. Dr. Nakanishi was the recipient of the 1990 Japan
Academy Prize and the Imperial Prize, the highest Japanese honor a scholar can
receive. He received a B.S. and a Ph.D. in Chemistry from Nagoya University in
Japan.
MARK J. PLOTKIN, PH.D. is Executive Director of Ethnobiology and
Conservation Team and previously served as Director of Plant Conservation at the
World Wildlife Fund. He also serves as a Research Associate of Ethnobotanical
Conservation at the Botanical Museum at Harvard University and Secretary of the
Ethnobotany Specialist Group, Species Survival for the International Union for
the Conservation of Nature. Dr. Plotkin received an A.B. from Harvard University
Extension, an M.F.S. in Wildlife Ecology from Yale School of Forestry and
Environmental Studies, and a Ph.D. in Biological Conservation from Tufts
University.
NATHANIEL QUANSAH, PH.D. is employed by the World Wildlife Fund-Madagascar
Protected Areas Program to conduct a four-year ethnobotanical collection and
conservation project in northern Madagascar. Dr. Quansah obtained a B.S. from
the University of Cape Coast, Ghana and a Ph.D. in Botany from Goldsmith's
College, University of London.
ROBERT F. RAFFAUF, PH.D. is Professor Emeritus at Northeastern University's
College of Pharmacy. He holds a B.S. in Chemistry/Biology from the College of
the City of New York, an M.A. in Chemistry from Columbia University and a Ph.D.
in Organic/Analytical Chemistry from the University of Minnesota.
RICHARD E. SCHULTES, PH.D. is Professor Emeritus at Harvard University. Dr.
Schultes has spent 40 years studying the traditional uses of the higher plants
and fungi of the Colombian Amazon. He has been the recipient of numerous awards,
including the Gold Medal of the World Wildlife Fund. Dr. Schultes holds an A.B.,
an A.M. and a Ph.D. from Harvard University.
CHARLES G. SMITH, PH.D. has been a consultant to start-up businesses, major
pharmaceutical companies and venture capital firms since 1986. Most recently, he
served as Vice President of Research and Development at Revlon Healthcare Group.
Dr. Smith received a B.S. in Chemistry from Illinois Institute of Technology, an
M.S. in Biochemistry from Purdue University, and a Ph.D. in Biochemistry from
the University of Wisconsin.
D. DOEL SOEJARTO, PH.D. is Professor of Pharmacognosy for the Department of
Medicinal Chemistry and Pharmacognosy and for the Program for Collaborative
Research in the Pharmaceutical Sciences at the University of Illinois at
Chicago. Dr. Soejarto holds a B.S. in Biology from the College of Tjiawi, Java,
an A.M. in Biology/Botany from Harvard University and a Ph.D. in Biology from
Harvard University.
HILDEBERT K.M. WAGNER, PH.D. is Professor of Pharmacognosy in the Institut
Fur Pharmazeutische Biologie at the Ludwig Maximilians University in Munich,
Germany. Dr. Wagner also serves as co-director of the Institute of
Pharmaceutical Biology at the University of Munich. He earned his Ph.D. in
Pharmacognosy at the University of Munich.
40
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock, as of November 30, 1996, by (i) each
person who is known by the Company to beneficially own more than five percent of
the Company's Common Stock, (ii) the Chief Executive Officer and each of the
next four highest-paid executive officers of the Company for the nine months
ended September 30, 1996, (iii) each director and (iv) all current executive
officers and directors as a group. Except as otherwise indicated, the Company
believes that each of the beneficial owners of the Common Stock listed below has
sole investment power with respect to such shares, subject to community property
laws, where applicable.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP (1)
----------------------------------------
PERCENT
OWNED PERCENT OWNED
NUMBER OF BEFORE AFTER OFFERING
NAME AND ADDRESS SHARES OFFERING (2)
- ------------------------------------------------------------------------------ ---------- ----------- ---------------
<S> <C> <C> <C>
Travelers Group Inc. ......................................................... 1,292,034 9.29% 8.12%
388 Greenwich Street
New York, NY 10013
State of Wisconsin Investment Board .......................................... 1,290,000 9.28% 8.11%
Post Office Box 7842
Madison, WI 53707
Delphi Ventures (3) .......................................................... 993,571 7.14% 6.25%
3000 Sand Hill Road
Building One, Suite 135
Menlo Park, CA 94025
Lisa A. Conte (4) ............................................................ 711,166 5.06% 4.43%
Shaman Pharmaceuticals, Inc.
213 East Grand Avenue
South San Francisco, CA 94080
G. Kirk Raab (5).............................................................. 114,031 * *
John A. Young (6)............................................................. 33,198 * *
Herbert H. McDade, Jr. (7).................................................... 23,198 * *
M. David Titus (8)............................................................ 25,698 * *
Jacqueline Cossmon (9)........................................................ 8,615 * *
Atul S. Khandwala, Ph.D. (10)................................................. 26,400 * *
Steven R. King, Ph.D. (11).................................................... 77,674 * *
Gerald R. Reaven, M.D. (12)................................................... 138,280 * *
Current Officers and Directors as a group (10 persons) (13)................... 1,168,093 8.07% 7.09%
</TABLE>
- ------------------------
* Less than 1.0%
(1) Percentage of beneficial ownership is calculated assuming 13,906,634 shares
of Common Stock were outstanding on November 30, 1996. Beneficial ownership
is determined in accordance with the rules of the Securities and Exchange
Commission and generally includes voting or investment power with respect to
securities. Shares of Common Stock subject to options or warrants currently
exercisable or convertible, or exercisable or convertible within 60 days of
November 30, 1996, are deemed outstanding for computing the percentage of
the person holding such option or warrant but are not deemed outstanding for
computing the percentage of any other person. Except as indicated in the
footnotes to this table and pursuant to applicable community property laws,
the persons named in the table have sole voting and investment power with
respect to all shares of Common Stock beneficially owned.
(2) Percentage of beneficial ownership is adjusted to reflect the sale by the
Company of 2,000,00 shares of Common Stock offered hereby. Beneficial
ownership is determined in accordance with the rules of the Securities and
Exchange Commission and generally includes voting or investment power with
respect to securities. Shares of Common Stock subject to options or warrants
currently exercisable or convertible, or exercisable or convertible within
60 days of November 30, 1996, are deemed outstanding for computing the
41
<PAGE>
percentage of the person holding such option or warrant but are not deemed
outstanding for computing the percentage of any other person. Except as
indicated in the footnotes to this table and pursuant to applicable
community property laws, the persons named in the table have sole voting and
investment power with respect to all shares of Common Stock beneficially
owned.
(3) Represents 931,934 shares, 3,304 shares, 58,006 shares and 327 shares held
by entities affiliated with Delphi Ventures.
(4) Includes 139,166 shares subject to options exercisable within 60 days of
November 30, 1996.
(5) Represents 114,031 shares subject to options exercisable within 60 days of
November 30, 1996.
(6) Represents 33,198 shares subject to options exercisable within 60 days of
November 30, 1996.
(7) Represents 23,198 shares subject to options exercisable within 60 days of
November 30, 1996.
(8) Includes 23,198 shares subject to options exercisable within 60 days of
November 30, 1996.
(9) Includes 7,615 shares subject to options exercisable within 60 days of
November 30, 1996.
(10) Represents 26,400 shares subject to options exercisable within 60 days of
November 30, 1996.
(11) Includes 55,416 shares subject to options exercisable within 60 days of
November 30, 1996.
(12) Includes 137,780 shares subject to options exercisable within 60 days of
November 30, 1996.
(13) Includes shares held by family members associated with directors and
officers listed above. Also includes 569,221 shares which are currently
issuable upon the exercise of outstanding options.
PLAN OF DISTRIBUTION
The Shares are being offered by the Company through the Placement Agent on a
best efforts, all or none basis, principally to selected institutional
investors, including current institutional holders of the Company's Common
Stock. Hambrecht & Quist LLC (the "Placement Agent") has been retained to act as
the exclusive agent for the Company in connection with the arrangement of this
financing and sale of the Shares on a best efforts basis.
The Placement Agent is not obligated to and does not intend to take (or
purchase) any of the Shares for itself. It is anticipated that the Placement
Agent will obtain indications of interest from potential investors for the
amount of the offering and that effectiveness of the Registration Statement will
not be requested and no investor funds will be accepted until indications of
interest have been received for the amount of the offering. Confirmation and
definitive prospectuses will be distributed to all investors at the time of
pricing, informing investors of the closing date, which will be scheduled for
three business days after pricing. No investor funds will be accepted prior to
effectiveness of the Registration Statement. Prior to the closing date, all
investor funds will promptly be placed in escrow with First Trust of California
as escrow agent (the "Escrow Agent"), in an escrow account established for the
benefit of the investors. The escrow agent will invest such funds in accordance
with Rule 15c2-4 promulgated under the Securities Exchange Act of 1934, as
amended. Prior to the closing date, the Escrow Agent will advise the Company
that payment for the purchase of the shares of Common Stock has been affirmed by
the investors and that the investors have deposited the requisite funds in the
escrow account at First Trust of California. Upon receipt of such notice, the
Company will deposit with the Depository Trust Company the shares of Common
Stock to be credited to the respective accounts of the investors. Investor
funds, together with interest thereon, if any, will be collected by the Company
through the facilities of First Trust of California on the scheduled closing
date. The offering will not continue after the closing date. In the event that
investor funds are not received in the full amount necessary to satisfy the
requirements of the offering, all funds deposited in the escrow account will
promptly be returned.
The Company has agreed (i) to pay the Placement Agent six percent of the
proceeds of the Offering as selling commissions and reimburse them in the
aggregate for expenses (not to exceed an aggregate of $75,000 without the
Company's consent) and (ii) to indemnify the Placement Agent against certain
liabilities, including
42
<PAGE>
liabilities under the Securities Act, and to contribute to payments that the
Placement Agent may be required to make in respect thereof.
Kirk Raab, the Company's Chairman of the Board, is a member of the Placement
Agent's advisory board.
An aggregate of shares of the Company's Common Stock held by officers,
directors and certain stockholders of the Company are subject to lock-up
agreements with the Placement Agent.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Company's Common Stock is First
National Bank of Boston, Canton, Massachusetts.
LEGAL MATTERS
The legality of the securities offered hereby will be passed upon for the
Company by Brobeck, Phleger & Harrison LLP, Palo Alto, California. Wilson,
Sonsini, Goodrich & Rosati, Professional Corporation, Palo Alto, California, is
acting as counsel for the Placement Agent in connection with certain legal
matters relating to the shares of Common Stock offered hereby.
EXPERTS
The financial statements of the Company appearing in the Company's Annual
Report on Form 10-K for the year ended December 31, 1995, have been audited by
Ernst & Young LLP, independent auditors, as set forth in their report thereon
included therein and incorporated herein by reference. Such financial statements
are incorporated herein by reference in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
AVAILABLE INFORMATION
This Prospectus, which constitutes a part of a Registration Statement on
Form S-3 (the "Registration Statement") filed by the Company with the Securities
and Exchange Commission (the "Commission") under the Securities Act of 1933, as
amended (the "Securities Act"), omits certain of the information set forth in
the Registration Statement. For further information with respect to the Company
and the Common Stock offered hereby, reference is hereby made to such
Registration Statement, exhibits and schedules. Statements contained in this
Prospectus regarding the contents of any contract or other document are not
necessarily complete; with respect to each such contract or document filed as an
exhibit to the Registration Statement, reference is made to the exhibit for a
more complete description of the matter involved, and each such statement shall
be deemed qualified in its entirety by such reference. A copy of the
Registration Statement, including the exhibits and schedules thereto, may be
inspected without charge at the public reference facilities of the Commission
described below, and copies of such material may be obtained from such office
upon payment of the fees prescribed by the Commission.
The Company is subject to the informational requirements of the Exchange Act
and in accordance therewith files reports, proxy statements and other
information with the Commission. Such reports, proxy statements and other
information filed by the Company with the Commission can be inspected and copied
at the public reference facilities maintained by the Commission at Judiciary
Plaza, 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and the
following regional offices of the Commission: New York Regional Office, Seven
World Trade Center, 13th Floor, New York, New York 10048; and Chicago Regional
Office, Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661. Copies of such material can also be obtained from the Public Reference
Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549,
upon payment of prescribed rates. Furthermore, the Commission maintains a Web
site that contains reports, proxy and information statements and other
information regarding registrants that file electronically with the Commission.
Such Web site is located at http://www.sec.gov. The Company's Common Stock is
quoted on the Nasdaq National Market. Reports, proxy statements and other
information concerning the Company may be inspected at the National Association
of Securities Dealers, Inc. at 1735 K Street, N.W., Washington, D.C. 20006.
43
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the various expenses expected to be incurred
by the Registrant in connection with the sale and distribution of the securities
being registered hereby, other than the Placement Agent fees and expenses. All
amounts are estimated except the Securities and Exchange Commission registration
fee and the National Association of Securities Dealers, Inc. filing fee.
<TABLE>
<S> <C>
SEC registration fee.............................................. $ 3,713
NNM listing fees.................................................. 17,500
NASD filing fee................................................... *
Blue Sky fees and expenses........................................ *
Accounting fees and expenses...................................... 70,000
Legal fees and expenses........................................... 100,000
Printing and engraving expenses................................... 2,500
Miscellaneous fees and expenses................................... 86,287
---------
Total......................................................... $ 280,000
---------
---------
</TABLE>
- ------------------------
* To be filed by amendment
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law, as amended (the
"DGCL"), provides that a corporation may indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal or investigative
(other than an action by or in the right of the corporation) by reason of the
fact that he is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding, if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful.
Section 145 further provides that a corporation similarly may indemnify any such
person serving in any such capacity who was or is a party or is threatened to be
made a party to any threatened, pending or completed action or suit by or in the
right of the corporation to procure a judgment in its favor, against expenses
actually and reasonably incurred in connection with the defense or settlement of
such action or suit if he acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the corporation and
except that no indemnification shall be made in respect of any claim, issue or
matter as to which such person shall have been adjudged to be liable to the
corporation unless and only to the extent that the Delaware Court of Chancery or
such other court in which such action or suit was brought shall determine upon
application that, despite the adjudication of liability but in view of all the
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery or such other court
shall deem proper.
Section 102(b)(7) of the DGCL permits a corporation to include in its
certificate of incorporation a provision eliminating or limiting the personal
liability of a director to the corporation or its stockholders for monetary
damages for breach of fiduciary duty as a director, provided that such provision
shall not eliminate or limit the liability of a director (i) for any breach of
the director's duty of loyalty to the corporation 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 DGCL (relating to
unlawful payment of dividends and unlawful stock purchase and redemption) or
(iv) for any transaction from which the director derived an improper personal
benefit.
II-1
<PAGE>
The Registrant's Restated Certificate of Incorporation provides that the
Registrant's directors shall not be liable to the Registrant or its stockholders
for monetary damages for breach of fiduciary duty as a director, except to the
extent that exculpation from liabilities is not permitted under the DGCL as in
effect at the time such liability is determined. The Registrant has entered into
indemnification agreements with all of its officers and directors, as permitted
by the DGCL.
ITEM 16 EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
The exhibits listed in the Exhibit Index as filed as part of this
Registration Statement.
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ --------------------------------------------------------------------------
<S> <C>
1.1* Form of Placement Agency Agreement.
1.2* Form of Escrow Agreement.
1.3* Form of Stock Purchase Agreement.
3.1(5) Restated Certificate of Incorporation, as filed with the Delaware
Secretary of State on October 1, 1993.
3.2(8) Amended and Restated By-Laws, as amended May 23, 1996.
4.1(8) Certificate of Designation of Preferences of Series A Preferred Stock of
the Registrant, as filed with the Delaware Secretary of State on July
27, 1996.
5.1* Opinion of Brobeck, Phleger & Harrison LLP.
10.1(1)(12) 1990 Stock Option Plan, as amended.
10.2(1)(12) 1992 Stock Option Plan.
10.3(1)(12) 401(k) Plan.
10.4(1)(12) Form of Stock Purchase Agreement.
10.5(1)(12) Form of Stock Option Agreement.
10.6(1) Form of Confidentiality Agreement-Employees & Consultants.
10.7(1) Form of Confidentiality Agreement-Strategic Planning.
10.8(1) Form of Indemnification Agreement.
10.9(1)(12) Form of Employment Agreement.
10.10(1) Form of Agreement with Scientific Strategy Team Members.
10.11(1) Form of Proprietary Information and Inventions Agreement-Employees.
10.12(1) Form of Proprietary Information and Inventions Agreement-Consultants.
10.13(1) Letter Agreements dated December 8, 1989, May 30, 1990, June 21, 1990,
August 24, 1990 and July 22, 1991, between Shaman and National Institute
of Allergy and Infectious Diseases.
10.14(1)(10) License Agreement dated February 8, 1990, between Shaman and Dr. Michael
Tempesta.
10.15(1)(12) Stock Purchase Agreement dated June 15, 1990, between Shaman and Lisa A.
Conte.
10.16(1) Master Equipment Lease Agreement dated September 28, 1990, between Shaman
and MMC/GATX Partnership No. I, with related schedules.
10.17(1) Series B Preferred Stock Warrants dated September 28, 1990 and June 28,
1991, issued to MMC/GATX Partnership No. I.
10.18(1)(10) License Agreement dated December 5, 1990, as amended January 19, 1992,
between Shaman and the University of British Columbia.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ --------------------------------------------------------------------------
<S> <C>
10.19(1) Master Equipment Lease Agreement dated December 26, 1990, between Shaman
and Lease Management Services, Inc.
10.20(1) Master Equipment Lease Agreement dated April 22, 1991, between Shaman and
Industrial Way I Limited Partnership.
10.21(1)(10) Contract Services Agreement dated May 23, 1991, February 1, 1992, February
4, 1992, September 23, 1992 and October 30, 1992, between Shaman and New
Drug Services, Inc.
10.22(1)(10) License Agreement dated September 25, 1991, between Shaman and Inverni
della Beffa SpA.
10.23(1)(10) Manufacturing Agreement dated September 25, 1991 between Shaman and Indena
SpA.
10.24(1)(10) Master Clinical Trial Agreement dated September 30, 1991 between Shaman
and International Drug Registration, Inc.
10.25(1) Series D Preferred Stock Warrant dated February 3, 1992, issued to
MMC/GATX Partnership No. I.
10.26(1)(10) Supply Agreement dated June 1, 1992.
10.27(1)(10) Supply Agreement dated June 1, 1992.
10.28(2) Screening Agreement dated August 31, 1992, as amended June 2, 1993,
between Shaman and Merck Research Laboratories.
10.29(1)(10) Agreement dated October 16, 1992, between Shaman and International Medical
Technical Consultants, Inc.
10.30(4)(10) Research Agreement dated October 21, 1992, as amended April 27, 1994,
between Shaman and Eli Lilly and Company.
10.31(1) Registration Rights Agreement dated October 22, 1992, as amended December
14, 1992, between Shaman and certain holders of preferred stock of
Shaman.
10.32(1) Industrial Lease Agreement dated January 1, 1993, between Shaman and
Grand/ Roebling Investment Company.
10.33(1) Three Party Agreement dated as of January 1, 1993, by and among Berlex
Laboratories, Inc., Shaman and Grand/Roebling Investment Company.
10.34(2)(10) Letter Agreement dated March 1, 1993, between Shaman and Lederle-Praxis
Biologicals, Division of American Cynamide Corporation.
10.35(3) Contract Service Agreements dated May 10, 1993, between Shaman and R.C.
Benson & Sons, Inc.
10.36(3)(10) Clinical Trial Agreement dated July 21, 1993, between Shaman and the
University of Rochester.
10.37(3)(10) Letter Agreement dated August 24, 1993, between Shaman and University of
Michigan.
10.38(3)(10) Laboratory Services Agreement dated September 1, 1993, between Shaman and
Hazelton Washington, Inc.
10.39(3) Loan and Security Agreement dated September 27, 1993, between Shaman and
Household Commercial of California.
10.40(3) Master Equipment Lease Agreement dated September 30, 1993, between Shaman
and MMC/GATX Partnership No. I, with related schedules.
10.41(3) Common Stock Warrant dated September 30, 1993, issued to MMC/GATX
Partnership No. I.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ --------------------------------------------------------------------------
<S> <C>
10.42(3) Common Stock Warrant dated October 5, 1993, issued to Meier Mitchell & Co.
10.43(5)(10) Joint Research and Product Development Agreement, dated May 24, 1995, by
and between Ono Pharmaceutical Co., Ltd. and Registrant.
10.43(a)(9) Amendment Agreement, dated December 4, 1996, to the Joint Research and
Product Development Agreement by and between Ono Pharmaceutical Co.,
Ltd. and Registrant.
10.44(5)(10) License Agreement, dated June 8, 1995, by and between Bayer AG and
Registrant.
10.45(6)(11) Development Agreement, dated January 11, 1996, by and between Abbott
Laboratories and Registrant.
10.46(6) Loan Agreement, dated October 20, 1995, by and between The Daiwa Bank,
Limited and Registrant.
10.47(6) Assignment and Assumption, dated February 2, 1996, between The Daiwa Bank,
Limited and The Sumitomo Bank, Limited.
10.48(7) Letter dated March 29, 1996 from The Sumitomo Bank, Limited to the
Registrant amending the Loan Agreement dated October 20, 1995.
10.49(8)(11) Subscription Agreement dated July 25, 1996 by and between the Registrant
and Fletcher International Limited.
10.50(9)(11) Joint Research and Product Development and Commercialization Agreement
dated September 23, 1996, by and between Lipha, Lyonnaise Industrielle
Pharmaceutique s.a. and the Registrant.
10.51(9)(11) Stock Purchase Agreement dated September 23, 1996, by and between Lipha,
Lyonnaise Industrielle Pharmaceutique s.a. and the Registrant.
23.1* Consent of Ernst & Young LLP, Independent Auditors.
23.2* Consent of Brobeck, Phleger & Harrison LLP (included in the opinion filed
as Exhibit 5.1).
24.1* Power of Attorney (included in Part II of this Registration Statement
under the caption "Signatures").
</TABLE>
- ------------------------
* Filed herewith.
** To be filed by Amendment.
(1) Incorporated by reference to exhibits filed with the Registrant's
Registration Statement on Form S-1, File No. 33-55892 which was declared
effective January 26, 1993.
(2) Incorporated by reference to exhibits filed with the Registrant's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1993.
(3) Incorporated by reference to exhibits filed on November 10, 1993 with
Registrant's Registration Statement on Form S-1, File No. 33-71506.
(4) Incorporated by reference to exhibits filed with Registrant's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1994.
(5) Incorporated by reference to exhibits filed with Registrant's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1995, as amended.
(6) Incorporated by reference to exhibits filed with Registrant's Annual Report
on Form 10-K for the year ended December 31, 1995.
II-4
<PAGE>
(7) Incorporated by reference to exhibits filed with Registrant's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1996.
(8) Incorporated by reference to exhibits filed with Registrant's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1996, as amended.
(9) Incorporated by reference to exhibits filed with Registrant's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1996, as amended.
(10) Confidential treatment has been granted with respect to certain portions of
these agreements.
(11) Confidential treatment pursuant to Rule 24b-2 under the Securities Exchange
Act of 1934, as amended, has been requested for certain portions of this
document.
(12) Management contract or compensation plan.
(b) Financial Statement Schedules
ITEM 17. UNDERTAKINGS.
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 foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
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 Section 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.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of 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.
(2) For purposes of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial BONA FIDE offering thereof.
II-5
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Act of 1933, the Company
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 Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of South San Francisco, State of California, on the 24th
day of December, 1996.
SHAMAN PHARMACEUTICALS, INC.
By /s/ LISA A. CONTE
------------------------------------
Lisa A. Conte
PRESIDENT AND CHIEF EXECUTIVE
OFFICER
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below does hereby constitute and appoint Lisa A. Conte and Barbara J. Goodrich,
and each of them, as his or her true and lawful attorney-in-fact and agents,
with full power of substitution, for him or her and in his or her name, place
and stead, in any and all capacities, to sign the Registration Statement filed
herewith and any and all amendments to said Registration Statement (including
post-effective amendments and registration statements filed pursuant to Rule 462
and otherwise), and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
connection therewith as fully to all intents and purposes as he might or could
do in person, hereby ratifying and confirming all that said attorneys-in-fact
and agents, or their substitute or substitutes may lawfully do or cause to be
done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the persons whose signatures
appear below, which persons have signed such Registration Statement in the
capacities and on the dates indicated:
NAME TITLE DATE
- ------------------------------ -------------------------- -------------------
Director, President and
/s/ LISA A. CONTE Chief Executive Officer
- ------------------------------ (Principal Executive December 24, 1996
Lisa A. Conte Officer)
Vice President and Chief
/s/ BARBARA J. GOODRICH Financial Officer
- ------------------------------ (Principal Financial December 24, 1996
Barbara J. Goodrich Officer)
/s/ G. KIRK RAAB
- ------------------------------ Chairman of the Board December 24, 1996
G. Kirk Raab
/s/ HEBERT H. McDADE, JR.
- ------------------------------ Director December 24, 1996
Herbert H. McDade, Jr.
/s/ M. DAVID TITUS
- ------------------------------ Director December 24, 1996
M. David Titus
/s/ JOHN A. YOUNG
- ------------------------------ Director December 24, 1996
John A. Young
<PAGE>
SHAMAN PHARMACEUTICALS, INC.
2,000,000 SHARES OF COMMON STOCK,
$.001 PAR VALUE PER SHARE,
PLACEMENT AGENCY AGREEMENT
January __, 1997
Hambrecht & Quist LLC
230 Park Avenue
New York, New York 10169
As Placement Agent
Dear Sir or Madam:
Shaman Pharmaceuticals, Inc., a Delaware corporation (the "Company"),
proposes to issue and sell 2,000,000 shares (the "Shares") of its common stock,
par value $0.001 per share (the "Common Stock"), to certain investors
(collectively, the "Investors"). The Company desires to engage you as its
placement agent (the "Placement Agent") in connection with such issuance and
sale. The Common Stock is more fully described in the Registration Statement
(as hereinafter defined).
The Company and the Placement Agent hereby confirm their agreements as
follows.
1. AGREEMENT TO ACT AS PLACEMENT AGENT. 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 Placement Agent
agrees to act as the Company's exclusive placement agent in connection with the
issuance and sale by the Company of the Shares to the Investors. The Company
shall pay to the Placement Agent ____% of the gross proceeds received by the
Company from the sale of the Shares as set forth on the cover page of the
Prospectus (as hereinafter defined).
2. DELIVERY AND PAYMENT. Concurrently with the execution and delivery of
this Agreement, the Company, the Placement Agent, and First Trust California, as
escrow agent (the "Escrow Agent"), shall enter into an Escrow Agreement
substantially in the form of Exhibit A attached hereto, pursuant to which an
escrow account will be established, at the Company's expense, for the benefit of
the Investors (the "Escrow Account"). The Escrow Agreement will provide that,
prior to the Closing Date (as defined below), (i) each of the Investors will
deposit or cause to be deposited in the Escrow Account an amount equal to the
price per Share multiplied by the number of Shares purchased by it in the Escrow
Account, and (ii) the Escrow Agent will notify the Company and the Placement
Agent in writing whether the Investors have deposited in the Escrow Account
funds in the amount equal to proceeds of the sale of all of the Shares (the
"Requisite Funds"). At _____ a.m., New York City time, on January __, 1997, or
at
<PAGE>
such other time on such other date as may be agreed upon by the Company and the
Placement Agent but in no event prior to the date on which the Escrow Agent
shall have received all of the Requisite Funds (such date is hereinafter
referred to as the "Closing Date"), the Escrow Agent will release the Requisite
Funds from the Escrow Account for collection by the Company and the Placement
Agent as provided in the Escrow Agreement and the Company shall deliver the
Shares to the Investors, which delivery may be made through the facilities of
the Depository Trust Company. The closing (the "Closing") shall take place at
the office of Wilson, Sonsini, Goodrich & Rosati, Professional Corporation, 650
Page Mill Road, Palo Alto, California 94304-1050. All actions taken at the
Closing shall be deemed to have occurred simultaneously.
Certificates evidencing the Shares shall be in definitive form and shall be
registered in such names and in such denominations as the Placement Agent shall
request by written notice to the Company. For the purpose of expediting the
checking and packaging of certificates for the Shares, the Company agrees to
make such certificates available for inspection at least 24 hours prior to
delivery to the Investors.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents, warrants and covenants to the Placement Agent that:
(a) A Registration Statement (Registration No. 33-_____) on Form S-3
relating to the Shares, including a preliminary prospectus relating to the
Shares 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
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 Commission has not issued any order
preventing or suspending the use of the Prospectus (as defined below) or the
Preliminary Prospectus (as defined below). The term "Preliminary Prospectus" as
used herein means a preliminary prospectus relating to the Securities as
contemplated by Rule 430 or 430A ("Rule 430A") of the Rules and Regulations, as
amended or supplemented, included in the Registration Statement prior to the
time it became effective. Copies of such Registration Statement and amendments
and of each related Preliminary Prospectus have been delivered to the Placement
Agent. If such Registration Statement has not become effective, a further
amendment to such Registration Statement, including a form of final prospectus,
necessary to permit such Registration Statement to become effective will be
filed promptly by the Company with the Commission. If such Registration
Statement has become effective, a final prospectus relating to the Shares
containing information permitted to be omitted at the time of effectiveness by
Rule 430A will be filed by the Company with the Commission in accordance with
Rule 424(b) of the Rules and Regulations promptly after execution and delivery
of this Agreement. The term "Registration Statement" means the registration
statement in the form in which it becomes or became effective (the "Effective
Date"), including all material incorporated by reference therein and any
information deemed to be included therein by Rule 430A and any registration
statement filed pursuant to Rule 462(b) of the Rules and Regulations of the
Commission with respect to the Shares (herein called a Rule 462(b) registration
statement). The term "Prospectus" means the prospectus relating to the Shares
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
relating to the Shares included in the Registration Statement
-2-
<PAGE>
at the Effective Date or, if included in a 462(b) registration statement, at
the effective date of such Rule 462(b) registration statement, in either
case, including all material incorporated by reference therein.
(b) On the date that the Preliminary Prospectus was filed with the
Commission, 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 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 as amended, the Preliminary
Prospectus and the Prospectus (as supplemented if the Company shall have filed
with the Commission any supplement thereto), including the financial statements
included in the Prospectus, did or will comply as to form in all material
respects, with all applicable provisions of the Act and the Rules and
Regulations and the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and the rules and regulations thereunder. 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, at the date of the Prospectus and at the
date any supplement to the Prospectus is filed with the Commission, and at the
Closing Date, the Prospectus did not and 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; provided, however, that none of the representations and
warranties in this paragraph (b) shall apply to statements in, or omissions
from, the Registration Statement or the Prospectus made in reliance upon and in
conformity with information furnished in writing to the Company by or on behalf
of the Placement Agent for use in the Registration Statement or the Prospectus.
The Company has not distributed any offering material in connection with the
offering or sale of the Common Stock other than the Registration Statement, the
Preliminary Prospectus and the Prospectus.
(c) Since the respective dates as of which information is given in
the Registration Statement and the Prospectus, except as otherwise stated in
such Registration Statement and Prospectus, (A) there has been no material
adverse change in the condition, financial or otherwise, or business affairs or
business prospects of the Company, whether or not arising in the ordinary course
of business, (B) there have been no material transactions entered into by the
Company, other that those in the ordinary course of business, and (C) there have
been no dividends or distributions of any kind declared, paid or made by the
Company on any class of its capital stock.
(d) The Company is, and at the Closing Date will be, duly organized,
validly existing and in good standing under the laws of the State of Delaware.
The Company 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 is, and at the Closing Date will be,
duly licensed or qualified to do business and in good standing as a foreign
organization 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, except where the failure to be so licensed
or qualified will not have a material adverse effect on the ability of the
Company to carry on its business as presently conducted. Except as disclosed in
the Registration Statement and Prospectus, the Company does not own, and at the
Closing
-3-
<PAGE>
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
bylaws of the Company and all amendments thereto have been delivered to the
Placement Agent, and no changes therein will be made subsequent to the date
thereof and prior to the Closing Date.
(e) The issued and outstanding shares of capital stock of the Company
have been duly authorized, validly issued, are fully paid and nonassessable.
Except as set forth in the Registration Statement and the Prospectus, such
shares are not subject to any preemptive or similar right. The Company has an
authorized, issued and outstanding capitalization as set forth in the Prospectus
under the heading "capitalization" as of the dates referred to therein. The
description of the securities of the Company included in the Registration
Statement and the Prospectus is, and at the Closing Date will be, complete and
accurate in all material respects. Except as set forth in the Registration
Statement and the Prospectus, and except for any options or securities issued
under the Company's stock option plan, 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 exchangeable for, or any contracts or commitments to issue
or sell, any shares of capital stock or other securities.
(f) The issuance and sale of the Shares have been duly authorized by
the Company, and the Shares, when issued and paid for in accordance with this
Agreement, will be duly and validly issued, fully paid and nonassessable and
will not be subject to preemptive or similar rights. The Shares, when issued,
will conform to the description thereof set forth in the Prospectus (or, if the
Prospectus is not then in existence, in the most recently filed Preliminary
Prospectus).
(g) The Company has furnished, or made available to Wilson, Sonsini,
Goodrich & Rosati, Professional Corporation, your counsel, a true and complete
copy of each statement, report, registration statement and definitive proxy
statement filed by Company with the Commission since ___________, 199_ (the "SEC
Documents"), which are all the documents that the Company was required to file
with the Commission since ___________, 199_. As of their respective filing
dates (or, if any amendment was filed, when such amendment was filed), the SEC
Documents complied in all material respects with the requirements of the Act and
the Exchange Act; and none of the SEC Documents contained any untrue statement
of a material fact or omitted to state a material fact required to be stated
therein or necessary in order to make the statements made therein, in light of
the circumstances under which they were made, not misleading, except to the
extent corrected by a subsequently filed SEC Document. The consolidated
financial statements included or incorporated by reference in the SEC Documents
comply as to form in all material respects with applicable accounting
requirements and with the published rules and regulations of the Commission with
respect thereto, have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis during the periods involved
(except as may be indicated in the notes thereto or, in the case of unaudited
statements, as permitted by Form 10-Q of the Commission) and fairly present the
financial position of the Company as at the dates thereof and the results of its
operations and changes in financial position for the periods then ended
(subject, in the case of unaudited statements, to normal, recurring audit
adjustments).
-4-
<PAGE>
(h) Except as set forth or incorporated by reference in the
Registration Statement and the Prospectus, the business, operations and
properties of the Company have been and are being conducted in material
compliance with all applicable laws, ordinances, rules, regulations, licenses,
permits, approvals, plans, authorizations or requirements relating to
occupational safety and health, or pollution, or protection of health or the
environment (including, without limitation, those relating to emissions,
discharges, releases or threatened releases of pollutants, contaminants or
hazardous or toxic substances, materials or wastes into ambient air, surface
water, groundwater or land, or relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
chemical substances, pollutants, contaminants or hazardous or toxic substances,
materials or wastes, whether solid, gaseous or liquid in nature) of any
governmental department, commission, board, bureau, agency or instrumentality of
the United States, any state or political subdivision thereof, or any foreign
jurisdiction, and all applicable judicial or administrative agency or regulatory
decrees, awards, judgments and orders relating thereto, except where the failure
to be in such compliance will not, individually or in the aggregate, have a
material adverse effect on the ability of the Company to carry on its business
as described in the Prospectus, and the Company has not received any notice from
any governmental instrumentality or any third party alleging any material
violation thereof or liability thereunder (including, without limitation,
liability for costs of investigating or remediating sites containing hazardous
substances and/or damages to natural resources).
(i) The Company is not an "investment company" or a company
"controlled" by an "investment company" within the meaning of the Investment
Company Act of 1940, as amended, and the rules and regulations thereunder.
(j) The Company has, and at the Closing Date will have, (i) all
governmental licenses, permits, consents, orders, approvals and other
authorizations material to the conduct of its business as described in the
Prospectus, (ii) complied with all laws, regulations and orders applicable to
either it or its business, where the failure to so comply would have a material
adverse effect on the business, properties, prospects, condition (financial or
otherwise) or results of operations of the Company, and (iii) performed all its
obligations required to be performed, and is not, and at the Closing Date will
not be, in default, under any material 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, except as otherwise set forth in the Registration Statement and the
Prospectus (or, if the Prospectus is not in existence, in the most recent
Preliminary Prospectus) and except where such default would not have a material
adverse effect on the business, properties, prospects, condition (financial or
otherwise) or results of operations of the Company, no other party under any
contract or other agreement to which the Company is a party is in default in any
respect thereunder. The Company is not in violation of any provision of its
charter or bylaws.
(k) Neither the execution of this Agreement or the Escrow Agreement,
nor the issuance, offering or sale of the Shares, nor the consummation of any of
the transactions contemplated herein or in the Escrow Agreement, nor the
compliance by the Company with the terms and provisions hereof or thereof will
conflict with, or will result in a material breach of, any of the terms and
provisions of, or has constituted or will constitute a default under, or has
resulted in or will result in the creation or
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imposition of any lien, charge or encumbrance upon any property or assets of the
Company pursuant to the terms of any contract or other agreement to which the
Company may be bound or to which any of the property or assets of the Company is
subject; nor will such action result in any violation of the provisions of the
Company's charter or bylaws, or any statute or any order, rule or regulation
applicable to the Company or of any court or of any federal, state or other
regulatory authority or other governmental body having jurisdiction over the
Company, of which the Company has knowledge.
(l) Each of this Agreement and the Escrow Agreement has been duly
authorized and validly executed and delivered by the Company, and is the legal,
valid and binding agreement of the Company enforceable against the Company in
accordance with its terms, except as rights to indemnity and contribution
hereunder may be limited by applicable law and public policy considerations and
except as the enforcement hereof may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting
creditors' rights generally, and by general equitable principles.
(m) Except as described in or contemplated by the Registration
Statement or the Prospectus (a) the Company owns or possesses, or believes it
can acquire on reasonable terms, all material patents, patent applications,
trademarks, service marks, trade names, licenses, copyrights and proprietary
information currently employed by it in connection with its business, and
(b) the Company has not received any notice of infringement of or conflict with
asserted rights of any third party with respect to any of the foregoing which,
singly or in the aggregate, if the subject of an unfavorable decision, ruling or
finding, would result in a material adverse change in the business, properties,
prospects, condition (financial or otherwise), or results of operations of the
Company.
(n) Neither the Company nor any of its directors or officers has
taken, directly or indirectly, any action designed to cause or to result in, or
that has constituted or which might reasonably be expected to constitute, the
stabilization or manipulation of the price of any security of the Company to
facilitate the sale or resale of the Shares.
(o) There are no holders of securities of the Company, who, by reason
of the filing of the Registration Statement, have the right (and have not waived
such right or had such right extinguished based on the view of the Placement
Agent that market conditions would not permit such registration) to request the
Company to register under the Act, or to include in the Registration Statement,
securities held by them.
(p) The Common Stock is currently listed on the Nasdaq Stock Market's
National Market System (the "Nasdaq National Market"). The Company has
submitted to the Nasdaq National Market a Notification Form for Listing of
Additional Shares with respect to the Shares.
(q) Except as set forth in the Registration Statement and the
Prospectus (r, if the Prospectus is not then in existence, the most recently
filed Preliminary Prospectus), there are no actions, suits or proceedings
pending or threatened against or affecting the Company or any of its 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
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<PAGE>
finding would be likely to materially adversely affect the business, properties,
prospects, condition (financial or otherwise) or results of operations of the
Company.
(r) 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 other than non-material changes in the ordinary
course of business, or any material adverse change in the business, properties,
prospects, condition (financial or otherwise) or results of operations of the
Company arising for any reason whatsoever, (ii) the Company has not incurred nor
will it incur any material liabilities or obligations, direct or contingent, nor
has the Company entered into nor will it enter into any material transactions
other than pursuant to this Agreement and the transactions referred to herein
and in the Registration Statement and the Prospectus 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.
(s) Neither (i) the issuance, offering and sale of the Shares
pursuant hereto, nor (ii) the compliance by the Company with the other
provisions hereof require the consent, approval, authorization, registration or
qualification of or with any governmental authority, except such as have been
obtained, such as may be required under state securities or Blue Sky laws or the
bylaws and rules of the National Association of Securities Dealers, Inc. (the
"NASD") and, if the Registration Statement is not effective under the Act as of
the time of execution hereof, such as may be required (and shall be obtained as
provided in this Agreement) under the Act.
(t) 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 is a party have been duly
authorized, executed and delivered by the Company.
(u) The consolidated financial statements and the related notes and
schedules included in, or incorporated by reference into, the Registration
Statement and the Prospectus present fairly the financial condition of the
Company as of the date thereof and the results of operations, stockholders'
equity (deficit) and cash flows of the Company at the dates and for the periods
covered thereby, all in conformity with generally accepted accounting principles
("GAAP") applied on a consistent basis throughout the entire period involved,
except as otherwise disclosed therein. No other financial statements or
schedules of the Company or any other entity are required by the Act or the
Rules and Regulations to be included in the Registration Statement or the
Prospectus. Ernst & Young, LLP (the "Accountants"), who have reported on such
consolidated financial statements and schedules to the extent set forth in the
Prospectus, are independent accountants with respect to the Company as required
by the Act and the Rules and Regulations. The consolidated financial statements
of the Company and the related notes and schedules included in, or incorporated
by reference into, the Registration Statement and the Prospectus have been
prepared in conformity with the requirements of the Act and the Rules and
Regulations and present fairly the information shown therein.
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<PAGE>
4. AGREEMENTS OF THE COMPANY. The Company covenants and agrees with the
Placement Agent as follows:
(a) The Company will not, either prior to the Effective Date or
thereafter during such period as the Prospectus would be 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 Placement Agent
within a reasonable period of time prior to the filing thereof and the Placement
Agent 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 Placement Agent 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 securities or other governmental authority
(including, without limitation, the Commission) of any jurisdiction for
amendments or supplements to the Registration Statement or the Prospectus or for
additional information, (3) of the issuance by any securities or other
governmental authority (including, without limitation, the Commission) of any
jurisdiction 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
first sentence of Section 4(c) that in the judgment of the Company makes any
statement of a material fact 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 were made, not misleading and (5) of receipt by
the Company or any representative or attorney of the Company of any other
communication from the securities or other governmental authority (including,
without limitation, the Commission) of any jurisdiction relating to any of the
Registration Statement any Preliminary Prospectus or the Prospectus. If at any
time any securities or other governmental authority (including, without
limitation, the Commission) of any jurisdiction 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. If the Company has omitted any information from the
Registration Statement pursuant to Rule 430A, it will use its best efforts to
comply with the provisions of and make all requisite filings with the Commission
pursuant to said Rule 430A and to notify the Placement Agent promptly of all
such filings.
(c) If, at any time when a Prospectus relating to the Shares is
required to be delivered under the Act, any event occurs as a result of which
the Prospectus, as then amended or supplemented, would, in the judgment of the
Company or the Placement Agent, include any untrue statement of a material fact
or omit to state a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading, or the Registration Statement, as then amended, would, in the
judgment of the Company or the Placement Agent, include any untrue statement of
a material fact or omit to state a material fact necessary to make the
statements therein not misleading, or if for any other reason it is necessary,
in the judgment of the Company and the Placement Agent, at any time to amend or
supplement the Prospectus or the Registration Statement to comply with the Act
or the Rules and Regulations, the Company will promptly notify the Placement
Agent and, subject to
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<PAGE>
Section 4(a) hereof, will promptly prepare and file with the Commission, at the
Company's expense, an amendment to the Registration Statement or a supplement to
the Prospectus that corrects such statement or omission or effects such
compliance and will deliver to the Placement Agent, without charge, such number
of copies thereof as the Placement Agent may reasonably request. The Company
consents to the use of the Prospectus or any amendment or supplement thereto by
the Placement Agent.
(d) The Company will furnish to the Placement Agent and its counsel,
without charge, (i) two signed copies of the Registration Statement described in
Section 3(a) hereof and each pre-effective amendment thereto, including
financial statements and schedules, and all exhibits thereto and (ii) so long as
a prospectus relating to the Shares is required to be delivered under the Act,
as many copies of each Preliminary Prospectus or the Prospectus or any
amendment or supplement thereto as the Placement Agent may reasonably request.
(e) The Company will comply with all the undertakings contained in
the Registration Statement.
(f) Prior to the sale of the Shares to the Investors, the Company
will cooperate with the Placement Agent and its counsel in connection with the
registration or qualification of the Shares for offer and sale under the state
securities or Blue Sky laws of such jurisdictions as the Placement Agent 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 Placement Agent 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 Placement Agent 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 the Rules and Regulations pertaining thereto).
(i) 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 to facilitate
the sale or resale of any of the Shares.
(j) The Company will apply the net proceeds from the offering and
sale of the Shares in the manner set forth in the Prospectus under the caption
"Use of Proceeds" and shall file such reports with the Commission with respect
to the sale of the Shares and the application of the proceeds therefrom as may
be required in accordance with the applicable Rules and Regulations.
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<PAGE>
5. EXPENSES. Whether or not the transactions contemplated by this
Agreement are consummated or this Agreement is terminated, the Company will pay
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 (including each pre- and post-effective amendment thereto) and
exhibits thereto, each Preliminary Prospectus, the Prospectus and any amendment
or supplement to the Prospectus, including all fees, disbursements and other
charges of counsel to the Company, (2) the preparation and delivery of
certificates representing the Shares, (3) furnishing (including costs of
shipping and mailing) such copies of the Registration Statement (including all
pre- and post-effective amendments thereto), the Prospectus and any Preliminary
Prospectus, and all amendments and supplements to the Prospectus, as may be
requested for use in connection with the direct placement of the Shares, (4) the
listing of the Shares on the Nasdaq National Market, (5) any filings required to
be made by the Placement Agent with the NASD, and the fees, disbursements and
other charges of counsel for the Placement Agent in connection therewith,
(6) 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 reasonable fees, disbursements and other charges of counsel
to the Placement Agent in connection therewith and the preparation and printing
of preliminary, supplemental and final Blue Sky memoranda, (7) fees,
disbursements and other charges of counsel to the Company and (8) the fees of
the Escrow Agent. The Company shall reimburse the Placement Agent for all
travel, legal and other out-of-pocket accountable expenses incurred in
connection with the engagement hereunder, up to a maximum of $______; provided,
however, if the transactions contemplated by this Agreement are not consummated,
then the Company shall, subject to the foregoing, reimburse the Placement Agent
for only those travel, legal and other out-of-pocket accountable expenses
incurred by the Placement Agent.
6. CONDITIONS OF THE OBLIGATIONS OF THE PLACEMENT AGENT. The obligations
of the Placement Agent hereunder are subject to the following conditions:
(a) Notification that the Registration Statement has become effective
shall be received by the Placement Agent 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 Placement Agent 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 any securities or other governmental
authority (including, without limitation, 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 any securities or other
governmental authority (including, without limitation, the Commission), (iii)
any request for additional information on the part of the staff of any
securities or other governmental authority (including without limitations the
Commission) 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 Placement Agent and the
Placement Agent did not object thereto in good faith, and the Placement Agent
shall have received
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<PAGE>
certificates, dated the Closing Date and signed by the President and 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, properties, prospects,
condition (financial or otherwise) or results of operations of the Company,
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) the Company shall not 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 Placement Agent any such development makes
it impracticable or inadvisable to consummate the sale and delivery of the
Shares to Investors at the 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
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, prospects or condition (financial or otherwise) or
results of operations of the Company.
(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 or such other date as may be set forth in a representation and
warranty, as if made on such 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 shall have been duly performed, fulfilled or complied with.
(f) The Placement Agent and the Investors shall have received an
opinion, dated the Closing Date, of Brobeck Phleger & Harrison LLP, counsel for
the Company, to the effect that:
(i) the Company has been duly incorporated, is validly
existing in good standing under the laws of the State of Delaware, and is duly
qualified to transact business as a foreign corporation and is in good standing
in the State of California and in each other state, if any, in which the conduct
of its business or its ownership or leasing of property requires such
qualification except to the extent that the failure to be so qualified or in
good standing would not have a material adverse effect on the Company.
(ii) the Company has the requisite corporate power to
conduct its business as described in the Registration Statement and the
Prospectus, and the Company has the corporate power
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<PAGE>
to enter into this Agreement and the Escrow Agreement and to carry out all the
terms and provisions hereof and thereof to be carried out by it;
(iii) the Company has an authorized capitalization as
set forth under the heading "capitalization" in the Prospectus; the Shares have
been duly authorized by all necessary action of the Company and, when issued by
the Company and paid for in accordance with the terms of this Agreement will be
validly issued, fully-paid and non-assessable; no holders of outstanding shares
of capital stock of the Company are entitled to any preemptive rights to
subscribe for any of the Shares; no holders of securities of the Company are
entitled to have such securities registered under the Registration Statement
which rights have not been waived or satisfied;
(iv) the execution and delivery of this Agreement and the
Escrow Agreement have been duly authorized by all necessary corporate action of
the Company, and are valid and binding agreements of the Company enforceable
against the Company in accordance with their respective terms, subject to
bankruptcy, insolvency, reorganization, arrangement, moratorium and other laws
of general applicability relating to or affecting creditors' rights and to
general principles of equity, including specific performance, and except as
rights to indemnity and contribution in the case of this Agreement may be
limited by federal or state securities laws or the public policy underlying such
laws;
(v) to such counsel's knowledge after inquiry of the
officers of the Company, no legal or governmental proceedings are pending to
which the Company, or to which the property of the Company, is subject that are
required to be described in the Registration Statement or the Prospectus and are
not described therein, and no such proceedings have been threatened against the
Company or with respect to any of its assets;
(vi) the Registration Statement is effective under the Act;
any required filing of the Prospectus pursuant to Rule 424(b) has been made in
the manner and within the time period required by Rule 424(b); no stop order
suspending the effectiveness of the Registration Statement or any post-effective
amendment thereto and no order directed at any amendment or supplement thereto
has been issued, and no proceedings for that purpose have been instituted or
threatened or are contemplated by the Commission;
(vii) the Company is not an "investment company" within
the meaning of the Investment Company Act of 1940, as amended, nor will it
become such solely as a result of the consummation of the transactions
contemplated by this Agreement.
(viii) the Registration Statement originally filed with
respect to the Shares and each amendment thereto and the Prospectus (in each
case, not including the financial statements and the related financial and
statistical information contained therein, as to which such counsel need express
no opinion) comply as to form in all material respects with the applicable
requirements of the Act and the respective rules and regulations of the
Commission thereunder; and
(ix) the issuance, offering and sale of the Shares to
the Investors by the Company pursuant to this Agreement and the compliance by
the Company with the other provisions of
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<PAGE>
this Agreement do not (A) require the consent, approval, authorization,
registration or qualification of or with any governmental authority, except such
as have been obtained or such as may be required under state securities or Blue
Sky laws or under rules and regulations of the NASD with respect to the
placement agency arrangements, or (B) conflict with or result in a breach or
violation of any of the terms and provisions of, or constitute a default under,
any indenture, mortgage, deed of trust, lease or other agreement or instrument
to which the Company is a party or by which the Company or any of its assets are
bound, or any statute or any judgment, decree, order, rule or regulation of any
court or other governmental authority or any arbitrator applicable to the
Company where such conflict, breach, violation or default would have a material
adverse effect on the Company.
In rendering the foregoing opinions, whenever a statement of counsel
is qualified "to the knowledge of such counsel" or words of similar import, it
shall indicate that during the course of counsel's representation of the Company
no information that would give counsel current actual knowledge of the
inaccuracy of such statement has come to the attention of those attorneys who
have rendered legal services to the Company in connection with the preparation
of the Registration Statement and the Prospectus.
In addition to rendering the foregoing opinions, such counsel shall
confirm that, without any independent investigation or verification of, and
without assuming responsibility for, the accuracy or completeness of the
statements contained in the Registration Statement or the Prospectus and based
solely upon their participation in the preparation of the Registration Statement
and the Prospectus, nothing has come to the attention of those attorneys who
have rendered legal services to the Company in connection with the preparation
of the Registration Statement and the Prospectus that causes them to believe
that the Registration Statement (except as to the financial statements,
schedules and the related financial information contained therein, as to which
such counsel need express no opinion) at the time it became effective contains
or contained any untrue statement of a material fact or omits or omitted to
state any material fact required to be stated therein or necessary in order to
make the statements therein not misleading, or that the Prospectus (except as to
the financial statements, schedules and the related financial information
contained therein, as to which such counsel need express no opinion) as of its
date or at the Closing Date, contains or contained an untrue statement of a
material fact or omits or omitted to state a material fact necessary in order to
make the statements, in light of the circumstances under which they were made,
not misleading.
The foregoing opinion may be limited to the laws of the United States, the
laws of the State of California and the General Corporation Law of the State of
Delaware.
In rendering any such opinion, such counsel may rely, as to matters of
fact, to the extent such counsel deems proper, on certificates of responsible
officers of the Company and public officials and the representations and
warranties of the Company contained herein and, as to matters involving the
application of laws of any jurisdictions in which such counsel are not admitted
to practice, to the extent satisfactory in form and scope to counsel for the
Placement Agent, upon the opinion of local counsel. The foregoing opinion shall
also state that the Placement Agent is justified in relying upon such opinions
of local counsel, and copies of such opinions shall be delivered to the
Placement Agent and its counsel.
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References to the Registration Statement and the Prospectus in this
paragraph (f) shall include any amendment or supplement thereto at the date of
such opinion.
(g) The Placement Agent shall have received an opinion, dated the
Closing Date, of Pennie & Edmonds, patent counsel for the Company, to the effect
that:
(i) Neither the Registration Statement, as amended,
nor the Prospectus, including but not limited to, "Risk Factors--Uncertainty
Regarding Patents and Proprietary Rights" and "Business--Patents, Proprietary
Rights and Licenses" (collectively, the "Intellectual Property Portion") (a)
contains any untrue statement of material fact with respect to (1) patents or
patent rights owned or used by the Company, or (2) any allegation on the part of
any person that the Company is infringing any patent rights of any person, or
(b) omits to state any material fact relating (1) patents or patent rights owned
or used by the Company, or (2) any allegation on the part of any person that the
Company is infringing on any patent rights of any person that is necessary to
make the statements therein not misleading;
(ii) To the knowledge of such counsel, there are no
legal or governmental proceedings pending relating to patent rights of the
Company, except for ordinary proceedings initiated by the Company seeking
statutory rights, registrations or certifications from governmental authorities,
to which any patents or patent applications of the Company are subject and to
the knowledge of such counsel, no such proceedings are threatened or
contemplated by governmental authorities or other except as set forth in the
Prospectus;
(iii) To the knowledge of such counsel, the Company is
not infringing or otherwise violating any patents or patent rights of others
except as set forth in the Prospectus; and
(iv) To the knowledge of such counsel, the Company owns
or possesses sufficient rights for all of its patents and patent applications
that are necessary to conduct the business of the Company as described in the
Prospectus.
(h) Concurrently with the execution and delivery of this
Agreement, or, if the Company elects to rely on Rule 430A, on the date of the
Prospectus, the Accountants shall have furnished to the Placement Agent a
letter, dated the date of its delivery (the "Original Letter"), addressed to
the Placement Agent and in form and substance satisfactory to the Placement
Agent, confirming that (i) they are independent public accountants with respect
to the Company within the meaning of the Act and the Rules and Regulations;
(ii) in their opinion, the consolidated financial statements and any
supplementary financial information and schedules (and pro forma financial
information) included in the Registration Statement and examined by them
comply as to form in all material respects with the applicable accounting
requirements of the Act and the Rules and Regulations and the Exchange Act and
the rules and regulations thereunder; (iii) on the basis of procedures, not
constituting an examination in accordance with generally accepted auditing
standards, set forth in detail in the Original Letter, including a reading of
the unaudited consolidated financial statements and other information referred
to below, a reading of the latest available interim consolidated financial
statements of the Company, inspections of the minute books of the Company
since the latest audited consolidated financial statements included in
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the Prospectus, inquiries of officials of the Company responsible for financial
and accounting matters and such other inquiries and procedures as may be
specified in the Original Letter to a date not more than five days prior to the
date of the Original Letter, nothing came to their attention that caused them to
believe that: (A) the unaudited consolidated financial statements and schedules
of the Company included in the Prospectus do not comply as to form in all
material respects with the applicable accounting requirements of the Act and the
Rules and Regulations thereunder, or are not fairly presented in conformity with
generally accepted accounting principles applied on a basis substantially
consistent with the basis for the audited consolidated financial statements
included in the Prospectus; (B) any other unaudited income statement data and
balance sheet items included in the Prospectus do not agree with the
corresponding items in the unaudited consolidated financial statements from
which such data and items were derived, and any such unaudited data and items
were not determined on a basis substantially consistent with the basis for the
corresponding amounts in the audited consolidated financial statements included
or incorporated by reference in the Prospectus; (C) the unaudited pro forma
consolidated financial statements included in the Prospectus do not comply as to
form in all material respects with the applicable accounting requirements of the
Act and the Rules and Regulations thereunder or the pro forma adjustments have
not been properly applied to the historical amounts in the compilation of those
statements; (D) as of a specified date not more than five days prior to the date
of the Original Letter, there have been any changes in the capital stock of the
Company or any increase in the long-term debt of the Company, or any decreases
in net current assets or net assets or other items specified by the Placement
Agent, or any increases in any items specified by the Placement Agent, in each
case as compared with amounts shown in the latest balance sheet included in the
Prospectus, except in each case for changes, increases or decreases which the
Prospectus discloses have occurred or may occur or which are described in the
Original Letter; and (E) for the period from the date of the latest consolidated
financial statements included in the Prospectus to the specified date referred
to in clause (D), there were any decreases in revenues or the total or per share
amounts of net income or other items specified by the Placement Agent, or any
increases in any items specified by the Placement Agent, in each case as
compared with the comparable period of the preceding year and with any other
period of corresponding length specified by the Placement Agent, except in each
case for decreases or increases which the Prospectus discloses have occurred or
may occur or which are described in the Original Letter; and (iv) in addition to
the examination referred to in their reports included in the Prospectus and the
procedures referred to in clause (iii) above, they have carried out certain
specified procedures, not constituting an examination in accordance with
generally accepted auditing standards, with respect to certain amounts,
percentages and financial information specified by the Placement Agent, which
are derived from the general accounting, financial or other records of the
Company, as the case may be, which appear in the Prospectus or in Part II of, or
in exhibits or schedules to the Registration Statement, and have compared such
amounts, percentages and financial information with such accounting, financial
and other records and have found them to be in agreement. At the Closing Date,
the Accountants shall have furnished to the Placement Agent 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 Original Letter, that nothing
has come to their attention during the period from the date of the Original
Letter referred to in the prior sentence to a date (specified in the letter) not
more than five days prior to the Closing Date which would require any change in
the Original Letter if it were required to be dated and delivered at the Closing
Date.
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(i) At the Closing Date, there shall be furnished to the
Placement Agent a 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 Placement Agent to the effect that to the
best of such person's knowledge:
(i) each signer of such certificate has carefully
examined the Registration Statement and the Prospectus and (A) as of the
Effective Date, the Registration Statement did not 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 and
(B) as of its date and the date of such certificate, the Prospectus did not
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, in light of the circumstances under which they were made, not
misleading and (C) 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 contained therein not untrue or misleading in any material respect;
(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 (or at such other time as may be set forth in
a representation and warranty) 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 date of such certificate has been
duly, and fully performed and each condition herein required to be complied
with by the Company on or prior to the delivery of such certificate has been
duly, timely and fully complied with;
(iv) no stop order suspending the effectiveness of the
Registration Statement or of any part thereof has been issued and no
proceedings for that purpose have been instituted or are contemplated by the
Commission; and
(v) subsequent to the date of the most recent
consolidated financial statements in the Prospectus, there has been no material
adverse change in the financial position or results of operations of the
Company, except as set forth in or contemplated by the Prospectus.
(j) The Shares shall be qualified for sale in such states as the
Placement Agents may reasonably request, each such qualification shall be in
effect subject to any stop order or other proceeding on the Closing Date;
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.
(k) The Company shall have furnished to the Placement Agent such
certificates, in addition to those specifically mentioned herein, as the
Placement Agent may have reasonably requested as to the accuracy and
completeness at the Closing Date of any statement in the Registration Statement
or the Prospectus, as to the accuracy at the Closing Date (or such other date as
may be set forth in a representation and warranty) of the representations and
warranties of the Company as to the
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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 Placement Agent.
7. INDEMNIFICATION AND CONTRIBUTION.
(a) The Company shall indemnify and hold harmless the Placement
Agent, and its partners, directors, officers, associates, affiliates, employees
and agents, and each person, if any, controlling the Placement Agent or any of
its affiliates within the meaning of Section 15 of the Act or Section 20 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") from and
against any and all losses, claims, liabilities, expenses and damages, joint or
several (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 or any claim asserted) to which it, or any of them
may become subject under the 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 (i) any untrue
statement or alleged untrue statement made by the Company in Section 3 of this
Agreement, (ii) any untrue statement or alleged untrue statement of any material
fact contained in (A) any Preliminary Prospectus, the Registration Statement or
the Prospectus or any amendment or supplement to the Registration Statement or
the Prospectus and (B) any application or other document, or any amendment or
supplement thereto, executed by the Company based upon written information
furnished by or on behalf of the Company filed in any jurisdiction in order to
qualify the Shares under the securities or Blue Sky laws thereof or filed with
the Commission or any securities association or securities exchange (each, an
"Application") or (iii) the omission or alleged omission to state in any
Preliminary Prospectus, the Registration Statement or the Prospectus or any
amendment to the Registration Statement or supplement to the Prospectus or any
Application a material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances in which they were made,
not misleading; PROVIDED, HOWEVER, 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 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 the Placement Agent furnished
in writing to the Company by the Placement Agent expressly for inclusion in the
Registration Statement, any Preliminary Prospectus or the Prospectus; and
provided further, that such indemnity with respect to any Preliminary Prospectus
shall not inure to the benefit of the Placement Agent (or any person
controlling the Placement Agent) from whom the person asserting any such loss,
claim, damage liability or action purchased Shares which are the subject thereof
to the extent that any such loss, claim, damage or liability (i) results from
the fact that the Placement Agent failed to send or give a copy of the
Prospectus (as supplemented) to such person at or prior to the confirmation of
the sale of such Shares to such person in any case where such delivery is
required by the Act and (ii) arises out of or is based upon an untrue statement
or omission of a material fact contained in such Preliminary Prospectus that was
corrected in the Prospectus (or any supplement thereto), unless such failure to
deliver the Prospectus (as supplemented) was the result of noncompliance by the
Company with Section 4(d)(ii). This indemnity agreement will be in addition to
any liability which the Company may otherwise have. The Company will not,
without the prior written consent of the Placement Agent (which consent will not
be unreasonably withheld), settle or compromise or consent to the entry of any
judgment in any pending or threatened claim, action, suit or proceeding in
respect of which indemnification may be sought hereunder (whether or not such
Placement Agent or any person
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who controls the Placement Agent within the meaning of Section 15 of the Act or
Section 20 of the Exchange Act is a party to each claim, action, suit or
proceeding), unless such settlement, compromise or consent includes an
unconditional release of the Placement Agent and each such controlling person
from all liability arising out of such claim, actions suit or proceeding.
(b) The Placement Agent 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 the Placement Agent, 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 the
Placement Agent furnished in writing to the Company by the Placement Agent
expressly for use in the Registration Statement, any Preliminary Prospectus or
the Prospectus. This indemnity agreement will be in addition to any liability
that the Placement Agent might otherwise have. The Company acknowledges that,
for all purposes under this, Agreement, the statements set forth in the last
paragraph of page 2 and in the first two paragraphs under the heading "Plan of
Distribution" in any Preliminary Prospectus and the Prospectus constitute the
only information relating to the Placement Agent furnished in writing to the
Company by the Placement Agent expressly for inclusion in the Registration
Statement, any Preliminary Prospectus or the Prospectus.
(c) Any party that proposes to assert the right to be indemnified
under this Section 7 will, promptly after receipt of notice of commencement of
any action against such party in respect of which a claim is to be made against
an indemnifying party or parties under this Section 7, notify such indemnifying
party of the commencement of such action, enclosing a copy of all papers served,
but the omission so to notify the indemnifying party will not relieve it from
any liability that it may have to any indemnified party under the foregoing
provisions of this Section 7 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, 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 defenses. 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 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
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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
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 such indemnified party or parties. All such fees,
disbursements and other charges will be reimbursed by the indemnifying party
promptly as they are incurred. The Company will not, without the prior written
consent of the Placement Agent (which consent will not be unreasonably
withheld), settle or compromise or consent to the entry of any judgment in any
pending or threatened claim, action, suit or proceeding in respect of which
indemnification may be sought hereunder (whether or not the Placement Agent or
any person controlling the Placement Agent within the meaning of Section 15 of
the Act or Section 20 of the Exchange Act is a party to such claims, action,
suit or proceeding), unless such settlement, compromise or consent includes an
unconditional release of the Placement Agent and each such controlling person
from all liability arising out of such claim, action, suit or proceeding. 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).
(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 7 is applicable in accordance with its terms but for
any reason is held to be unavailable from the Company or the Placement Agent,
the Company and the Placement Agent will contribute to the total losses of
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
Placement Agent such as persons who control the Company within the meaning of
the Act or the Exchange 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 the Placement Agent 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 Placement Agent on the other. The relative benefits
received by the Company on the one hand and the Placement Agent on the other
shall be deemed to be in the same proportion as the total net proceeds from the
offering (before deducting Company expenses) received by the Company as set
forth in the table on the cover page of the Prospectus bear to the fee received
by the Placement Agent hereunder. 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 Placement Agent 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 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 Placement
Agent, 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 Placement Agent agree that it would not be just and
equitable if contributions pursuant to this Section 7(d) were to be determined
by pro rata allocation 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,
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expense or damage, or action in respect thereof, referred to above in this
Section 7(d) shall be deemed to include, for purpose of this Section 7(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 7(d), the Placement Agent
shall not be required to contribute any amount in excess of the fee 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. For
purposes of this Section 7(d), any person who controls a party to this
Agreement within the meaning of the Act or the Exchange 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 7(d), will notify any such party
from whom contribution may be sought, but the omission so to notify will not
relieve the party from whom contribution may be sought from any other
obligation it may have under this Section 7(d). No party will be liable for
contribution with respect to an action or claim settled without its written
consent (which consent will not be unreasonably withheld).
8. TERMINATION.
(a) The obligations of the Placement Agent under this Agreement may
be terminated at any time prior to the Closing Date, by notice to the Company
from the Placement Agent, without liability on the part of the Placement Agent
to the Company if , prior to delivery and payment for the Shares, in the sole
judgment of the Placement Agent (i) trading in the Common Stock of the Company
shall have been suspended by the Commission or by the Nasdaq National Market
(ii) trading in securities generally on the New York Stock Exchange or the
Nasdaq National Market shall have been suspended or limited or minimum or
maximum prices shall have been generally established on any of such exchanges,
or additional material governmental restrictions, not in force on the date of
this Agreement, shall have been imposed upon trading in securities generally by
any of such exchanges or by order of the Commission or any court or other.
governmental authority, (iii) a general banking moratorium shall have been
declared by federal or New York State authorities, or (iv) any material adverse
change in the financial or securities markets 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 Placement Agent, impracticable or inadvisable to market the shares on the
terms and in the manner contemplated by the Prospectus.
(b) The obligations of the parties under this Agreement shall be
automatically terminated in the event that the Requisite Funds have not been
deposited by the Investors into the Escrow Account by the close of business on
the Closing Date.
9. NOTICES. 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, 213 East Grand
Avenue, South San Francisco, California 94080, Attention: Ms. Lisa
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A. Conte or (b) if to the Placement Agent, (i) at the office of Hambrecht &
Quist LLC, 230 Park Avenue, New York, New York 10169, Attention: Mr. Dennis
Purcell. Any such notice shall be effective only upon receipt. Any notice
under Section 7 may be made by facsimile or telephone, but if so made shall be
subsequently confirmed in writing.
10. SURVIVAL. The respective representations, warranties, agreements,
covenants, indemnities and other statements of the Company, its officers and the
Placement Agent set forth in this Agreement or made by or on behalf of them,
respectively, pursuant to this Agreement shall remain in full force and effect,
regardless of (i) any investigation made by or on behalf of the Company, any of
its officers or directors, the Placement Agent or any controlling person
referred to in Section 7 hereof, and (ii) delivery of and payment for the
Shares. The respective agreements, covenants, indemnities and, other statements
set forth in Sections 5 and 7 hereof shall remain in full force and effects
regardless of any termination or cancellation of this Agreement.
11. SUCCESSORS. This Agreement shall inure to the benefit of and -shall
be binding upon the Placement Agent, the Company and their respective successors
and legal representatives, and nothing expressed or mentioned in this Agreement
is intended or shall be construed to give any other person any legal or
equitable right, remedy or claim under or in respect of this Agreement, or any
provisions herein contained, and all conditions and provisions hereof being
intended to be and being for the sole and exclusive benefit of such persons and
for the benefit of no other person, except that (i) the indemnification and
contribution contained in Sections 7(a) and (d) of this Agreement shall also be
for the benefit of the partners, directors, officers, associates, affiliates,
employees and agents of the Placement Agent and any person or persons who
control the Placement Agent within the meaning of Section 15 of the Act or
Section 20 of the Exchange Act, and (ii) the indemnification and contribution
contained in Sections 7(b) and (d) of this Agreement shall also be for the
benefit of the directors of the Company, the officers of the Company who have
signed the Registration Statement and any person or persons who control the
Company within the meaning of Section 15 of the Act or Section 20 of the
Exchange Act. No investor shall be deemed a successor because of such purchase.
12. APPLICABLE LAW. THE VALIDITY AND INTERPRETATION OF THIS AGREEMENT,
AND THE TERMS AND CONDITIONS SET FORTH HEREIN, SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING
EFFECT TO ANY PROVISIONS RELATING TO CONFLICTS OF LAWS.
13. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
14. ENTIRE AGREEMENT. This Agreement constitutes the entire understanding
between the parties hereto as to the matters covered hereby and supersedes all
prior understandings, written or oral, relating to such subject matter.
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Please confirm that the foregoing correctly sets forth the agreement
between the Company and the Placement Agent.
Very truly yours,
SHAMAN PHARMACEUTICALS, INC.
By:
--------------------------------------------
Name: Lisa A. Conte
Title: President and Chief Executive Officer
Confirmed as of the date first
above mentioned:
HAMBRECHT & QUIST LLC
By:
-------------------------
Name:
Title:
<PAGE>
EXHIBIT A
FORM OF ESCROW AGREEMENT
ESCROW AGREEMENT, dated as of January __, 1997, by and among Shaman
Pharmaceuticals, Inc., a Delaware corporation (the "Company"), Hambrecht & Quist
LLC (the "Placement Agent") and First Trust of California, a national banking
institution incorporated under the laws of the United States of America (the
"Escrow Agent").
WHEREAS, the Company proposes to sell an aggregate of 2,000,000 shares of
its common stock, par value $0.001 per share (the "Shares"), for an aggregate of
$___________, all as described in the Company's registration statement on Form
S-3 (Registration No. 333-_____) (which, together with all amendments thereto is
referred to herein as the "Registration Statement");
WHEREAS, the Shares are being offered by the Company to investors whom the
Placement Agent has introduced to the Company, pursuant to registration under
the Securities Act of 1933, as amended, and pursuant to registration or
exemptions from registration under state securities laws;
WHEREAS, the offering of the Shares will terminate on ___________, 1997
(the "Final Closing Date") and, if subscriptions for the total number of Shares
being offered pursuant to the Registration Statement have not been received by
the Company on or before the Final Closing Date, no Shares will be sold and all
payments made by subscribers will be refunded by the Escrow Agent with interest
earned thereon, if any; and
WHEREAS, with respect to all subscription payments received from
subscribers, the Company proposes to establish an escrow account with the Escrow
Agent at First Trust of California, 1 California Street, 4th Floor, San
Francisco, CA 94111.
NOW, THEREFORE, it is agreed as follows:
1. ESTABLISHMENT OF ESCROW. The Escrow Agent hereby agrees to receive
and disburse the proceeds from the offering of the Shares and any interest
earned thereon in accordance herewith.
2. DEPOSIT AND INVESTMENT OF ESCROWED PROPERTY. The Placement Agent, on
behalf of the subscribers for the Shares, shall from time to time, but in no
event later than 12:00 noon on the date following the date of receipt by the
Placement Agent, cause to be wired to or deposited with, or, cause the
subscribers for the Shares to wire or deposit with, the Escrow Agent funds or
checks of the subscribers (the "Escrowed Property") delivered in payment for
Shares. Any checks delivered to the Escrow Agent pursuant to the terms hereof
shall be made payable to or endorsed to the order of the Escrow Agent. Such
checks must be (a) delivered to the Escrow Agent so as to be received not later
than one (1) business day before the Closing; (b) cashiers checks; and (c)
payable in same or next day funds. The Escrow Agent upon receipt of such checks
shall present such checks for payment by the drawee-bank under such checks. Any
checks not honored by the drawee-bank thereunder after the first
<PAGE>
presentment for payment shall be returned to the Placement Agent, on behalf of
such subscriber, in the same manner notices are delivered pursuant to Section 5.
Upon receipt of funds or checks from the Placement Agent, the Escrow Agent shall
credit such funds and the amount of such checks to Account Number ________, a
First Trust of California U.S. treasury account. The Escrow Agent shall in no
event be liable for any loss resulting from any change in interest rates
applicable to proceeds invested pursuant to this Section 2. Interest on
proceeds invested pursuant to this Section shall accrue from the date of
investment of such proceeds or, in the case of checks, from the date on which
such check amounts are paid by the drawee bank, until the termination of such
investment pursuant to the terms hereof and shall be paid as set forth in
Section 4.
3. LIST OF SUBSCRIBERS. The Placement Agent shall furnish or cause to be
furnished to the Escrow Agent, at the time of each deposit of funds or checks
pursuant to Section 2, a list, substantially in the form of Exhibit B hereto,
containing the name of, the address of, the number of Shares subscribed for by,
the subscription amount delivered to the Escrow Agent on behalf of, and the
social security or taxpayer identification number, if applicable, of each
subscriber whose funds are being deposited, and to which is attached a
completed W-9 form (or, in the case of any subscriber who is not a United States
citizen or resident, a W-8 form) for each listed subscriber. The Escrow Agent
shall notify the Placement Agent and the Company of any discrepancy between the
subscription amounts set forth on any list delivered pursuant to this Section 3
and the subscription amounts received by the Escrow Agent. The Escrow Agent is
authorized to revise such list to reflect the actual subscription amounts
received and the release of any subscription amounts pursuant to Section 4;
provided, however, that the Escrow Agent must notify the Placement Agent and the
Company prior to making any such revisions.
4. WITHDRAWAL OF SUBSCRIPTION AMOUNTS. (a) If the Escrow Agent shall
receive a notice, substantially in the form of Exhibit C hereto (an "Offering
Termination Notice"), from the Company or the Placement Agent, the Escrow Agent
shall (i) promptly after receipt of such Offering Termination Notice and the
clearance of all checks received by the Escrow Agent as Escrowed Property,
liquidate any investments that shall have been made pursuant to Section 2 and
send to each subscriber listed on the list held by the Escrow Agent pursuant to
Section 3 whose total subscription amount shall not have been released pursuant
to paragraph (b) or (c) of this Section 4, in the manner set forth in
paragraph (e) of this Section 4, a check to the order of such subscriber in the
remaining subscription amount held by the Escrow Agent as set forth on such list
held by the Escrow Agent, and (ii) promptly after the fourth business day of the
month immediately following the month in which the investments made pursuant to
Section 2 were terminated pursuant to this paragraph, send, in the manner set
forth in paragraph (e) of this Section 4, a check to the order of each such
subscriber for the interest and other income earned and not yet paid with
respect to any investment of such subscriber's funds. The Escrow Agent shall
notify the Company and the Placement Agent of the distribution of such funds to
the subscribers.
(b) In the event that (i) the Shares have been subscribed for on or
before the Final Closing Date and (ii) no Offering Termination Notice shall have
been delivered to the Escrow Agent, the Company and the Placement Agent shall
deliver to the Escrow Agent a joint notice, substantially in the form of
Exhibit D hereto (a "Closing Notice"), designating the date on which Shares are
to be sold and delivered to the subscribers thereof (the "Closing Date"), which
date shall not be earlier than the receipt of any checks received by the Escrow
Agent as Escrowed Property, the proceeds of which are to be
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distributed on such Closing Date, and identifying the subscribers and the number
of Shares to be sold to each thereon on such Closing Date, not less than one (1)
nor more than three (3) business days prior to such Closing Date. The Escrow
Agent, after receipt of such Closing Notice, and the Escrowed Property:
(i) on or prior to the Closing Date identified in such
Closing Notice, shall liquidate any investments that shall have been made
pursuant to Section 2 to the extent of the subscription amount to be
distributed pursuant to the immediately succeeding clause (ii);
(ii) on such Closing Date, pay to the Company and the
Placement Agent, in federal or other immediately available funds and
otherwise in the manner and amounts specified by the Company in such
Closing Notice, an amount equal to the aggregate of the subscription
amounts paid by the subscribers identified in such Closing Notice for the
Shares to be sold on such Closing Date as set forth on the list held by the
Escrow Agent pursuant to Section 3; and
(iii) promptly after the fourth business day of the month
immediately following the month in which the investments made pursuant to
Section 2 were terminated pursuant to such Closing Notice, shall send, in
the manner set forth in paragraph (e) of this Section 4, a check to the
order of the Company in the amount of interest and other income earned and
not yet paid with respect to any investment of the Escrowed Property
distributed on such Closing Date.
(c) If at any time and from time to time prior to the release of any
subscriber's total subscription amount pursuant to paragraph (a) or (b) of this
Section 4 from escrow, the Company shall deliver to the Escrow Agent a notice,
substantially in the form of Exhibit E hereto (a "Subscription Termination
Notice"), to the effect that any or all of the subscription of such subscribers
have been rejected by the Company (a "Rejected Subscription"), the Escrow Agent
(i) promptly after receipt of such Subscription Termination Notice and, if such
subscriber delivered a check in payment of its Rejected Subscription, after the
clearance of such check, shall liquidate, to the extent of the sum of such
subscriber's Rejected Subscription amount as set forth in the Subscription
Termination Notice, any investments that shall have been made pursuant to
Section 2 and send to such subscriber, in the manner set forth in paragraph (e)
of this Section 4, a check to the order of such subscriber in the amount of such
Rejected Subscription amount, and (ii) promptly after the fourth business day of
the month immediately following the month in which the investments made pursuant
to Section 2 were terminated pursuant to this paragraph shall send to such
subscriber, in the manner set forth in paragraph (e) of this Section 4, a check
to the order of such subscriber in the amount of interest and other income
earned and not yet paid with respect to any investment of such subscriber's
Rejected Subscription amount. At the time of such transfer, the Escrow Agent
shall identify in writing to the Company and the Placement Agent the amount of
the interest earned for the account of each subscriber and the date such
subscription was received.
(d) On a date following the transfer of any interest earned for the
account of each subscriber pursuant to Section 4(a) or (c), but not later than
January 31, 1997, the Escrow Agent shall provide each subscriber with tax form
1099 setting forth the amount of such interest.
-3-
<PAGE>
(e) For the purpose of this Section 4, any check that the Escrow
Agent shall be required to send to any subscriber shall be sent to such
subscriber by first class mail, postage prepaid, at such subscriber's address
furnished to the Escrow Agent pursuant to Section 3.
5. NOTICES. Except for any Offering Termination Notice or any Closing
Notice, which may be delivered by facsimile transmission, any notice or other
communication required or permitted to be given hereunder shall be in writing
and shall be (a) delivered by hand or (b) sent by mail, registered or certified,
with proper postage prepaid, and addressed as follows:
If to the Company, to:
Shaman Pharmaceuticals, Inc.
213 East Grand Avenue
South San Francisco, California 94080
Attention: Lisa A. Conte
with a copy to:
Brobeck Phleger & Harrison
2200 Geng Road
Two Embarcadero Place
Palo Alto, California 94303
Attention: Stephan Dolezalek
if to the Placement Agent, to:
Hambrecht & Quist LLC
230 Park Avenue
New York, New York 10169
Attention: Mr. Dennis Purcell
with a copy to:
Wilson, Sonsini, Goodrich & Rosati, Professional Corporation
650 Page Mill Road
Palo Alto, California 94304-1050
Attention: Thomas C. Klein, Esq.
-4-
<PAGE>
If to the Escrow Agent, to:
First Trust of California
1 California Street
4th Floor
San Francisco, CA 94111
Attn: Anne Gatsby
(415) 273-4532 (facsimile)
or to such other address as the person to whom notice is to be given may have
previously furnished to the others in the above-referenced manner. All such
notices and communications, if mailed, shall be effective when deposited in the
mails, except that notices and communications to the Escrow Agent and notices of
changes of address shall not be effective until received. Originals of any
Offering Termination Notice or any Closing Notice sent via facsimile
transmission must also be sent to the Escrow Agent by first class mail, postage
prepaid.
6. CONCERNING THE ESCROW AGENT. To induce the Escrow Agent to act
hereunder, it is further agreed by the Company and the Placement Agent that:
(a) The Escrow Agent shall not be under any duty to give the Escrowed
Property held by it hereunder any greater degree of care than it gives its own
similar property and shall not be required to invest any funds held hereunder
except as directed in this Escrow Agreement. Uninvested funds held hereunder
shall not earn or accrue interest.
(b) This Escrow Agreement expressly sets forth all the duties of the
Escrow Agent with respect to any and all matters pertinent hereto. No implied
duties or obligations shall be read into this Escrow Agreement against the
Escrow Agent. The Escrow Agent shall not be bound by the provisions of any
agreement among the other parties hereto except this Escrow Agreement.
(c) The Escrow Agent shall not be liable, except for its own
negligence or willful misconduct, and, except with respect to claims based upon
such negligence or wilful misconduct that are successfully asserted against the
Escrow Agent, and the other parties hereto shall jointly and severally indemnify
and hold harmless the Escrow Agent (and any successor Escrow Agent) from and
against any and all losses, liabilities, claims, actions, damages and expenses,
including reasonable attorneys' fees and disbursements, arising out of and in
connection with this Escrow Agreement. Without limiting the foregoing, the
Escrow Agent shall in no event be liable in connection with its investment or
reinvestment of any cash held by it hereunder in good faith, in accordance with
the terms hereof, including without limitation any liability for any delays (not
resulting from gross negligence or willful misconduct) in the investment or
reinvestment of the Escrowed Property, or any loss of interest incident to any
such delays.
(d) The Escrow Agent shall be entitled to rely upon any order,
judgment, certification, demand, notice, instrument or other writing delivered
to it hereunder without being required to determine the authenticity or the
correctness of any fact stated therein or the proprietary or validity of the
service thereof. The Escrow Agent may act in reliance upon an instrument or
signature believed by it in good
-5-
<PAGE>
faith to be genuine and may assume, if in good faith, that any person purporting
to give notice or receipt or advice or make any statement or execute any
document in connection with the provisions hereof has been duly authorized to do
so.
(e) The Escrow Agent may act pursuant to the advice of counsel with
respect to any matter relating to this Escrow Agreement and shall not be liable
for any action taken or omitted in good faith and in accordance with such
advice.
(f) The Escrow Agent does not have any interest in the Escrowed
Property deposited hereunder but is serving as escrow holder only. Any payments
of income from the Escrow Account shall be subject to withholding regulations
then in force with respect to United States taxes. The parties hereto will
provide the Escrow Agent with appropriate W-9 forms for tax I.D., number
certification, or non-resident alien certifications.
This paragraph (f) and paragraph (c) of this Section 6 shall survive
notwithstanding any termination of this Escrow Agreement or the resignation of
the Escrow Agent.
(g) The Escrow Agent makes no representation as to the validity,
value, genuineness or the collectibility of any security or other document or
instrument held by or delivered to it.
(h) The Escrow Agent shall not be called upon to advise any party as
to the wisdom of selling or retaining or taking or refraining from any action
with respect to any securities or other property deposited hereunder.
(i) The Escrow Agent (and any successor escrow agent) at any time may
be discharged from its duties and obligations hereunder by the delivery to it of
notice of termination signed by both the Company and the Placement Agent or at
anytime may resign by giving written notice to such effect to the Company and
the Placement Agent. Upon any such termination or resignation, the Escrow Agent
shall deliver the Escrowed Property to any successor escrow agent jointly
designated by the other parties hereto in writing, or to any court of competent
jurisdiction if no such successor escrow agent is agreed upon, whereupon the
Escrow Agent shall be discharged of and from any and all further obligations
arising in connection with this Escrow Agreement. The termination or
resignation of the Escrow Agent shall take effect on the earlier of (i) the
appointment of a successor (including a court of competent jurisdiction) or
(ii) the day that is 30 days after the date of delivery (A) to the Escrow Agent
of the other parties' notice of termination or (B) to the other parties hereto
of the Escrow Agent's written notice of resignation. If at that time the Escrow
Agent has not received a designation of a successor escrow agent, the Escrow
Agent's sole responsibility after that time shall be to keep the Escrowed
Property safe until receipt of a designation of successor escrow agent or a
joint written disposition instruction by the other parties hereto or any
enforceable order of a court of competent jurisdiction.
(j) The Escrow Agent shall have no responsibility for the contents of
any writing of any third party contemplated herein as a means to resolve
disputes and may rely without any liability upon the contents thereof.
-6-
<PAGE>
(k) In the event of any disagreement among or between the other
parties hereto and/or the subscribers of the Shares resulting in adverse claims
or demands being made in connection with the Escrowed Property, or in the event
that the Escrow Agent in good faith is in doubt as to what action it should take
hereunder, the Escrow Agent shall be entitled to retain the Escrowed Property
until the Escrow Agent shall have received (i) a final and non-appealable order
of a court of competent jurisdiction directing delivery of the Escrowed Property
or (ii) a written agreement executed by the other parties hereto and consented
to by the subscribers directing delivery of the Escrowed Property, in which
event the Escrow Agent shall disburse the Escrowed Property in accordance with
such order or agreement. Any court order referred to in (i) above shall be
accompanied by a legal opinion by counsel for the presenting party satisfactory
to the Escrow Agent to the effect that said court order is final and
non-appealable. The Escrow Agent shall act on such court order and legal
opinion without further question.
(l) As consideration for its agreement to act as Escrow Agent as
herein described, the Company agrees to pay the Escrow Agent fees determined in
accordance with the terms set forth on Exhibit A hereto (made a part of this
Escrow Agreement as if herein set forth). In addition, the Company agrees to
reimburse the Escrow Agent for all reasonable expenses, disbursements and
advances incurred or made by the Escrow Agent in performance of its duties
hereunder (including reasonable fees, expenses and disbursements of its
counsel).
(m) The other parties hereto irrevocably (i) submit to the
jurisdiction of any California or federal court sitting in California in any
action or proceeding arising out of or relating to this Escrow Agreement,
(ii) agree that all claims with respect to such action or proceeding shall be
heard and determined in California or federal court and (iii) waive, to the
fullest extent possible, the defense of an inconvenient forum. The other
parties hereby consent to and grant any such court jurisdiction over the persons
of such parties and over the subject matter of any such dispute and agree that
delivery or mailing of process or other papers in connection with any such
action or proceeding in the manner provided hereinabove, or in such other manner
as may be permitted by law, shall be valid and sufficient service thereof.
(n) Except for this Escrow Agreement, no printed or other matter in
any language (including, without limitation, the Registration Statement,
notices, reports and promotional material) which mentions the Escrow Agent's
name or the rights, powers, or duties of the Escrow Agent shall be issued by the
other parties hereto or on such parties' behalf unless the Escrow Agent shall
first have given its specific written consent thereto. The Escrow Agent hereby
consents to the use of its name and the reference to the escrow arrangement in
the Registration Statement and Prospectus.
7. MISCELLANEOUS.
(a) This Escrow Agreement shall be binding upon and inure solely to
the benefit of the parties hereto and their respective successors and assigns,
heirs, administrators and representatives, and the subscribers of the Shares and
shall not be enforceable by or inure to the benefit of any other third party
except as provided in paragraph (i) of Section 6 with respect to the termination
of, or resignation by, the Escrow Agent. No party may assign any of its rights
or obligations under this Escrow Agreement without the prior written consent of
the other parties.
-7-
<PAGE>
(b) This Escrow Agreement shall be construed in accordance with and
governed by the internal law of the State of California (without reference to
its rules as to conflicts of law).
(c) This Escrow Agreement may only be modified by a writing signed by
all of the parties hereto and consented to by the subscribers of the Shares
adversely affected by such modifications. No waiver hereunder shall be
effective unless in a writing signed by the party to be charged.
(d) This Escrow Agreement shall terminate upon the payment pursuant
to Section 4 of all amounts held in the Escrow Account.
(e) The section headings herein are for convenience only and shall
not affect the construction thereof. Unless otherwise indicated, references to
Sections are to Sections contained herein.
(f) This Escrow Agreement may be executed in one or more counterparts
but all such separate counterparts shall constitute but one and the same
instrument; provided that, although executed in counterparts, the executed
signature pages of each such counterpart may be affixed to a single copy of this
Agreement which shall constitute an original.
-8-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Escrow Agreement to
be executed as of the day and year first above written.
FIRST TRUST OF CALIFORNIA SHAMAN PHARMACEUTICALS, INC.
By: By:
-------------------------------- ------------------------------------
Name: Name: Lisa A. Conte
Title: Title: President and Chief
Executive Officer
HAMBRECHT & QUIST LLC
By:
------------------------------------
Name:
Title:
-9-
<PAGE>
EXHIBIT A
FIRST TRUST OF CALIFORNIA
ESCROW AGENT FOR
SHAMAN PHARMACEUTICALS, INC.
TRUST #_______________
FEE SCHEDULE
<PAGE>
EXHIBIT B
SUMMARY OF CASH RECEIVED
NEW PARTICIPANT DEPOSIT
Deposit Date: Date:
Investment Date: ------------------------
Batch Number: List Number:
-----------------
Page of
---- ----------------
Approved By:
-----------------
For Bank use only JOB#:
------------------------
TITLE:
-----------------------------
- --------------------------------------------------------------------------------
AMOUNT OF TAX ID NO./ SOC. FOR BANK USE
NAME DEPOSIT SHARES ADDRESS SEC. NO. ONLY
- --------------------------------------------------------------------------------
TAX CODE
EXEMPT (Y/N)
W-91
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
B-1
<PAGE>
EXHIBIT C
[FORM OF OFFERING TERMINATION NOTICE]
First Trust of California
- ---------------------
- ---------------------
Attention: Anne Gatsby
Dear Ms. Bautista:
Pursuant to Section 4(a) of the Escrow Agreement dated as of January __,
1997 (the "Escrow Agreement") among Shaman Pharmaceuticals, Inc., a Delaware
corporation (the "Company"), Hambrecht & Quist LLC and you, the Company hereby
notifies you of the termination of the offering of the Shares (as that term is
defined in the Escrow Agreement) and directs you to make payments to subscribers
as provided for in Section 4(a) of the Escrow Agreement.
Very truly yours,
SHAMAN PHARMACEUTICALS, INC.
By:
-----------------------------------------
Name:
Title:
HAMBRECHT & QUIST
By:
-----------------------------------------
Name:
Title:
C-1
<PAGE>
EXHIBIT D
[FORM OF CLOSING NOTICE]
First Trust of California
- -------------------------
- -------------------------
Attention: Anne Gatsby
Dear Ms. Gatsby:
Pursuant to Section 4(b) of the Escrow Agreement dated as of January __,
1997 (the "Escrow Agreement"), among Shaman Pharmaceuticals, Inc., a Delaware
corporation (the "Company"), Hambrecht & Quist LLC and you, the Company hereby
certifies that it has received subscriptions for the Shares (as that term is
defined in the Escrow Agreement) and the Company will sell and deliver Shares to
the subscribers thereof at a closing to be held on January __, 1997 (the
"Closing Date").
Please accept these instructions as standing instructions for the closing
to be held on the Closing Date. The parties hereto certify that they do not
wish to have a call back regarding these instructions.
We hereby request that the aggregate subscription amount be paid to the
Placement Agent and us as follows:
1. To the Company, $__________; and
2. To Hambrecht & Quist LLC, $__________.
D-1
<PAGE>
These instructions may be executed in any number of counterparts, each of
which shall be deemed to be an original, and all of which together shall
constitute one and the same instrument.
Very truly yours,
SHAMAN PHARMACEUTICALS, INC.
By:
-----------------------------------------
Name:
Title:
HAMBRECHT & QUIST LLC
By:
-----------------------------------------
Name:
Title:
D-2
<PAGE>
EXHIBIT E
[FORM OF SUBSCRIPTION TERMINATION NOTICE]
First Trust of California
- -------------------------
- -------------------------
Attention: Anne Gatsby
Dear Ms. Gatsby:
Pursuant to Section 4(c) of the Escrow Agreement dated as of
January __1997(the "Escrow Agreement") among Shaman Pharmaceuticals, Inc., a
Delaware corporation (the "Company"), Hambrecht & Quist LLC and you, the Company
hereby notifies you that the following subscription(s) have been rejected:
Amount of Dollar
Subscribed Amount of
Name of Shares Rejected
Subscriber Rejected Subscription
---------- ------------ ------------
Very truly yours,
SHAMAN PHARMACEUTICALS, INC.
By:
-----------------------------------------
Name:
Title:
E-1
<PAGE>
SHAMAN PHARMACEUTICALS, INC.
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement (this "Agreement"), dated as of January __,
1997, is entered into by and between each of the parties who are designated as
Purchasers on the signature page to this Agreement (each, a "Purchaser" and
collectively, the "Purchasers") and Shaman Pharmaceuticals, Inc., a Delaware
corporation (the "Company").
The Company has offered to sell, and each of the Purchasers has agreed to
purchase, the number of shares of the Company's Common Stock, $.001 par value
each, set forth opposite their names on Schedule I attached hereto (the
"Shares") pursuant to a prospectus dated January __, 1997 (the "Prospectus").
In connection therewith, the Company and each of the Purchasers, severally and
not jointly, hereby agree as follows:
1. PURCHASE AND SALE OF SHARES. Subject to the terms set forth herein,
the Company agrees to sell the Shares to the Purchasers at a purchase price of
$____ per share (the "Purchase Price") and to deliver such Shares on the Closing
Date (as hereinafter defined), and upon the basis of the representations and
warranties, and subject to the terms set forth herein, each of the Purchasers
agrees, severally and not jointly, to purchase the number of Shares set forth
opposite its name on Schedule I attached hereto from the Company for an amount
equal to the Purchase Price multiplied by such number of the Shares set forth in
Schedule I (the "Total Purchase Price").
2. CLOSING. The closing of the purchase and sale of the Shares (the
"Closing") shall take place by no later than 11:00 a.m., New York City time, on
January __, 1997, or at such other time as the Company and the Purchasers may
agree upon in writing (such time and date of the closing being referred to
herein as the "Closing Date").
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents
and warrants that the representations and warranties set forth in Section 3 of
the Placement Agency Agreement between the Company and Hambrecht & Quist LLC as
Placement Agent dated January __, 1997 are true and accurate on the date hereof,
will be true and accurate on the Closing Date and shall survive the Closing Date
and be in effect notwithstanding any investigation at any time made by or on
behalf of any Purchaser.
4. CONDITIONS TO CLOSING. The obligations of a Purchaser hereunder shall
be subject to the condition that the representations and warranties set forth in
the Placement Agency Agreement are true and accurate on the Closing Date.
5. MISCELLANEOUS.
(a) This Agreement may be executed in one or more counterparts, and
such counterparts shall constitute but one and the same agreement.
<PAGE>
(b) This Agreement shall inure to the benefit of and be binding upon
the signatories hereto and no other person shall have any right or obligation
hereunder. This may not be assigned by either party hereto.
(c) This Agreement, together with the schedules hereto, constitutes
the complete agreement between the parties hereto with respect to the subject
matter hereof and may be amended only in a writing which is executed by the
Company and the Purchasers.
(d) The Company and the Purchasers agree to cooperate with each other
to deliver such additional documents and instruments and take such further
actions as shall be necessary or appropriate under and the terms of this
Agreement to effectuate the transactions contemplated hereby.
6. GOVERNING LAW. This Agreement shall be governed by the internal laws
of California.
IN WITNESS WHEREOF, the parties hereto have duly executed and delivered
this Agreement as of the date and year first above written.
, as a Purchaser
---------------
- ------------------------------
- ------------------------------
- ------------------------------
, as a Purchaser
---------------
- ------------------------------
- ------------------------------
- ------------------------------
SHAMAN PHARMACEUTICALS, INC.,
as Company
- ------------------------------
- ------------------------------
- ------------------------------
-2-
<PAGE>
[LETTERHEAD]
December 24, 1996
Shaman Pharmaceuticals, Inc.
213 East Grand Avenue
South San Francisco, CA 94080
Ladies and Gentlemen:
We have examined the Registration Statement on Form S-3 to be
filed by Shaman Pharmaceuticals, Inc. (the "Company") with the Securities and
Exchange Commission (the "Commission") on December 24, 1996, as thereafter
amended or supplemented (the "Registration Statement"), in connection with
the registration under the Securities Act of 1933, as amended, of up to
2,000,000 shares (the "Shares") of the Company's Common Stock, par value
$0.001 per share (the "Common Stock").
We have examined originals or copies of (i) the Restated
Certificate of Incorporation of the Company; (ii) the Bylaws of the Company;
(iii) certain resolutions of the Board of Directors of the Company; and (v)
such other documents and records as we have deemed necessary and relevant for
the purposes hereof. In addition, we have relied on certificates of officers
of the Company and certificates of public officials as to certain matters of
fact relating to this opinion and have made such investigations of law as we
have deemed necessary and relevant as a basis hereof.
We have assumed the genuineness of all signatures, the authenticity
of all documents, certificates and records submitted to us as originals, the
conformity to authentic original documents, certificates and records of all
such documentation submitted to us as copies and the truthfulness of all
statements of facts contained therein. Based on the foregoing and subject to
the limitations set forth herein and having due regard for such legal
considerations as we deem relevant, we are of the opinion that the Shares,
when issued and sold in the manner described in the Registration Statement,
will be validly issued, fully paid and nonassessable shares of the Common
Stock.
The foregoing opinion is based on and limited to the General
Corporation Law of the State of Delaware and the relevant federal laws of the
United States, and we express no opinion with respect to the laws of any
other jurisdiction.
<PAGE>
Shaman Pharmaceuticals, Inc. December 24, 1996
Page 2
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 in any amendment or supplement thereto.
Very truly yours,
/s/ Brobeck, Phleger & Harrison LLP
BROBECK, PHLEGER & HARRISON LLP
<PAGE>
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Selected Financial
Data" and "Experts" in the Registration Statement (Form S-3) and related
prospectus of Shaman Pharmaceuticals, Inc. for the registration of 2,000,000
shares of its common stock and to the incorporation by reference therein of our
report dated January 5, 1996, with respect to the financial statements of Shaman
Pharmaceuticals, Inc. included in its Annual Report (Form 10-K) for the year
ended December 31, 1995, filed with the Securities and Exchange Commission.
Ernst & Young LLP
December 23, 1996
Palo Alto, California
