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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 17, 1998
REGISTRATION NO. 333-49025
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 2
TO
FORM S-3
------------------------
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
SHAMAN PHARMACEUTICALS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<S> <C> <C>
DELAWARE 2834 94-3095806
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
213 EAST GRAND AVENUE
SOUTH SAN FRANCISCO, CALIFORNIA 94080
(650) 952-7070
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF THE
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
LISA A. CONTE
PRESIDENT, CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER
SHAMAN PHARMACEUTICALS, INC.
213 EAST GRAND AVENUE
SOUTH SAN FRANCISCO, CALIFORNIA 94080
(650) 952-7070
(NAME AND ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA
CODE, OF AGENT FOR SERVICE)
COPIES TO:
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J. STEPHAN DOLEZALEK, ESQ BRIAN W. PUSCH, ESQ.
TIMOTHY R. CURRY, ESQ. LAW OFFICES OF BRIAN W PUSCH
BROBECK, PHLEGER & HARRISON LLP PENTHOUSE SUITE
TWO EMBARCADERO PLACE, 2200 GENG ROAD 29 WEST 57TH STREET
PALO ALTO, CA 94301 NEW YORK, NY 10019
(650) 424-0160 (212) 980-0408
</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. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE(2) OFFERING PRICE(1) REGISTRATION FEE(3)
- - ----------------------------------------------------------------------------------------------------------------------
Common Stock, $0.001 par value
per share................... 2,412,000 shares $4.5625 $11,004,750 $3,192
======================================================================================================================
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(1) REPRESENTS (I) SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF WARRANTS TO
PURCHASE SHARES OF COMMON STOCK AND UPON CONVERSION OF SHARES OF PREFERRED
STOCK AND (II) AN INDETERMINATE NUMBER OF ADDITIONAL SHARES OF COMMON STOCK
AS MAY FROM TIME TO TIME BECOME ISSUABLE UPON EXERCISE OF SUCH WARRANTS AND
UPON CONVERSION OF SUCH PREFERRED STOCK BY REASON OF STOCK SPLITS, STOCK
DIVIDENDS AND OTHER SIMILAR TRANSACTIONS, WHICH SHARES ARE REGISTERED
HEREUNDER PURSUANT TO RULE 416 UNDER THE SECURITIES ACT.
(2) THE PRICE OF $4.5625 PER SHARE, WHICH WAS THE AVERAGE OF THE HIGH AND LOW
BID PRICES OF THE COMMON STOCK REPORTED BY THE NASDAQ STOCK MARKET ON JUNE
12, 1998, 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.
(3) INCLUDES A FEE OF $201 PREVIOUSLY PAID AND $2,991 PAID PURSUANT TO THIS
AMENDMENT NO. 2.
------------------------
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.
================================================================================
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
PROSPECTUS (SUBJECT TO COMPLETION)
DATED JUNE , 1998
2,412,000 SHARES
SHAMAN PHARMACEUTICALS, INC.
COMMON STOCK
------------------------
This Prospectus relates to the offer and sale by certain persons listed
herein under "Selling Stockholders" (collectively, the "Selling Stockholders")
of (i) up to 2,412,000 shares (the "Shares") of Common Stock, par value $0.001
per share (the "Common Stock"), of Shaman Pharmaceuticals, Inc. (the "Company"),
which consist of (a) 137,500 shares that may be issued from time to time to the
Selling Stockholders upon exercise of Common Stock Purchase Warrants issued by
the Company on March 18, 1998 (the "March Warrants"), (b) 350,000 shares that
may be issued from time to time to the Selling Stockholders upon exercise of
Common Stock Purchase Warrants to be issued by the Company in June 1998 (the
"June Warrants" and collectively with the March Warrants, the "Warrants") and
(c) up to an aggregate of 1,942,500 shares that may be issued from time to time
to the Selling Stockholders upon conversion of an aggregate of 7,000 shares of
the Company's Series B Custom Convertible Preferred Stock (the "Series B
Preferred") and (ii) in accordance with Rule 416 under the Securities Act of
1933, as amended (the "Securities Act"), an indeterminate number of additional
shares of Common Stock as may from time to time become exercisable upon exercise
of the Warrants and conversion of the Series B Preferred pursuant to the
respective terms thereof. The March Warrants are exercisable for a period of
three years after the date of issuance at an exercise price of $7.50 per share.
The June Warrants are exercisable for a period of five years after the date of
issuance at an exercise price per share equal to 115% of the average trading
price of the Common Stock during specified measurement periods. The Warrants
provide for adjustment of the number of shares of Common Stock issuable upon
exercise thereof in certain circumstances. All of the Shares may be offered
pursuant to this Prospectus by the Selling Stockholders or by pledgees, donees,
transferees or other successors in interest that receive such shares as a gift,
partnership distribution or other non-sale related transfer. The Warrants and
the Series B Preferred, and the Common Stock issuable upon exercise and
conversion, respectively, thereof, have been and will be issued in transactions
exempt from the registration requirements of the Securities Act pursuant to
Section 4(2) thereof. See "Recent Developments," "Selling Stockholders" and
"Plan of Distribution." The Shares are being registered by the Company pursuant
to registration rights granted to the Selling Stockholders.
The Selling Stockholders have not advised the Company of any specific plans
for the distribution of the Shares covered by this Prospectus. It is
anticipated, however, that the Shares will be offered and sold by the Selling
Stockholders from time to time in transactions on The Nasdaq National Market or
other securities market on which the Common Stock is listed, in privately
negotiated transactions, or by a combination of such methods of sale, at such
fixed prices as may be negotiated from time to time, at market prices prevailing
at the time of sale, at prices related to such prevailing market prices or at
negotiated prices. The Selling Stockholders may effect such transactions by
selling the Shares to or through broker-dealers and such broker-dealers may
receive compensation in the form of discounts, concessions or commissions from
the Selling Stockholders or the purchasers of the Shares for whom such
broker-dealers may act as agent or to whom they sell as principal or both (which
compensation to a particular broker-dealer might be in excess of customary
commissions). See "Plan of Distribution."
The Company will not receive any of the proceeds from the sale of the
Shares by the Selling Stockholders. The Company has agreed to bear certain
expenses in connection with the registration of the Shares being offered by the
Selling Stockholders. The Company has agreed to indemnify the Selling
Stockholders against certain liabilities, including liabilities under the
Securities Act.
The Common Stock of the Company is traded on The Nasdaq National Market
tier of The Nasdaq Stock Market under the symbol "SHMN." On June 12, 1998, the
last sale price for the Common Stock as quoted on The Nasdaq National Market was
$4.50 per share.
------------------------
The Selling Stockholders and any broker-dealers or agents that participate
with the Selling Stockholders in the distribution of the Shares may be deemed to
be "underwriters" within the meaning of Section 2(11) of the Securities Act, and
any commissions received by them and any profit on the resale of the Shares
purchased by them may be deemed to be underwriting commissions or discounts
under the Securities Act. See "Plan of Distribution" herein for a description of
agreements by the Company to indemnify the Selling Stockholders against certain
liabilities.
------------------------
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 6.
------------------------
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.
------------------------
The date of this Prospectus is June , 1998
<PAGE> 3
No dealer, salesperson or other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus and, if given or made, such information or representations must not
be relied upon as having been authorized by the Company, any Selling
Stockholders or by any other person. 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.
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, 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 Securities
Exchange Act of 1934, as amended (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.
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:
(a) the Company's Annual Report on Form 10-K for the year ended December 31,
1997, filed with the Commission on March 4, 1998 and amended on each of May 7,
1998, May 11, 1998 and May 28, 1998; (b) the Company's Definitive Proxy
Statement dated April 15, 1998, filed in connection with the Company's 1998
Annual Meeting of Stockholders; (c) the Company's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1998, filed with the Commission on May 15, 1998
and amended on May 28, 1998 and (d) 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.
2
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All reports and other documents subsequently filed by the Company pursuant
to Sections 13(a), 13(c), 14 or 15(d) of 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 Pharmaceuticals, Inc., 213 East Grand Avenue, South
San Francisco, California 94080-4812, telephone (650) 952-7070, facsimile (650)
873-8367, Attn: Vice President, Corporate Communications.
------------------------
Provir(TM) and the Company's stylized logo are trademarks of the Company.
Shaman Pharmaceuticals(R) and Virend(R) are registered U.S. trademarks of the
Company.
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3
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THE COMPANY
The following information 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."
Shaman discovers and develops 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 underway for its three lead
product candidates: Provir, nikkomycin Z, and SP-134101. Shaman has completed
Phase II trials showing efficacy for Provir for the treatment of AIDS-associated
and watery diarrhea. In the first quarter of 1998, Provir is scheduled to enter
a pivotal Phase III trial for the treatment of diarrhea in patients with AIDS.
This single study, upon completion, is intended to serve as the basis for the
submission of a New Drug Application ("NDA") with the U.S. Food and Drug
Administration ("FDA"). With success, Provir for diarrhea in patients with AIDS
will become the first product commercialized by Shaman. Two additional
dose-optimizing Phase II trials for Provir in watery diarrhea commenced in 1997.
These trials are intended to be completed in the first half of 1998 and, if
successful, will lead to Phase III trials.
Nikkomycin Z, an orally-active product for the treatment of endemic mycoses
and other systemic fungal infections, completed a Phase I trial in the UK in
1997, and the Company filed an Investigational New Drug application ("IND") in
the United States in December 1997. The Company intends to continue multi-dose
Phase I testing of this compound.
Shaman's research and preclinical development is principally focused on the
identification and optimization of compounds to treat Type II (adult onset or
non-insulin dependent) diabetes, an effort that has led to the identification of
21 chemically distinct, orally-active compounds which have demonstrated glucose
lowering effects in preclinical animal testing. In October 1997, Shaman filed an
IND for SP-134101, an oral product for the treatment of Type II diabetes. This
first product to emerge from the diabetes discovery program entered clinical
trials in January 1998. Significant funding for this program has been and is
being provided through a collaboration with Lipha, s.a., a wholly-owned
subsidiary of Merck KGaA, Darmstadt, Germany ("Lipha/ Merck"), and has been
provided through a collaboration with Ono Pharmaceutical Co., Ltd. ("Ono"). Both
Lipha/Merck and Ono will pay milestone payments on any resulting products they
develop.
RECENT DEVELOPMENTS
Of the 2,412,000 Shares being registered, 137,500 represent shares
underlying the March Warrants, which were issued in connection with an Amendment
Agreement dated March 18, 1998 (the "Amendment Agreement") to the several Note
Purchase Agreements dated as of June 30, 1997 between the Company and certain of
the Selling Stockholders (the "Purchase Agreements"). Pursuant to the Purchase
Agreements, the Company issued $10,400,000 in Senior Subordinated Notes due
August 29, 2000 (the "Notes") and bearing interest at a rate of 5.5% per annum.
Interest on the Notes, which is payable in arrears on the first day of each
November, February, May and August, may be paid in Common Stock or in cash at
the Company's option. Under the original terms of the Purchase Agreements, the
Notes are convertible into Common Stock of the Company as follows: (i) until
November 5, 1997 (the "Fixed Conversion Period"), the Notes were convertible at
the lowest trading price of the Common Stock during a specified measurement
period prior to each conversion, but in no event less than $5.50 per share, (ii)
thereafter the Notes are convertible at 90% of such trading price during such
measurement period prior to each conversion. The maximum number of shares into
which the Notes shall become convertible in the aggregate is limited to 19.9% of
the outstanding shares of Common Stock on July 9, 1997 (3,485,887 shares), with
any excess to be redeemed by the Company. The Company has the right, exercisable
beginning January 10, 1999, to redeem the then outstanding Notes for 130% of the
then outstanding principal balance on each Note plus accrued interest.
4
<PAGE> 6
In March 1998, the Company and the purchasers of the Notes entered into the
Amendment Agreement, which extended the Fixed Conversion Period to March 31,
1998. The Amendment Agreement was entered into in order to avoid conversion of
the Notes at a price that would be unduly dilutive to the Company's existing
stockholders. As consideration for entering into the Amendment Agreement, the
Company issued to certain of the Selling Stockholders the March Warrants to
purchase an aggregate of 137,500 shares of Common Stock. The March Warrants are
exercisable through March 18, 2001 at an exercise price of $7.50 per share. The
March Warrants provide for adjustment of the number of shares of Common Stock
issuable upon exercise thereof, including upon the distribution of certain
dividends, upon the Company's reorganization, reclassification or merger, or
upon the division or combination of the Company's Common Stock.
At the date of issuance of the Notes, an allocation of a portion of the
proceeds of the Notes equal to the intrinsic value of the conversion feature
that is "in the money" was reflected as a non-cash charge to interest expense.
Such charge was reflected in the financial statements for the year ended
December 31, 1997. The Company believes this accounting treatment is consistent
with that required by the Commission.
In June 1998, the Company entered into Stock Purchase Agreements (the
"Stock Agreements") with certain of the Selling Stockholders (the "Buyers")
pursuant to which the Company acquired, subject to certain conditions, the right
to sell to the Buyers up to an aggregate of 7,000 shares of Series B Preferred
for an aggregate purchase price of $7,000,000. The Stock Agreements will become
effective upon the satisfaction of certain conditions (the "Effective Date").
The holders of the Series B Preferred are entitled to receive dividends when, as
and if declared by the Board of Directors. Each share of Series B Preferred is
convertible into that number of shares of Common Stock as is determined by
dividing the purchase price per share, plus an amount accrued thereon at the
rate of 5.5% per annum, by the applicable conversion price per share. The
conversion price is determined as follows: until 120 days after the Effective
Date, the Series B Preferred is convertible at $5.00 per share (subject to
adjustment), (ii) for any conversion effective after such initial period and
prior to three years after the issuance date of the shares of Series B Preferred
being converted, the Series B Preferred is convertible at 90% of the lowest sale
price of the Common Stock during a specified measurement period prior to each
conversion and (iii) for any conversion effected after three years from the
issuance date of the Series B Preferred being converted, the Series B Preferred
is convertible at the greater of $50.00 per share or 150% of the average trading
price of the Common Stock during a specified measurement period prior to each
conversion. The maximum number of shares into which the Series B Preferred shall
become convertible in the aggregate is limited to 19.9% of the outstanding
shares of Common Stock on the Effective Date or such greater amount as permitted
by Nasdaq or other exchange on which the Common Stock is listed. The Series B
Preferred is redeemable upon the occurrence of certain events, including (a) the
failure of the Common Stock to be listed on The Nasdaq National Market, The
Nasdaq SmallCap Market, the New York Stock Exchange or the American Stock
Exchange, (b) the completion of a merger or consolidation of the Company or
other business combination, (c) the adoption of an amendment to the Company's
charter that disproportionately, materially and adversely affects the rights of
the holders of Series B Preferred, (d) the inability of the holders of the
Series B Preferred to effect a resale of the Common Stock underlying the Series
B Preferred by reason of the Company's failure to meet its obligations under the
Securities Act or the Exchange Act or (e) the Company's breach of a material
obligation owed the holders of Series B Preferred. Should one of the events in
(a) or (b) above occur by reason of events not solely within the control of the
Company and certain other conditions are met and actions are taken to benefit
the holders of Series B Preferred, the Company may elect not to redeem any
Series B Preferred requested to be redeemed. However, any such election will
result in an adjustment to the conversion price of such Series B Preferred and
the rate of amounts accruing thereon.
As consideration for entering into the Stock Agreements, the Company will
issue to the Buyers on the Effective Date the June Warrants to purchase an
aggregate of 350,000 shares of Common Stock. The June Warrants are exercisable
for a period of five years after the effective date of issuance at an exercise
price per share equal to 115% of the average trading price of the Common Stock
during specified measurement periods. The June Warrants provide for adjustment
of the number of shares of Common Stock issuable upon exercise thereof,
including upon the distribution of certain dividends, upon the Company's
reorganization, reclassification or merger, or upon the division or combination
of the Company's Common Stock.
5
<PAGE> 7
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
contained or incorporated by reference 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 may contain 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. Many of the Company's products will
require significant additional clinical testing and investment prior to
commercialization. Products for therapeutic use in human health care 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 Provir, nikkomycin Z and SP-134101 products 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, enter into human clinical
trials, 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. Failure of any
of the Company's products to be commercialized could have a material adverse
effect on the Company's business, financial condition and results of operations.
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
and incurred an operating loss of approximately $8.5 million for the three
months ended March 31, 1998. The Company incurred an additional loss of $3.0
million in April 1998. As of April 30, 1998, the Company's accumulated deficit
was approximately $123.4 million. The Company has not generated any product
revenues and expects to incur substantial operating losses over the next several
years. All of Shaman's products and compounds are in research and development,
which require substantial expenditures of funds. 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 Shaman's 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.
Future Capital Needs; Uncertainty of Additional Funding. As of April 30,
1998, the Company had cash, cash equivalents and investment balances of
approximately $9.7 million. 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. In addition, Note Purchase Agreements entered into
by the Company in connection with the 1997 Private Placement, provide that under
certain circumstances, which include a failure to meet applicable stock market
or exchange listing
6
<PAGE> 8
requirements, the Company would be required to redeem all or some portion of the
$8.1 million principal due thereunder as of May 31, 1998, which redemption could
significantly accelerate the Company's cash expenditures and capital
requirements beyond the levels currently anticipated, and would materially and
adversely affect the Company's ability to conduct its business.
The Company will need to seek additional funding through public or private
equity or debt financings, collaborative arrangements or from other sources. If
additional funds are raised by issuing equity securities, significant dilution
to existing stockholders may result. In the event that additional funds are
obtained through collaborative agreements, such agreements may require the
Company to relinquish rights to certain of its technologies, product candidates,
products or marketing territories that the Company would otherwise seek to
develop or commercialize itself. 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, which could have a
material adverse effect on the Company's business, financial condition and
results of operations.
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 additional
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, nikkomycin Z, and SP-134101 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 product development 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,
suspended or eliminated at any time.
In addition, there can be no assurance that the Company's 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 operations. The Company's clinical trials may be delayed by many
factors, including, but not limited to: slower than anticipated patient
enrollment; difficulty in finding a sufficient number of patients fitting the
appropriate trial profile; difficulties in the acquisition of sufficient
supplies of clinical trial materials; or, failure to show efficacy in clinical
trials 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 and could have a material adverse effect on the Company's business,
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
completion and approval of trial protocols, the availability of funds for trials
and 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's ability to complete clinical trials in
a timely fashion.
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. FDA
regulations applicable to such testing can result in delay, suspension or
cancellation of such
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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. Failure of
the Company's clinical trials to demonstrate safety or efficacy in humans could
cause the delay, suspension, or termination of any product program and could
have a material adverse effect on the Company's business, financial condition
and results of operations.
Dependence on Collaborative Relationships. The Company's research and
development efforts in its diabetes program and, to a lesser extent, in its
other programs, have been dependent upon its arrangements with Lipha/Merck and
Ono and their funding for research and development efforts thereunder. As such
research funding from Ono has ended, the Company must rely on continued funding
from Lipha/Merck or milestone payments from products developed by either Ono or
Lipha/Merck, if any, or must seek new collaborations to provide further funding
for its diabetes program. There can be no assurance that any significant
revenues will ultimately be derived from such agreements.
The Company licensed the use of nikkomycin Z from Bayer AG in June 1995.
Under the terms of this licensing agreement, the Company has paid Bayer an
initial milestone payment and may be required, upon the occurrence of certain
events, to make additional milestone payments and to pay royalties on any
commercialized products derived from nikkomycin Z. The failure of the Company to
pay these milestone payments or the termination of this license agreement could
cause the Company to forfeit its rights to utilize nikkomycin Z and could have a
material adverse effect on the Company's business financial condition and
results of operations.
The Company expects to seek additional collaborative agreements to
commercialize its other product candidates and will, in particular, need to rely
on such third party arrangements to commercialize its products outside the
United States. No assurance can be given that the Company will be successful in
negotiating or entering into such agreements on terms favorable to the Company
or at all, or that any such agreement, if entered into by the Company will be
successful. A failure to successfully enter into such agreements and sell
products thereunder would have a material adverse effect on the Company's
business, financial condition and results of operations.
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. The development of competing compounds could have a
material adverse effect on the Company's business, financial condition or
results of operations.
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 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 an NDA, and (v) satisfactory completion
of an
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FDA inspection of the manufacturing facility or facilities at which the drug is
made to assess compliance with current Good Manufacturing Practices ("cGMP").
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 cGMP,
which must be followed at all times. The FDA strictly enforces cGMP requirements
through periodic unannounced inspections. There can be no assurance that 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 cGMP requirements. Additionally, the Company or its third-party manufacturer
must pass a pre-approval 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 health
care costs in the United States could result in new government regulations that
could have a material adverse effect on the Company's business. The Company is
unable to predict the likelihood of adverse governmental regulation that might
arise from future legislative or administrative action, either in the United
States or abroad.
The Company will also be subject to a variety of foreign regulations
governing clinical trials, registration and sales of its products. Regardless of
whether FDA approval is 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. Delays in the approval process or the failure to obtain such
foreign approvals would have a material adverse effect on the Company's
business, financial condition and results of operations.
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 business, 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
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Shaman's current or future products are derived, such destruction could have a
material adverse effect on the Company's business, financial condition and
results of operations.
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 cGMP 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 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 complete marketing and sales force. There can be no
assurance that the Company will be able to enter into collaborative agreements
or successfully establish a marketing and sales force.
Uncertainty Regarding Patents and Proprietary Rights; Current Legal
Proceedings 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 ("PTO") or the courts regarding the breadth of
claims allowed or the degree of protection afforded under pharmaceutical
patents. There is considerable variation between countries as to the level of
protection afforded under patents and other proprietary rights. Such differences
may expose the Company to differing risks of commercialization in each foreign
country in which it may sell products. 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
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effective filing date of these patents is prior to the effective filing date of
the Company's foreign pending patent application in Europe. Certain of the
foreign patents have been granted in jurisdictions where examination is not
rigorous. 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. 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 rendered judgment
in an Interference declared between the Company's issued patent covering its
specific proanthocyanidin polymer composition and certain claims of U.S.
application corresponding to the granted European patent of Leon Cariel and the
Institut des Substances Vegetales by Daniel Jean and Leon Cariel. Judgment was
awarded to the Company. Since the period for appeal has passed, this judgment is
now final.
Additionally, in connection with the Interference proceeding, the Company
has 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. One broad claim, in particular, of the Daniel Jean and Leon Cariel
patent application, which was not involved in the Interference proceeding and
which has been indicated to be allowable, covers a large variety of
proanthocyanidin polymers. The Company believes that this broad claim is subject
to attack as invalid in view of prior art. Based on knowledge of the Company's
specific proanthocyanidin polymer composition, the Company believes that the
manufacture, use or sale of its specific proanthocyanidin polymer composition
would not constitute infringement of this broad claim, once it issues. There can
be no assurances, however, that the Company would prevail should an action for
infringement of such claim be commenced. 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 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. All employees of the Company are bound by confidentiality agreements.
However, 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.
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.
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The Company is prosecuting its patent applications with the PTO 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, non-obviousness and enablement. The
PTO 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, non-obvious 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 PTO or such a proceeding may be declared by the
PTO. In general, in an interference proceeding, the PTO 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 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.
Year 2000 Compliance. The Company is in the process of assessing the impact
of year 2000 on its operations and systems, including those of its suppliers and
collaborators and other third parties. Management is in the process of
formalizing its assessment procedures and developing a plan to address
identified issues, if any. To date, the Company has evaluated its financial and
accounting systems and concluded that they are not and will not be materially
affected by the year 2000. The Company does not yet know the extent, if any, of
the impact of the year 2000 on its other systems and equipment or those of third
parties with which the Company does business. There can be no assurance that
third parties, such as suppliers, clinical research organizations and
collaborative parties, are using systems that are year 2000 compliant or will
address any year 2000 issues in a timely fashion, or at all. Any year 2000
compliance problems of either the Company, its suppliers, its clinical research
organizations, or its collaborative partners could have a material adverse
effect on the Company's business, operating results and financial conditions.
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 payers to contain or reduce the costs of
health care through various means. For example, in certain foreign markets, the
pricing or profitability of health care 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
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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's business, financial condition or results of operations.
In addition, in both the United States and elsewhere, sales of health care
products are dependent in part on the availability of reimbursement from third
party payers, such as government and private insurance plans. Significant
uncertainty exists as to the reimbursement status of newly approved health care
products, and third party payers 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 payers will be available or will be sufficient to allow the Company
to sell its products on a competitive or profitable 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 or industries. 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.
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 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 Effect of Delaware Law and Certain Charter and Bylaws
Provisions. Certain provisions of the Company's Certificate of Incorporation and
Bylaws may have the effect of making it more difficult for a third party to
acquire, or discouraging a third party from attempting to acquire, control of
the Company. Such provisions could limit the price that certain investors might
be willing to pay in the future for shares of the Company's Common Stock. The
Company's Board of Directors has the authority to issue up to 600,000 additional
shares of Preferred Stock and to determine the price, rights, preferences,
privileges and restrictions of those shares without any further vote or action
by the stockholders.
The rights of the holders of Common Stock will be subject to, and may be
adversely affected by, the rights of the holders of any Preferred Stock that may
be issued in the future. The issuance of Preferred Stock with voting rights,
while providing desirable flexibility in connection with possible acquisitions
and other corporate purposes, could have the effect of making it more difficult
for a third party to acquire a majority of the outstanding voting stock of the
Company. The Company has no present plans to issue shares of Preferred Stock
with voting rights. Certain provisions of Delaware law applicable to the Company
could also delay or make more difficult a merger, tender offer or proxy contest
involving the Company, including Section 203 of the Delaware General Corporation
Law, which prohibits a Delaware corporation from engaging in any business
combination with any interested stockholder for a period of three years unless
certain conditions are met.
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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, which includes acts by third parties, including
manufacturers of the Company's product candidates, 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. Certain
of the Company's development and manufacturing agreements contain insurance and
indemnification provisions pursuant to which the Company could be held
accountable for certain occurrences.
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. The
Company currently maintains directors' and officers' insurance.
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.
Dilution. Dilution may occur upon the exercise of outstanding options and
warrants, including the Warrants, and upon conversion of the Notes. Stockholders
may also suffer additional dilution if the Company exercises its right to put
additional shares of its Common Stock to Fletcher International Limited,
pursuant to its agreements with such investor, as more fully set forth in
Exhibit 10.47 to the Registration Statement, of which this Prospectus forms a
part.
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> 16
SELLING STOCKHOLDERS
The following table sets forth certain information, as of the date hereof,
with respect to the number of shares of Common Stock beneficially owned by each
of the Selling Stockholders and as adjusted to give effect to the sale of the
Shares offered hereby. The Shares are being registered to permit public
secondary trading of the Shares, and the Selling Stockholders, upon exercise of
the Warrants or conversion of the Series B Preferred Stock, may offer the Shares
for resale from time to time. See "Plan of Distribution."
The Shares being offered hereby by the Selling Stockholders may be
acquired, from time to time, upon (i) exercise of the Warrants, which were
acquired by them from the Company in private placement transactions pursuant to
the Amendment Agreement and (ii) conversion of shares of Series B Preferred,
which have been or may be acquired by them from the Company in private placement
transactions pursuant to the Stock Agreements. This Prospectus covers the resale
by the Selling Stockholders of up to 2,412,000 Shares, plus, in accordance with
Rule 416 under the Securities Act, such additional number of shares of Common
Stock as may be issued pursuant to the Warrants and the Series B Preferred
resulting from stock splits, stock dividends and similar transactions, including
fluctuations in the conversion price of the Series B Preferred. See "Recent
Developments."
Each Selling Stockholder that is party to either the Amendment Agreement or
the Stock Agreements represented to the Company that it will acquire the Shares
for investment and with no present intention of distributing the Shares except
in compliance with the registration requirements of the Securities Act or
pursuant to an exemption therefrom. In lieu of granting the Selling Stockholders
demand registration rights, the Company has filed with the Commission, under the
Securities Act, a Registration Statement on Form S-3, of which this Prospectus
forms a part, with respect to the resale of the Shares from time to time on The
Nasdaq National Market or other securities market on which the Common Stock is
listed for trading or in privately-negotiated transactions and has agreed to
prepare and file such amendments and supplements to the Registration Statement
as may be necessary to keep such Registration Statement effective until the
Shares are no longer required to be registered for the sale thereof by the
Selling Stockholders.
The Company has agreed to register a specified number of Shares for resale
by the Selling Stockholders. The Warrants and the Series B Preferred provide for
adjustment of the number of shares of Common Stock issuable upon exercise or
conversion, respectively, thereof in certain circumstances, including upon the
distribution of certain dividends, upon the Company's reorganization,
reclassification or merger, or upon the division or combination of the Company's
Common Stock. The number of Shares shown in the following table as being offered
by the Selling Stockholders does not include such presently indeterminate number
of additional shares of Common Stock as may be issuable (i) upon conversion of
the Notes or payment of interest on the Notes or upon conversion of the Series B
Preferred pursuant to the provisions of each of the foregoing regarding
determination of the applicable conversion price, including fluctions in the
conversion price of the Notes and the Series B Preferred, or (ii) pursuant to
the Warrants resulting from stock splits, stock dividends and similar
transactions, but which shares are, in accordance with Rule 416 under the
15
<PAGE> 17
Securities Act, included in the Registration Statement of which this Prospectus
forms as part. The Shares covered by this Prospectus may be offered from time to
time by the Selling Stockholders named below:
<TABLE>
<CAPTION>
OWNERSHIP
NUMBER OF AFTER OFFERING(1)
SHARES OWNED NUMBER OF -------------------
NAME AND ADDRESS OF PRIOR TO SHARES BEING NUMBER OF
SELLING STOCKHOLDERS OFFERING(1)(2) OFFERED(3) SHARES PERCENT
-------------------- -------------- ------------ --------- -------
<S> <C> <C> <C> <C>
Delta Opportunity Fund, Ltd.(4)(6)...................... 1,473,764 802,250 0 *
Nelson Partners(5)...................................... 449,801 21,950 0 *
Olympus Securities, Ltd.(5)............................. 449,801 21,950 0 *
Fisher Capital Ltd.(5).................................. 433,465 433,465 0 *
Wingate Capital Ltd.(5)................................. 233,629 233,629 0 *
CCG Capital Ltd.(5)..................................... 45,491 45,491 0 *
CCG Investment Fund Ltd.(5)............................. 45,491 45,491 0 *
Omicron Partners, L.P................................... 1,124,081 788,863 0 *
OTATO Limited Partnership(6)............................ 132,201 8,105 0 *
Overbrook Fund I, LLC(6)(7)............................. 88,031 5,403 0 *
Diaz & Altschul Group, LLC(4)(6)........................ 80,122 5,403 0 *
--------- --------- -- --
Total.......................................... 4,555,877 2,412,000 0 *
</TABLE>
- - ---------------
* Less than one percent.
(1) Percentage of beneficial ownership is calculated assuming 18,412,108 shares
of Common Stock were outstanding as of June 12, 1998. Ownership after this
Offering assumes the sale of all shares held by such Selling Stockholders
that were registered pursuant to and included in that certain Registration
Statement on Form S-3 (Registration No. 333-31843) and all Shares offered
hereby. Beneficial ownership is determined in accordance with the rules of
the Commission and footnote (2) to this table, 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 June 12, 1998, 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. Pursuant to the terms of the Notes, the Series B Preferred
and the Warrants, no Selling Stockholder can convert or exercise any portion
of such Selling Stockholder's Notes, Series B Preferred or Warrants if such
conversion or exercise would increase such Selling Stockholder's beneficial
ownership of the Common Stock (other than shares so owned through ownership
of the Notes, Series B Preferred and Warrants) to an amount in excess of
4.9% of the outstanding Common Stock. Except as indicated in the footnotes
to this table, the persons named in the table have sole voting and
investment power with respect to all shares of Common Stock beneficially
owned.
(2) Represents (i) the number of shares held directly by such Selling
Stockholder, (ii) the number of shares of Common Stock issuable upon
conversion of the Notes calculated using an assumed conversion price of
$3.9375 with respect to the face value of the Notes, based upon certain
conversion provisions of the Notes (which price fluctuates from time to time
based on changes in the market price of the Common Stock), (iii) the number
of shares of Common Stock issuable upon exercise of the Warrants and (iv)
the number of shares of Common Stock issuable upon conversion of all 7,000
shares of Series B Preferred, assuming the Company exercises its right to
require the Buyers to purchase such shares of Series B Preferred, calculated
using an assumed conversion price of $3.9375, based upon certain conversion
provisions of the Series B Preferred (commencing 121 days after the
Effective Date, the actual conversion price will fluctuate from time to time
based on changes in the market price of the Common Stock). Does not include
(a) up to 315,000 shares of Common Stock which may be issued and paid in
lieu of cash, at the Company's option, as interest on the Notes or (b) such
presently indeterminate number of additional shares as may be issuable upon
conversion of the Notes and the Series B Preferred or payment of interest on
the Notes, based upon fluctuations in the conversion price of the Notes and
the Series B Preferred.
(3) Represents the number of shares of Common Stock issuable upon exercise of
the Warrants and conversion of the Series B Preferred.
16
<PAGE> 18
(4) Diaz & Altschul Advisors, LLC, a New York limited liability company ("D&A
Advisors"), serves as investment advisor to Delta Opportunity Fund, Ltd.
("Delta"), and may be deemed to share beneficial ownership of the Shares
beneficially owned by Delta by reason of shared power to dispose of the
Shares beneficially owned by Delta. D&A Advisors is controlled by Diaz &
Altschul Group, LLC ("D&A Group"). D&A Advisors and D&A Group disclaim
beneficial ownership of the Shares beneficially owned by Delta.
(5) Citadel Limited Partnership is the managing general partner of Nelson
Partners ("Nelson"), and the trading manager of each of Olympus Securities,
Ltd., Fisher Capital Ltd., Wingate Capital Ltd., CCG Capital Ltd. and CCG
Investment Fund Ltd. (collectively, the "Citadel Entities") and consequently
has voting control and investment discretion over securities held by the
Citadel Entities. The ownership information for each of the Citadel Entities
does not include the ownership information for the other Citadel Entities.
Citadel Limited Partnership and each of the Citadel Entities disclaims
beneficial ownership of the Shares held by the other Citadel Entities.
(6) An affiliate of OTATO Limited Partnership serves as a trading consultant to
Delta, Overbrook Fund I, LLC ("Overbrook") and D&A Group and may be deemed
to share beneficial ownership of the Shares beneficially owned by such
Selling Stockholders by reason of shared power to dispose of the Shares
beneficially owned by such Selling Stockholders. Such affiliate disclaims
beneficial ownership of such Shares.
(7) Mr. Arthur G. Altschul, Jr., a managing member of D&A Group, also serves as
the managing member of Overbrook. Mr. Altschul may be deemed to share
beneficial ownership of all Shares beneficially owned by Overbrook by reason
of the power to dispose of the Shares beneficially owned by Overbrook. Mr.
Altschul disclaims such beneficial ownership.
17
<PAGE> 19
PLAN OF DISTRIBUTION
The Company will receive no proceeds from this offering. The Shares offered
hereby may be sold pursuant to this Prospectus by the Selling Stockholders or by
pledgees, donees, transferees or other successors in interest that receive such
shares as a gift, partnership, distribution or other non-sale related transfer.
The Shares may be sold from time to time in transactions in the over-the-counter
market, in negotiated transactions, or a combination of such methods of sale, at
fixed prices which may be changed, at market prices prevailing at the time of
sale, at prices related to prevailing market prices or at negotiated prices. The
Selling Stockholders may effect such transactions by selling the Shares to or
through broker-dealers, including block trades in which brokers or dealers will
attempt to sell the Shares as agent but may position and resell the block as
principal to facilitate the transaction, or in one or more underwritten
offerings on a firm commitment or best effort basis. Sales of Shares may also be
made pursuant to Rule 144 under the Securities Act, where applicable.
To the extent required under the Securities Act, the aggregate amount of
Selling Stockholders' Shares being offered and the terms of the offering, the
names of any such agents, brokers, dealers or underwriters and any applicable
commission with respect to a particular offer will be set forth in an
accompanying Prospectus supplement. Any underwriters, dealers, brokers or agents
participating in the distribution of the Shares may receive compensation in the
form of underwriting discounts, concessions, commissions or fees from a Selling
Stockholder and/or purchasers of Selling Stockholders' Shares, for whom they may
act (which compensation as to a particular broker-dealer might be in excess of
customary commissions).
From time to time, one or more of the Selling Stockholders may pledge,
hypothecate or grant a security interest in some or all of the Shares owned by
them, and the pledgees, secured parties or persons to whom such securities have
been hypothecated shall, upon foreclosure in the event of default, be deemed to
be Selling Stockholders hereunder. In addition, a Selling Stockholder may, from
time to time, sell short the Common Stock of the Company, and in such instances,
this Prospectus may be delivered in connection with such short sales and the
Shares offered hereby may be used to cover such short sales.
From time to time one or more of the Selling Stockholders may transfer,
pledge, donate or assign such Selling Stockholders' Shares to lenders or others
and each of such persons will be deemed to be a "Selling Stockholder" for
purposes of this Prospectus. The number of Selling Stockholders' Shares
beneficially owned by those Selling Stockholders who so transfer, pledge, donate
or assign Selling Stockholders' Shares will decrease as and when they take such
actions. The plan of distribution for Selling Stockholders' Shares sold
hereunder will otherwise remain unchanged, except that the transferees,
pledgees, donees or other successors will be Selling Stockholders hereunder.
A Selling Stockholder may enter into hedging transactions with
broker-dealers and the broker-dealers may engage in short sales of the Common
Stock in the course of hedging the positions they assume with such Selling
Stockholder, including, without limitation, in connection with distributions of
the Common Stock by such broker-dealers. A Selling Stockholder may also enter
into option or other transactions with broker-dealers that involve the delivery
of the Common Stock to the broker-dealers, who may then resell or otherwise
transfer such Common Stock. A Selling Stockholder may also loan or pledge the
Common Stock to a broker-dealer and the broker-dealer may sell the Common Stock
so loaned or upon a default may sell or otherwise transfer the pledged Common
Stock.
In order to comply with the securities laws of certain states, if
applicable, the Shares will be sold in such jurisdictions only through
registered or licensed brokers or dealers. In addition, in certain states the
Shares may not be sold unless they have been registered or qualified for sale in
the applicable state or an exemption from the registration or qualification
requirement is available and is complied with.
The Selling Stockholders and any broker-dealers or agents that participate
with the Selling Stockholders in the distribution of the Shares may be deemed to
be "underwriters" within the meaning of the Securities Act, and any commissions
received by them and any profit on the resale of the Shares purchased by them
may be deemed to be underwriting commissions or discounts under the Securities
Act.
18
<PAGE> 20
Under applicable rules and regulations under the Exchange Act, any person
engaged in the distribution of the Shares may not bid for or purchase shares of
Common Stock during a period which commences one business day (five business
days, if the Company's public float is less than $25 million or its average
daily trading volume is less than $100,000) prior to such person's participation
in the distribution, subject to exceptions for certain passive market making
activities. In addition and without limiting the foregoing, each Selling
Stockholder will be subject to applicable provisions of the Exchange Act and the
rules and regulations thereunder, including, without limitation, Regulation M,
which provisions may limit the timing of purchases and sales of shares of the
Company's Common Stock by such Selling Stockholder.
The Warrants, the Series B Preferred and the Shares were, or will be, as
the case may be, originally issued to the Selling Stockholders pursuant to an
exemption from the registration requirements of the Securities Act provided by
Section 4(2) thereof. The Company agreed to register the Shares under the
Securities Act and to indemnify and hold the Selling Stockholders harmless
against certain liabilities under the Securities Act that could arise in
connection with the sale by the Selling Stockholders of the Shares. The Company
has agreed to pay all reasonable fees and expenses incident to the filing of
this Registration Statement.
LEGAL MATTERS
The legality of the securities offered hereby will be passed upon for the
Company by Brobeck, Phleger & Harrison LLP, Palo Alto, California.
EXPERTS
The financial statements of Shaman Pharmaceuticals, Inc. at December 31,
1997, appearing in the Company's Annual Report on Form 10-K/A for the year ended
December 31, 1997 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.
19
<PAGE> 21
======================================================
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY TO ANY
PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL
OR TO ANY PERSON TO WHOM IT IS UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS
NOR ANY OFFER OR SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY OR THAT
THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE
DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information................. 2
Incorporation of Certain Documents by
Reference........................... 2
Risk Factors.......................... 6
Selling Stockholders.................. 15
Plan of Distribution.................. 18
Legal Matters......................... 19
Experts............................... 19
</TABLE>
======================================================
======================================================
2,412,000 SHARES
SHAMAN
PHARMACEUTICALS,
INC.
COMMON STOCK
--------------------
PROSPECTUS
--------------------
JUNE , 1988
======================================================
<PAGE> 22
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. All amounts are estimated except the Securities and
Exchange Commission registration fee and The Nasdaq National Market listing fee.
<TABLE>
<S> <C>
SEC registration fee........................................ $ 3,192.00
NNM listing fees............................................ 2,750.00
Accounting fees and expenses................................ 10,000.00
Legal fees and expenses..................................... 25,000.00
Printing and engraving expenses............................. 25,000.00
Miscellaneous fees and expenses............................. 4,058.00
----------
Total............................................. $70,000.00
==========
</TABLE>
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.
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
II-1
<PAGE> 23
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>
3.3 Form of Certificate of Designations of Series B Custom
Convertible Preferred Stock.
5.1 Opinion of Brobeck, Phleger & Harrison LLP.
10.66* Amendment Agreement, dated as of March 18, 1998, by and
between the Registrant and certain investors.
10.67* Form of Common Stock Purchase Warrant, dated as of March 18,
1998, issued to certain investors.
10.68 Form of Stock Purchase Agreement for Series B Custom
Convertible Preferred Stock.
10.69 Second Amendment Agreement, dated as of June 10, 1998, by
and between the Registrant and certain investors.
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 under the caption "Signatures").
</TABLE>
- - ------------------------
* Previously filed.
(b) FINANCIAL STATEMENT SCHEDULES
No financial statement schedules are included because they are not required
or the required information is included in the financial statements or notes
thereto.
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement: (i) to
include any prospectus required by Section 10(a)(3) of the Securities Act;
(ii) to reflect in the prospectus any facts or events arising after the
effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
Registration Statement; and (iii) to include any material information with
respect to the plan of distribution not previously disclosed in the
Registration Statement or any material change to such information in the
Registration Statement; provided, however, that (i) and (ii) do not apply
if the Registration Statement is on Form S-3 or Form S-8, and the
information required to be included in a post-effective amendment by (i)
and (ii) is contained in periodic reports filed with or furnished to the
Commission by the Registrant pursuant to Section 13 or Section 15(d) of the
Exchange Act that are incorporated by reference in the Registration
Statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
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
II-2
<PAGE> 24
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-3
<PAGE> 25
SIGNATURES
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 Amendment to
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
15th day of June, 1998.
SHAMAN PHARMACEUTICALS, INC.
By /s/ LISA A. CONTE
------------------------------------
Lisa A. Conte
President, Chief Executive Officer
and
Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to 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:
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<C> <S> <C>
/s/ LISA A. CONTE Director, President, Chief June 15, 1998
- - ----------------------------------------------------- Executive Officer and Chief
Lisa A. Conte Financial Officer (Principal
Executive and Financial
Officer)
Chairman of the Board June , 1998
- - -----------------------------------------------------
G. Kirk Raab
* Director June 15, 1998
- - -----------------------------------------------------
Adrian D.P. Bellamy
* Director June 15, 1998
- - -----------------------------------------------------
Herbert H. McDade, Jr.
* Director June 15, 1998
- - -----------------------------------------------------
M. David Titus
*By: /s/ LISA A. CONTE
- - -----------------------------------------------------
Lisa A. Conte
(Attorney in fact)
</TABLE>
<PAGE> 26
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER DESCRIPTION NUMBER
- - ------- ----------- ------
<S> <C> <C>
3.3 Form of Certificate of Designations of Series B Custom
Convertible Preferred Stock.
5.1 Opinion of Brobeck, Phleger & Harrison LLP.
10.66* Amendment Agreement, dated as of March 18, 1998, by and
between the Registrant and certain investors.
10.67* Form of Common Stock Purchase Warrant, dated as of March 18,
1998, issued to certain investors.
10.68 Form of Stock Purchase Agreement for Series B Custom
Convertible Preferred Stock.
10.69 Second Amendment Agreement, dated as of June 10, 1998, by
and between the Registrant and certain investors.
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 under the caption "Signatures").
</TABLE>
- - ---------------
* Previously filed.
<PAGE> 1
EXHIBIT 3.3
SHAMAN PHARMACEUTICALS, INC.
CERTIFICATE OF DESIGNATIONS
OF
SERIES B CUSTOM
CONVERTIBLE PREFERRED STOCK
(PURSUANT TO SECTION 151 OF THE GENERAL CORPORATION
LAW OF THE STATE OF DELAWARE)
--------------
Shaman Pharmaceuticals, Inc., a Delaware corporation (the
"Corporation"), in accordance with the provisions of Section 103 of the General
Corporation Law of the State of Delaware DOES HEREBY CERTIFY:
That pursuant to authority vested in the Board of Directors of
the Corporation (the "Board of Directors" or the "Board") by the Certificate of
Incorporation, as amended, of the Corporation, the Board of Directors, at a
meeting duly called and held on May 15, 1998, adopted a resolution providing for
the creation of a series of the Corporation's Preferred Stock, $.001 par value,
which series is designated "Series B Custom Convertible Preferred Stock," which
resolution is as follows:
RESOLVED, that pursuant to authority vested in the Board of
Directors by the Certificate of Incorporation, as amended, the Board of
Directors does hereby provide for the creation of a series of the Preferred
Stock, $.001 par value (hereafter called the "Preferred Stock"), of the
Corporation, and to the extent that the voting powers and the designations,
preferences and relative, participating, optional or other special rights
thereof and the qualifications, limitations or restrictions of such rights have
not been set forth in the Certificate of Incorporation, as amended, of the
Corporation, does hereby fix the same as follows:
SERIES B CUSTOM CONVERTIBLE PREFERRED STOCK
SECTION 1. CERTAIN DEFINED TERMS. All the agreements or instruments
defined in this Certificate of Designations shall mean such agreements or
instruments as the same may from time to time be supplemented or amended or the
terms thereof waived or modified to the extent permitted by, and in accordance
with, the terms thereof and of this Certificate of Designations.
The following terms shall have the following meanings (such
meanings to be equally applicable to both the singular and plural forms of the
terms defined):
"Accrual Amount" means with respect to any share of Series B
Preferred Stock on any date an amount calculated at the rate of 5.5% per annum
of the Accrual Value of such share from the Issuance Date to the date of
determination, compounded annually, subject to adjustment as provided herein.
<PAGE> 2
"Accrual Value" means $1,000 per share of Series B Preferred
Stock.
"Adjustment Notice" means an Adjustment Notice substantially in
the form set forth in Section 14(j).
"Affiliate" means, with respect to any Person, any other Person
that directly, or indirectly through one or more intermediaries, controls, is
controlled by or under common control with the subject Person. For purposes of
the term "Affiliate," the term "control" (including the terms "controlling,"
"controlled by" and "under common control with") means the possession, direct or
indirect, of the power to direct or to cause the direction of the management and
policies of a Person, whether through the ownership of securities, by contract
or otherwise.
"Aggregated Person" means, with respect to any holder of shares
of Series B Preferred Stock, any Person whose beneficial ownership of shares of
Common Stock would be aggregated with such holder's beneficial ownership of
shares of Common Stock for purposes of Section 13(d) of the 1934 Act and
Regulation 13D-G thereunder.
"AMEX" means the American Stock Exchange, Inc.
"Auditors" means Ernst & Young LLP or such other firm of
independent public accountants of recognized national standing as shall have
been engaged by the Corporation to audit its financial statements.
"Auditors' Determination" means a determination requested by the
Corporation and signed by the Auditors concurring with the Company's conclusion
that a requirement of the Corporation to redeem, or a right of any holder of
shares of Series B Preferred Stock to require redemption of, shares of Series B
Preferred Stock by reason of the occurrence of (i) a specified Inconvertibility
Day or (ii) a specified Optional Redemption Event which occurs by reason of an
event described in clause (1), (2) or (3) of the definition of Optional
Redemption Event, whichever is applicable, would result in the Corporation being
required to classify the Series B Preferred Stock as redeemable preferred stock
on a balance sheet of the Corporation in accordance with Generally Accepted
Accounting Principles. The Auditors' Determination shall (i) set forth in
reasonable detail all relevant facts considered by the Auditors in connection
therewith, (ii) set forth all applicable accounting principles and assumptions
used, and (iii) set forth in reasonable detail or attach copies of all legal,
expert and other advice or information used by the Auditors in reaching their
conclusion. To the extent any facts are assumed for purposes of either the
Company's conclusion or the Auditor's Determination, the validity of such
conclusion or determination shall depend upon such assumed facts being true and
complete in all material respects.
"Blackout Period" means the period of up to 20 consecutive days
after the date the Corporation notifies the holders of shares of Series B
Preferred Stock that they are required, pursuant to Section 8(c)(4) of the Stock
Purchase Agreements, to suspend offers and sales of Registrable Securities as a
result of an event or circumstance described in Section 8(b)(5)(A) of the Stock
Purchase Agreements, during which period, by reason of Section 8(b)(5)(B) of the
Stock Purchase Agreements, the Corporation is not required to amend the
Registration Statement
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<PAGE> 3
or to supplement the Prospectus; provided, however, that such period may be up
to 30 consecutive days if the Corporation so elects in accordance with Section
8(b)(5)(B) of the Stock Purchase Agreements, subject to the limitations provided
therein.
"Board of Directors" or "Board" means the Board of Directors of
the Corporation.
"Business Combination Redemption Percentage" means with respect
to a redemption of shares of Series B Preferred Stock in accordance with Section
10(b)(6), the applicable percentage determined with respect to the due date for
payment of the Business Combination Redemption Price as follows:
<TABLE>
<CAPTION>
Business Combination
Date of Payment Redemption Percentage
--------------- ---------------------
<S> <C>
Initial Issuance Date through 180th day thereafter 125%
181st through 360th day after the Initial Issuance Date 130%
On or after 361st day after the Initial Issuance Date 135%
</TABLE>
"Business Combination Redemption Price" means an amount in cash
equal to the product obtained by multiplying (A) the sum of (i) $1,000 plus (ii)
an amount equal to the Accrual Amount on the share of Series B Preferred Stock
to be redeemed to the date of payment of the redemption price pursuant to
Section 10(b)(6) times (B) the applicable Business Combination Redemption
Percentage.
"Business Day" means any day other than a Saturday, Sunday or
other day on which commercial banks in The City of New York are authorized or
required by law to remain closed.
"Cash and Cash Equivalent Balances" of any Person on any date
shall be determined from such Person's books maintained in accordance with
Generally Accepted Accounting Principles, and means, without duplication, the
sum of (1) the cash accrued by such Person and its subsidiaries on a
consolidated basis on such date and available for use by such Person and its
subsidiaries on such date and (2) all assets which would, on a consolidated
balance sheet of such Person and its subsidiaries prepared as of such date in
accordance with Generally Accepted Accounting Principles, be classified as cash
or cash equivalents.
"Common Stock" means the Common Stock, $.001 par value, of the
Corporation or any shares of capital stock into which such stock shall be
changed or reclassified after the Initial Issuance Date.
"Control Notice" means a Control Notice substantially in the form
set forth in Section 14(i).
"Conversion Agent" means BankBoston, N.A., or its duly appointed
successor who shall be serving as transfer agent and registrar for the Common
Stock and who shall have
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<PAGE> 4
been authorized by the Corporation to act as conversion agent for the Series B
Preferred Stock in accordance with the Conversion Agent Agreement and the name,
address and telephone number of which shall have been given to the holders of
the Series B Preferred Stock by notice from the Corporation.
"Conversion Agent Agreement" means the Conversion Agent
Agreement, dated as of June 10, 1998, by and among the Corporation, the
Conversion Agent and the original holders of the shares of Series B Preferred
Stock.
"Conversion Date" means the date on which a Conversion Notice is
actually received by the Conversion Agent, whether by mail, courier, personal
service, telephone line facsimile transmission or other means, in case of a
conversion of shares of Series B Preferred Stock pursuant to Section 10(a).
"Conversion Notice" means a Notice of Conversion of Series B
Custom Convertible Preferred Stock substantially in the form set forth in
Section 14(a).
"Conversion Percentage" means 90%.
"Conversion Price" means
(1) for any Conversion Date on or before [INSERT MONTH AND
DAY WHICH IS 120 DAYS AFTER EFFECTIVE DATE], 1998, $5.00 (subject to equitable
adjustments from time to time on terms reasonably acceptable to the Majority
Holders for (i) stock splits, (ii) stock dividends, (iii) combinations, (iv)
capital reorganizations, (v) issuance to all holders of Common Stock of rights
or warrants to purchase shares of Common Stock, (vi) distribution by the
Corporation to all holders of Common Stock of evidences of indebtedness of the
Corporation or cash (other than regular quarterly cash dividends), (vii) Tender
Offers by the Corporation or any Subsidiary for, or other repurchases of shares
of, Common Stock in one or more transactions which, individually or in the
aggregate, result in the purchase of more than ten percent of the Common Stock
outstanding, and (viii) similar events relating to the Common Stock, in each
case which occur, or with respect to which "ex-" trading of the Common Stock
begins, on or after the date this Certificate of Designations is filed with the
Secretary of State of the State of Delaware and on or before the applicable
Conversion Date);
(2) for any Conversion Date after [INSERT MONTH AND DAY
WHICH IS 120 DAYS AFTER EFFECTIVE DATE], 1998 and on or before the date which is
the third anniversary of the Issuance Date of the shares of Series B Preferred
Stock being converted, the product obtained by multiplying (x) the lowest per
share Trading Price during the Measurement Period for such Conversion Date times
(y) the Conversion Percentage; and
(3) for any Conversion Date after the date which is the
third anniversary of the Issuance Date of the shares of Series B Preferred Stock
being converted, the greater of (x) $50.00 (subject to equitable adjustments
from time to time on terms reasonably acceptable to the Majority Holders for (i)
stock splits, (ii) stock dividends, (iii) combinations, (iv) capital
reorganizations, (v) issuance to all holders of Common Stock of rights or
warrants to
-4-
<PAGE> 5
purchase shares of Common Stock, (vi) distribution by the Corporation to all
holders of Common Stock of evidences of indebtedness of the Corporation or cash
(other than regular quarterly cash dividends), (vii) Tender Offers by the
Corporation or any Subsidiary for, or other repurchases of shares of, Common
Stock in one or more transactions which, individually or in the aggregate,
result in the purchase of more than ten percent of the Common Stock outstanding,
and (viii) similar events relating to the Common Stock, in each case which
occur, or with respect to which "ex-" trading of the Common Stock begins, on or
after the date this Certificate of Designations is filed with the Secretary of
State of the State of Delaware and on or before the applicable Conversion Date)
and (y) an amount equal to 150% of the arithmetic average of the Market Price of
the Common Stock for the five consecutive Trading Days ending on the Trading Day
prior to the date which is the third anniversary of the Issuance Date of the
shares of Series B Preferred Stock being converted (subject to equitable
adjustments from time to time on terms reasonably acceptable to the Majority
Holders for (i) stock splits, (ii) stock dividends, (iii) combinations, (iv)
capital reorganizations, (v) issuance to all holders of Common Stock of rights
or warrants to purchase shares of Common Stock, (vi) distribution by the
Corporation to all holders of Common Stock of evidences of indebtedness of the
Corporation or cash (other than regular quarterly cash dividends), (vii) Tender
Offers by the Corporation or any Subsidiary for, or other repurchases of shares
of, Common Stock in one or more transactions which, individually or in the
aggregate, result in the purchase of more than ten percent of the Common Stock
outstanding, and (viii) similar events relating to the Common Stock, in each
case which occur, or with respect to which "ex-" trading of the Common Stock
begins, on or after the date which is the third anniversary of the Issuance Date
of the shares of Series B Preferred Stock being converted and on or before the
applicable Conversion Date).
"Corporation Notice" means a Corporation Notice substantially in
the form set forth in Section 14(g).
"Effective Date" has the meaning provided in the Stock Purchase
Agreements.
"Generally Accepted Accounting Principles" for any Person means
the generally accepted accounting principles and practices applied by such
Person from time to time in the preparation of its audited financial statements.
"Holder Notice" means a Holder Notice substantially in the form
set forth in Section 14(h).
"Inconvertibility Conversion Price" means, for any date, the
Conversion Price which would be in effect on such date if no Trading Prices on
the Trading Day otherwise used for computing the Conversion Price for such date
were so used and instead the lowest per share daily Trading Price on the other
Trading Day during the applicable Measurement Period for such date on which the
second lowest per share daily Trading Price occurs were used in computing the
Conversion Price for such date.
"Inconvertibility Day" means any Trading Day on which (x) the
Corporation would not have been required to convert in accordance with Section
10(a) any shares of Series B Preferred Stock as a consequence of the limitations
set forth in Section 7(a)(1) had all
-5-
<PAGE> 6
outstanding shares of Series B Preferred Stock held by such holder on such
Trading Day been converted into Common Stock on such Trading Day, determined at
both the Conversion Price applicable on such Trading Day and the
Inconvertibility Conversion Price applicable on such Trading Day (and, in the
case of each of such determinations, without regard to the limitation, if any,
on beneficial ownership by such holder contained in Section 10(a)) or (y) on
which the Corporation does not have reserved from its authorized and unissued
shares of Common Stock for purposes of conversion of the shares of Series B
Preferred Stock the number of shares so required to be reserved pursuant to
Section 10(b)(5).
"Inconvertibility Notice" means a notice from the Corporation to
a holder of shares of Series B Preferred Stock in the form set forth in Section
14(b) or a notice from a holder of shares of Series B Preferred Stock to the
Corporation in the form set forth in Section 14(c).
"Indebtedness" as used in reference to any Person means all
indebtedness of such Person for borrowed money, the deferred purchase price of
property, goods and services and obligations under leases which are required to
be capitalized in accordance with Generally Accepted Accounting Principles and
shall include all such indebtedness guaranteed in any manner by such Person or
in effect guaranteed by such Person through a contingent agreement to purchase
and all indebtedness for the payment or purchase of which such Person has
contingently agreed to advance or supply funds and all indebtedness secured by
mortgage or other lien upon property owned by such Person, although such Person
has not assumed or become liable for the payment of such indebtedness, and, for
all purposes hereof, such indebtedness shall be treated as though it has been
assumed by such Person.
"Initial Issuance Date" means the first date of original
issuance of any shares of Series B Preferred Stock.
"Issuance Date" means (i) the Initial Issuance Date or (ii) in
the case of shares of Series B Preferred Stock which are first originally issued
on or after the Second Issuance Date in connection with the giving of a second
Purchase Option Notice under the Stock Purchase Agreements, the Second Issuance
Date, whichever is applicable.
"Junior Dividend Stock" means, collectively, the Common Stock and
any other class or series of capital stock of the Corporation ranking junior as
to dividends to the Series B Preferred Stock.
"Junior Liquidation Stock" means, collectively, the Common Stock
and any other class or series of capital stock of the Corporation ranking junior
as to liquidation rights to the Series B Preferred Stock.
"Liquidation Preference" means, for each share of Series B
Preferred Stock, the sum of (i) an amount equal to the Accrual Amount thereon to
the date of final distribution to the holders of shares of Series B Preferred
Stock in connection with the liquidation, dissolution or winding up of the
Corporation plus (ii) $1,000.
-6-
<PAGE> 7
"Majority Holders" means at any time the holders of shares of
Series B Preferred Stock who, based on the number of shares of Series B
Preferred Stock originally issued to such holders, held shares of Series B
Preferred Stock which constitute a majority of the outstanding shares of Series
B Preferred Stock, unless no shares of Series B Preferred Stock are held by a
Person who was a holder of shares of Series B Preferred Stock upon original
issuance thereof, in which case "Majority Holders" means at any time the holders
of shares of Series B Preferred Stock which shares constitute a majority of the
outstanding shares of Series B Preferred Stock.
"Mandatory Redemption Waiver" means an agreement of the
Corporation and a holder of shares of Series B Preferred Stock in the form set
forth in Section 14(e).
"Market Price" of any security on any date means the closing bid
price of such security on such date on the Nasdaq or such other securities
exchange or other market on which such security is listed for trading which
constitutes the principal securities market for such security, as reported by
Bloomberg, L.P.
"Maximum Share Amount" means [BEFORE FILING, INSERT 20% OF THE
NUMBER OF SHARES OF COMMON STOCK OUTSTANDING IMMEDIATELY PRIOR TO THE EFFECTIVE
DATE] shares, or such greater number of shares of Common Stock as shall be duly
authorized, duly reserved for issuance upon conversion of the Series B Preferred
Stock and permitted by the rules of the Nasdaq Stock Market or AMEX (such amount
to be subject to equitable adjustment from time to time on terms reasonably
acceptable to the Majority Holders for stock splits, stock dividends,
combinations, capital reorganizations and similar events relating to the Common
Stock occurring after the Effective Date).
"Measurement Period" means with respect to any Conversion Date,
the period consisting of 12 consecutive Trading Days ending on the Trading Day
immediately preceding such Conversion Date.
"Nasdaq" means the Nasdaq National Market.
"Nasdaq SmallCap" means the Nasdaq SmallCap Market.
"Nasdaq Stock Market" means The Nasdaq Stock Market, Inc.
"Net Cash and Cash Equivalent Balances" of any Person on any date
means the consolidated Cash and Cash Equivalent Balances of such Person and its
subsidiaries on such date less the sum of (1) the amount of any outstanding
Indebtedness of such Person or any of its subsidiaries which, directly or
indirectly, is secured in whole or in part by, or restricts the use of, the
consolidated Cash and Cash Equivalent Balances of such Person and its
subsidiaries plus (2) the maximum amount which is not outstanding and which may
be borrowed pursuant to any revolving credit facility or any commitment to lend
of or to such Person or any of its subsidiaries which at the time it becomes
outstanding will be secured in whole or in part by, or will so restrict, Cash
and Cash Equivalent Balances plus (3) the amount of outstanding Indebtedness of
such Person and its subsidiaries which on such date is classified as short-term
debt in accordance with Generally Accepted Accounting Principles.
-7-
<PAGE> 8
"1934 Act" means the Securities Exchange Act of 1934, as amended.
"1933 Act" means the Securities Act of 1933, as amended.
"NYSE" means the New York Stock Exchange, Inc.
"Optional Redemption Date" means the date which is three Business
Days after a holder of shares of Series B Preferred Stock who is entitled to
redemption rights under Section 11(a) and 11(b) gives a Holder Notice.
"Optional Redemption Event" means any one of the following
events:
(1) For any period of five consecutive Trading Days
following the Initial Issuance Date there shall be no reported sale price of the
Common Stock on any of the Nasdaq, the NYSE, the AMEX or the Nasdaq SmallCap;
(2) The Common Stock ceases to be listed for trading on the
Nasdaq, the NYSE, the AMEX or the Nasdaq SmallCap;
(3) Any consolidation or merger of the Corporation or any
subsidiary of the Corporation with or into another entity or other business
combination transaction involving the Corporation or any subsidiary of the
Corporation (other than a merger or consolidation of a subsidiary of the
Corporation into the Corporation or a wholly-owned subsidiary of the
Corporation) where the stockholders of the Corporation immediately prior to such
transaction do not collectively own at least 51% of the outstanding voting
securities of the surviving corporation of such transaction immediately
following such transaction or the common stock of such surviving corporation is
not listed for trading on the NYSE, the AMEX or the Nasdaq; or the sale of all
or substantially all of the assets of the Corporation and its subsidiaries;
(4) The adoption of any amendment to the Certificate of
Incorporation of the Corporation (other than any certificate designating a
series of preferred stock of the Corporation which does not contravene the
rights of the holders of shares of Series B Preferred Stock) which materially
and adversely affects the rights of the holders of shares of Series B Preferred
Stock in respect of their interest in the Common Stock in a different and more
adverse manner than it affects the rights of holders of Common Stock generally
or the taking of any other action which materially and adversely affects the
rights of the holders of Series B Preferred Stock;
(5) The inability of any holder of shares of Series B
Preferred Stock for (x) (i) 20 days (whether or not consecutive) or (ii) if in
accordance with Section 8(b)(5)(B) of the Stock Purchase Agreements the
Corporation elects a Blackout Period of up to 30 consecutive days, such greater
number of days as shall equal the number of days the Blackout Period so elected
is in effect (but in no event more than 30 days), in either the case of such
clause (i) or such clause (ii) during the period commencing on the SEC Effective
Date and ending on the first anniversary of the later of the Initial Issuance
Date or the Second Issuance Date or (y) 60 days (whether or not consecutive)
during the period from the SEC Effective Date to the third
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<PAGE> 9
anniversary of the later of the Initial Issuance Date or the Second Issuance
Date, to sell shares of Common Stock issued or issuable upon conversion of
shares of Series B Preferred Stock pursuant to the Registration Statement (1) by
reason of the requirements of the 1933 Act, the 1934 Act or any of the rules or
regulations under either thereof or (2) due to the Registration Statement
containing any untrue statement of material fact or omitting to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading or any other failure of the Registration Statement to comply with
the rules and regulations of the SEC; or
(6) The Corporation shall fail or default in the timely
performance of any material obligation to a holder of shares of Series B
Preferred Stock under the terms of this Certificate of Designations or under the
Stock Purchase Agreement with such holder or any other agreement or document
entered into in connection with the issuance of shares of Series B Preferred
Stock and the Warrants, as such agreements and instruments may be amended from
time to time.
"Optional Redemption Percentage" means, with respect to each
Optional Redemption Date, the applicable percentage determined with respect to
such date as follows:
<TABLE>
<CAPTION>
Optional
Redemption
Optional Redemption Date Percentage
------------------------ ----------
<S> <C>
Initial Issuance Date through 90th day after the Initial Issuance Date 112%
91st through 189th day after the Initial Issuance Date 114%
181st through 270th day after the Initial Issuance Date 116%
271st day after the Initial Issuance Date and thereafter 118%
</TABLE>
"Optional Redemption Price" means an amount in cash equal to the
product obtained by multiplying (a) the sum of (i) $1,000 plus (ii) an amount
equal to the Accrual Amount on the share of Series B Preferred Stock to be
redeemed to the applicable Optional Redemption Date times (b) the Optional
Redemption Percentage for the applicable Optional Redemption Date.
"Option Share Surrender" means the surrender of shares of Common
Stock to the Corporation in payment of the exercise price or tax obligations
incurred in connection with the exercise of a stock option granted by the
Corporation to any of its employees, directors or consultants.
"Outstanding Majority Holders" means at any time the holders of
shares of Series B Preferred Stock which shares constitute a majority of the
outstanding shares of Series B Preferred Stock.
-9-
<PAGE> 10
"Parity Dividend Stock" means any class or series or the
Corporation's capital stock ranking, as to dividends, on a parity with the
Series B Preferred Stock.
"Parity Liquidation Stock" means any class or series of the
Corporation's capital stock having parity as to liquidation rights with the
Series B Preferred Stock.
"Permitted Indebtedness" means (i) Indebtedness which is
outstanding and which would be reflected on a balance sheet of the Corporation
as of the Effective Date prepared in accordance with Generally Accepted
Accounting Principles and (ii) Indebtedness incurred to finance the lease or
purchase of and secured by equipment used in the Corporation's business the
outstanding amount thereof which does not exceed $5,000,000 during the first
year after the Effective Date, $15,000,000 during the second year after the
Effective Date and $30,000,000 during the third year after the Effective Date.
"Person" means an individual, partnership, corporation, limited
liability company, trust, incorporated organization, unincorporated association,
joint stock company, government, governmental agency or political subdivision.
"Prospectus" shall have the meaning provided in the Stock
Purchase Agreements.
"Purchase Option Notice" shall have the meaning provided in the
Stock Purchase Agreements.
"Quarterly Cash Requirements" on any date means the consolidated
net cash used in operating activities and for payment of Indebtedness of the
Corporation and its subsidiaries for the most recent fiscal quarter for which,
at such date, the Corporation has published a consolidated statement of cash
flows, prepared in accordance with Generally Accepted Accounting Principles, as
shown on such statement.
"Redemption Date" means [BEFORE FILING CERTIFICATE OF
DESIGNATIONS, INSERT DATE WHICH IS ONE YEAR AFTER THE INITIAL ISSUANCE DATE (OR
NEXT BUSINESS DAY THEREAFTER)], 1999.
"Redemption Election" means (1) a notice by a holder of Series B
Preferred Stock to the Corporation substantially in the form set forth in
Section 14(d) or (2) a notice by a holder of Series B Preferred Stock to the
Corporation included in paragraph 3 of the form of Holder Inconvertibility
Notice set forth in Section 14(c).
"Redemption Election Period" means, with respect to a particular
Inconvertibility Day, the period of ten Business Days after the later of (x) the
date an Inconvertibility Notice with respect to such Inconvertibility Day is
given or (y) the date such Inconvertibility Notice was required to have been
given by the Corporation.
"Redemption Notice" means a Redemption Notice substantially in
the form set forth in Section 14(f).
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<PAGE> 11
"Redemption Price" means an amount in cash equal to the product
obtained by multiplying (i) the sum of (A) $1,000 plus (B) an amount equal to
the Accrual Amount on the share of Series B Preferred Stock to be redeemed to
the date of payment of the Redemption Price times (ii) 130%.
"Registrable Securities" means the shares of Common Stock
issuable upon conversion of shares of Series B Preferred Stock, the shares of
Common Stock issuable or issued upon exercise of the Warrants and any stock or
other securities into which or for which the Common Stock may hereafter be
changed, converted or exchanged by the Corporation or its successor, as the case
may be, and any other securities issued to holders of such Common Stock (or such
shares into which or for which such shares are so changed, converted or
exchanged) upon any reclassification, share combination, share subdivision,
share dividend, merger, consolidation or similar transaction or event.
"Registration Restriction Inconvertibility" means that (1) if,
notwithstanding Rule 416 under the 1933 Act or the provisions of Section 8(b) of
the Stock Purchase Agreements, the Registration Statement is not deemed to cover
such indeterminate number of additional shares of Common Stock as shall be
issuable upon conversion of the shares of Series B Preferred Stock held by any
holder of shares of Series B Preferred Stock based on changes from time to time
in the Conversion Price, and (2) on any five Trading Days ending on or after the
SEC Effective Date within any period of ten consecutive Trading Days the number
of shares of Common Stock issuable upon conversion of all shares of Series B
Preferred Stock held by any holder of shares of Series B Preferred Stock had all
shares of Series B Preferred Stock held by such holder been converted in full
into Common Stock on each such Trading Day, determined at the Conversion Price
applicable on each such Trading Day and without regard to the limitation, if
any, on such holder contained in the second sentence of Section 10(a), would
exceed the number of shares of Common Stock covered by the Registration
Statement and available for sale by such holder pursuant to the Registration
Statement.
"Registration Statement" means the Registration Statement
required to be filed by the Corporation with the SEC pursuant to Section 8 of
the Stock Purchase Agreements.
"SEC" means the United States Securities and Exchange Commission.
"SEC Effective Date" means the date on which the Registration
Statement is first ordered effective by the SEC.
"Second Issuance Date" means the first date of original issuance
of shares of Series B Preferred Stock in connection with the giving of a second
Purchase Option Notice under the Stock Purchase Agreements.
"Senior Dividend Stock" means any class or series of capital
stock of the Corporation ranking senior as to dividends to the Series B
Preferred Stock.
"Senior Liquidation Stock" means any class or series of capital
stock of the Corporation ranking senior as to liquidation rights to the Series B
Preferred Stock.
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<PAGE> 12
"Series B Preferred Stock" means the Series B Custom Convertible
Preferred Stock of the Corporation.
"Share Limitation Redemption Date" means each date on which the
Corporation is required to redeem shares of Series B Preferred Stock as provided
in Section 7(a).
"Share Limitation Redemption Price" means an amount in cash equal
to the sum of (1) the product obtained by multiplying (a) the sum of (i) $1,000
plus (ii) the Accrual Amount on the share of Series B Preferred Stock to be
redeemed to the applicable Share Limitation Redemption Date times (b) 112.5%.
"Stock Purchase Agreements" means the several Stock Purchase
Agreements, dated as of June 10, 1998, by and between the Corporation and the
several original holders of shares of Series B Preferred Stock pursuant to which
the shares of Series B Preferred Stock were issued.
"Stockholder Approval" means the approval by a majority of the
votes cast by the holders of shares of Common Stock (in person or by proxy) at a
meeting of the stockholders of the Corporation (duly convened at which a quorum
was present), or a written consent of holders of shares of Common Stock entitled
to such number of votes given without a meeting, of the issuance by the
Corporation of 20% or more of the Common Stock of the Corporation outstanding on
the Initial Issuance Date for less than the greater of the book or market value
of the Common Stock on conversion of the Series B Preferred Stock, as and to the
extent required under Rule 4460(i) of the Nasdaq as in effect from time to time
or any successor or replacement provision of the Nasdaq or any similar
provisions of the rules of any other securities market or securities exchange on
which the Common Stock is listed at the time of determination.
"Tender Offer" means a tender offer or exchange offer.
"Trading Day" means a day on whichever of (x) the national
securities exchange, (y) the Nasdaq or (z) such other securities market, which
at the time constitutes the principal securities market for the Common Stock, is
open for general trading of securities.
"Trading Price" on any date means the lowest sale price (regular
way) for one share of the Common Stock on such date, on the first applicable
among the following: (a) the national securities exchange on which the shares of
Common Stock are listed which constitutes the principal securities market for
the Common Stock, (b) Nasdaq, (c) Nasdaq SmallCap or (d) such other securities
market which constitutes the principal securities market for the Common Stock,
in any such case as reported by Bloomberg, L.P. (subject to equitable adjustment
from time to time on terms reasonably acceptable to the Majority Holders for (i)
stock splits, (ii) stock dividends, (iii) combinations, (iv) capital
reorganizations, (v) issuance to all holders of Common Stock of rights or
warrants to purchase shares of Common Stock at a price per share less than the
Trading Price which would otherwise be applicable, (vi) the distribution by the
Corporation to all holders of Common Stock of evidences of indebtedness of the
Corporation or cash (other than regular quarterly cash dividends), (vii) Tender
Offers by the Corporation or any subsidiary of the Corporation or other
repurchases of shares of Common Stock in one or more transactions which,
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individually or in the aggregate, result in the purchase of more than 10% of the
Common Stock outstanding, and (viii) similar events relating to the Common
Stock, in each such case which occur on or after the Initial Issuance Date);
provided, however, that if on any Trading Day there shall be no reported sale
price (regular way) of such security, the "Trading Price" on such Trading Day
shall be the lowest sale price (regular way) of such security on the Trading Day
next preceding such Trading Day on which a sale price (regular way) for such
security has been so reported.
"Warrants" means the Common Stock Purchase Warrants issued by the
Corporation pursuant to the Stock Purchase Agreements.
SECTION 2. DESIGNATION AND AMOUNT. The shares of such series shall be
designated as "Series B Custom Convertible Preferred Stock", and the number of
shares constituting the Series B Preferred Stock shall be 7,000, and shall not
be subject to increase. The Corporation shall not issue any shares of Series B
Preferred Stock other than pursuant to the Stock Purchase Agreements, unless
such issuance shall have been approved by the Majority Holders.
SECTION 3. SERIES B PREFERRED STOCK CAPITAL. The amount to be
represented in the capital account for the Series B Preferred Stock at all times
for each outstanding share of Series B Preferred Stock shall be an amount equal
to the product obtained by multiplying (1) the sum of (A) $1,000 plus (B) an
amount equal to the Accrual Amount on such share of Series B Preferred Stock to
the date of determination times (2) the Optional Redemption Percentage which
would be applicable to a redemption of a share of Series B Preferred Stock
pursuant to Sections 11(a) and 11(b) on the date of determination if such share
were required to be redeemed by the Corporation pursuant to Sections 11(a) and
11(b) on such date.
SECTION 4. RANK. The shares of Series B Preferred Stock shall rank
senior to the Common Stock and any shares of any other series of Preferred Stock
or any shares of any other class of preferred stock of the Corporation, now or
hereafter issued, as to payment of dividends and distribution of assets upon
liquidation, dissolution, or winding up of the Corporation, whether voluntary or
involuntary.
SECTION 5. DIVIDENDS AND DISTRIBUTIONS The holders of shares of Series B
Preferred Stock shall be entitled to receive, when, as, and if declared by the
Board of Directors out of funds legally available for such purpose, dividends in
such amounts as determined from time to time by the Board of Directors.
Dividends on the shares of Series B Preferred Stock shall not be cumulative.
If at any time any dividend on any Senior Dividend Stock shall be
in default, in whole or in part, no dividend shall be paid or declared and set
apart for payment on the Series B Preferred Stock unless and until all accrued
and unpaid dividends with respect to the Senior Dividend Stock, including the
full dividends for the then current dividend period, shall have been paid or
declared and set apart for payment, without interest. No dividends shall be paid
or declared and set apart for payment on any Parity Dividend Stock for any
period unless dividends in the same amount per share shall have been, or
contemporaneously are, paid or declared and set apart for such payment on the
Series B Preferred Stock. No dividends shall be paid or declared
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<PAGE> 14
and set apart for payment on the Series B Preferred Stock for any period unless
all accrued but unpaid dividends have been, or contemporaneously are, paid or
declared and set apart for payment on the Parity Dividend Stock for all dividend
periods terminating on or prior to the date of payment of such dividends.
Any references to "distribution" contained in this Section 5
shall not be deemed to include any stock dividend or distributions made in
connection with any liquidation, dissolution, or winding up of the Corporation,
whether voluntary or involuntary.
Neither the Corporation nor any subsidiary of the Corporation
shall redeem, repurchase or otherwise acquire in any one transaction or series
of related transactions any shares of Common Stock, Junior Dividend Stock or
Junior Liquidation Stock if the number of shares so repurchased, redeemed or
otherwise acquired in such transaction or series of related transactions
(excluding any Option Share Surrender) is more than either (x) 5.0% of the
number of shares of Common Stock, Junior Dividend Stock or Junior Liquidation
Stock, as the case may be, outstanding immediately prior to such transaction or
series of related transactions or (y) 1% of the number of shares of Common
Stock, Junior Dividend Stock or Junior Liquidation Stock, as the case may be,
outstanding immediately prior to such transaction or series of related
transactions if such transaction or series of related transactions is with any
one Person or group of Affiliated Persons, unless (x) at the time of such
redemption, repurchase or acquisition the Registration Statement is effective
and available for use by the holders of shares of Series B Preferred Stock named
as selling stockholders in the Registration Statement, (y) no Optional
Redemption Event shall have occurred and (z) the Corporation or such subsidiary
offers to purchase for cash from each holder of shares of Series B Preferred
Stock at the time of such redemption, repurchase or acquisition the same
percentage of such holder's shares of Series B Preferred Stock as the percentage
of the number of outstanding shares of Common Stock, Junior Dividend Stock or
Junior Liquidation Stock, as the case may be, to be so redeemed, repurchased or
acquired at a purchase price per share of Series B Preferred Stock equal to the
product obtained by multiplying (1) the sum of (A) $1,000 plus (B) the amount
equal to the Accrual Amount on such share of Series B Preferred Stock to the
date of repurchase pursuant to this Section 5(b) times (2) the Optional
Redemption Percentage which would be applicable to a redemption of a share of
Series B Preferred Stock pursuant to Sections 11(a) and 11(b) on the date of
repurchase pursuant to this Section 5(b) if such share were required to be
redeemed by the Corporation pursuant to Sections 11(a) and 11(b) on the date of
repurchase pursuant to this Section 5(b).
Neither the Corporation nor any subsidiary of the Corporation
shall (1) make any Tender Offer for outstanding shares of Common Stock, unless
the Corporation contemporaneously therewith makes an offer, or (2) enter into an
agreement regarding a Tender Offer for outstanding shares of Common Stock by any
Person other than the Corporation or any subsidiary of the Corporation, unless
such Person agrees with the Corporation to make an offer, in either such case to
each holder of outstanding shares of Series B Preferred Stock to purchase for
cash at the time of purchase in such Tender Offer the same percentage of shares
of Series B Preferred Stock held by such holder as the percentage of outstanding
shares of Common Stock offered to be purchased in such Tender Offer at a price
per share of Series B Preferred Stock
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<PAGE> 15
equal to the greater of (i) the quotient obtained by dividing (a) the sum of (1)
$1,000 plus (2) an amount equal to the Accrual Amount on such share of Series B
Preferred Stock to the date of purchase pursuant to this Section 5(c) by (b) the
Conversion Percentage and (ii) an amount equal to the product obtained by
multiplying (x) the number of shares of Common Stock which would, but for the
purchase pursuant to such Tender Offer, be issuable on conversion in accordance
with Section 10(a) of one share of Series B Preferred Stock if a Conversion
Notice were given by the holder of such share of Series B Preferred Stock on the
date of purchase pursuant to such Tender Offer (determined without regard to any
limitation on beneficial ownership contained in the second sentence of Section
10(a)) times (y) the price per share of Common Stock offered in such Tender
Offer.
SECTION 6. LIQUIDATION PREFERENCE. In the event of a liquidation,
dissolution, or winding up of the Corporation, whether voluntary or involuntary,
the holders of Series B Preferred Stock shall be entitled to receive out of the
assets of the Corporation, whether such assets constitute stated capital or
surplus of any nature, an amount per share of Series B Preferred Stock equal to
the Liquidation Preference, and no more, before any payment shall be made or any
assets distributed to the holders of Junior Liquidation Stock; provided,
however, that such rights shall accrue to the holders of Series B Preferred
Stock only in the event that the Corporation's payments with respect to the
liquidation preference of the holders of Senior Liquidation Stock are fully met.
After the liquidation preferences of the Senior Liquidation Stock are fully met,
the entire assets of the Corporation available for distribution shall be
distributed ratably among the holders of the Series B Preferred Stock and any
Parity Liquidation Stock in proportion to the respective preferential amounts to
which each is entitled (but only to the extent of such preferential amounts).
After payment in full of the liquidation price of the shares of the Series B
Preferred Stock and the Parity Liquidation Stock, the holders of such shares
shall not be entitled to any further participation in any distribution of assets
by the Corporation. Neither a consolidation or merger of the Corporation with
another corporation nor a sale or transfer of all or part of the Corporation's
assets for cash, securities, or other property in and of itself will be
considered a liquidation, dissolution, or winding up of the Corporation.
SECTION 7. MANDATORY REDEMPTION.
(a) MANDATORY REDEMPTION BASED ON MAXIMUM SHARE AMOUNT OR
REGISTRATION RESTRICTION INCONVERTIBILITY. (1) (A) Notwithstanding any other
provision herein, unless the Stockholder Approval shall have been obtained from
the stockholders of the Corporation or waived by the Nasdaq Stock Market, the
Corporation shall not be required to issue upon conversion of shares of Series B
Preferred Stock pursuant to Section 10 more than the Maximum Share Amount. The
Maximum Share Amount shall be allocated among the shares of Series B Preferred
Stock at the time of initial issuance thereof pro rata based on the total number
of authorized shares of Series B Preferred Stock provided in Section 2. If the
Maximum Share Amount shall increase after the Effective Date in accordance with
the definition of Maximum Share Amount in Section 1, such additional amount
shall be allocated amount the shares of Series B Preferred Stock as provided in
Section 7(a)(1). Each certificate for shares of Series B Preferred Stock
initially issued shall bear a notation as to the number of shares constituting
the
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<PAGE> 16
portion of the Maximum Share Amount allocated to the shares of Series B
Preferred Stock represented by such certificate for purposes of conversion
thereof.
(B) Upon surrender of any certificate for shares of Series B
Preferred Stock for transfer or re-registration thereof (or, at the option of
the holder of such certificate, for conversion pursuant to Section 10(a) of less
than all of the shares of Series B Preferred Stock represented thereby), the
Corporation shall make a notation on the new certificate issued upon such
transfer or re-registration or evidencing such unconverted shares, as the case
may be, as to the number of shares of Common Stock from the Maximum Share Amount
remaining available for conversion of the shares of Series B Preferred Stock
evidenced by such new certificate. If any certificate for shares of Series B
Preferred Stock is surrendered for split-up into two or more certificates
representing an aggregate number of shares of Series B Preferred Stock equal to
the number of shares of Series B Preferred Stock represented by the certificate
so surrendered (as reduced by any contemporaneous conversion of shares of Series
B Preferred Stock represented by the certificate so surrendered), each
certificate issued on such split-up shall bear a notation of the portion of the
Maximum Share Amount allocated thereto determined by pro rata allocation of the
remaining portion of the Maximum Share Amount allocated to the certificate so
surrendered. If any shares of Series B Preferred Stock represented by a single
certificate are converted in full pursuant to Section 10, all of the portion of
the Maximum Share Amount allocated to such shares of Series B Preferred Stock
which remains unissued after such conversion shall be re-allocated pro rata to
the outstanding shares of Series B Preferred Stock held of record by the holder
of record at the close of business on the date of such conversion of the shares
of Series B Preferred Stock so converted, and if there shall be no other shares
of Series B Preferred Stock held of record by such holder at the close of
business on such date, then such portion of the Maximum Share Amount shall be
allocated pro rata among the shares of Series B Preferred Stock outstanding at
the close of business on such date.
(2) (A) If (x) an Inconvertibility Day occurs then, unless the
Stockholder Approval shall have been obtained from the stockholders of the
Corporation or waived by the Nasdaq Stock Market (or other applicable securities
market or securities exchange) in the case of an Inconvertibility Day pursuant
to clause (x) of the definition of such term, the Corporation shall and (y) if a
Registration Restriction Inconvertibility occurs, then the Corporation shall, in
each such case, promptly, but in no event later than five Business Days after
each such occurrence, give an Inconvertibility Notice to each holder of shares
of Series B Preferred Stock (by telephone line facsimile transmission at such
number as such holder of shares of Series B Preferred Stock has specified in
writing to the Corporation for such purposes or, if such holder of shares of
Series B Preferred Stock shall not have specified any such number, by overnight
courier delivery to such holder's address as the same appears on the stock books
of the Corporation) and any holder of shares of Series B Preferred Stock may at
any time after such occurrence give an Inconvertibility Notice to the
Corporation. If the Corporation shall have given or been required to give any
Inconvertibility Notice, or if a holder of Series B Preferred Stock shall have
given any Inconvertibility Notice, then within the applicable Redemption
Election Period the holder receiving or giving or entitled to receive, as the
case may be, such Inconvertibility Notice shall have the right by a Redemption
Election given to the Corporation (which may be contained in the
Inconvertibility Notice given by such holder) to direct the
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<PAGE> 17
Corporation to redeem the portion of such holder's outstanding shares of Series
B Preferred Stock (which, if applicable, shall be all of such holder's
outstanding shares of Series B Preferred Stock) as shall not, on the Business
Day prior to the applicable Share Limitation Redemption Date, (x) be convertible
into shares of Common Stock by reason of such Inconvertibility Day or (y) be
convertible into shares of Common Stock which are covered by the Registration
Statement and available for sale by such holder pursuant to the Registration
Statement by reason of a Registration Restriction Inconvertibility, in each such
case, on the date which is five Business Days after such holder gives a
Redemption Election to the Corporation, at a price per share equal to the Share
Limitation Redemption Price. Notwithstanding any other provision of this
Certificate of Designations, if at the time any Redemption Election is given (x)
no Optional Redemption Event shall have occurred with respect to which any
holder of shares of Series B Preferred Stock shall have the right to require
repurchase of any shares of Series B Preferred Stock pursuant to Sections 11(a)
and 11(b) or with respect to which any holder of shares of Series B Preferred
Stock shall have exercised such right and the Corporation shall not have paid
the Optional Redemption Price and (y) the Corporation is in compliance in all
material respects with its obligations to the holders of shares of Series B
Preferred Stock (including, without limitation, its obligations under the Stock
Purchase Agreements, this Certificate of Designations, the Conversion Agent
Agreement and the Warrants) (1) no such redemption shall be made with respect to
a Registration Restriction Inconvertibility if, prior to the expiration of the
applicable Redemption Election Period, the Corporation and such holder shall, by
a Mandatory Redemption Waiver, waive the Corporation's obligation to make such
redemption and (2) if (i) the Registration Statement is and remains effective
and available for use by holders of shares of Series B Preferred Stock for
resale of the shares of Common Stock which are covered by the Registration
Statement, (ii) the Corporation files with the SEC an additional Registration
Statement as and when required by Section 8(b)(1) of the Stock Purchase
Agreements and (iii) the Corporation maintains Net Cash and Cash Equivalent
Balances at least equal to four times the Corporation's Quarterly Cash
Requirements, then the Corporation shall not be required to redeem any shares of
Series B Preferred Stock by reason of a particular Registration Restriction
Inconvertibility prior to the date which is 30 days after such Registration
Restriction Inconvertibility first occurs.
(B) An Inconvertibility Notice or a Redemption Election
given by a holder of shares of Series B Preferred Stock shall be deemed for all
purposes to be in proper form unless the Corporation notifies such holder in
writing within three Business Days after an Inconvertibility Notice or a
Redemption Election has been given (which notice shall specify all defects in
the Inconvertibility Notice or Redemption Election), and any Inconvertibility
Notice or Redemption Election containing any such defect shall nonetheless be
effective on the date given if such holder promptly undertakes in writing to
correct all such defects. Notwithstanding the absence of any such undertaking
from such holder, no such claim of error shall limit or delay performance of the
Corporation's obligation to redeem all inconvertible shares of Series B
Preferred Stock as to which a Redemption Election has been given and which
shares are not in dispute.
(3) Notwithstanding the giving of any Inconvertibility Notice by
the Corporation to one or more holders of Series B Preferred Stock or the giving
or the absence of
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any Inconvertibility Notice or Redemption Election by one or more holders of the
Series B Preferred Stock or any redemption of shares of Series B Preferred Stock
pursuant to Section 7(a)(2), thereafter the provisions of Section 7(a)(2) shall
continue to be applicable on any occasion unless, in the case of an
Inconvertibility Day specified in clause (x) of the definition of such term, the
Stockholder Approval shall have been obtained or waived by the Nasdaq Stock
Market (or other applicable securities market or securities exchange).
(4) On each Share Limitation Redemption Date (or such later
date as a holder surrenders such holder's certificate(s) for shares of Series B
Preferred Stock redeemed), the Corporation shall make payment in immediately
available funds of the applicable Share Limitation Redemption Price to the
holder of shares of Series B Preferred Stock to be redeemed to such account as
specified by such holder in writing to the Corporation at least one Business Day
prior to such Share Limitation Redemption Date. A holder of shares of Series B
Preferred Stock which are redeemed pursuant to this Section 7(a) shall not be
entitled to payment of the Share Limitation Redemption Price of such shares of
Series B Preferred Stock until such holder shall have surrendered the
certificate(s) for such shares of Series B Preferred Stock to the Corporation
or, in the case of the loss, theft or destruction of any such certificate, given
indemnity in accordance with Section 15(b). In connection with a redemption of
less than all of the shares of Series B Preferred Stock evidenced by a
particular certificate, promptly, but in no event later than three Trading Days
after surrender of such certificate to the Corporation, the Corporation shall
issue a replacement certificate for the shares of Series B Preferred Stock
evidenced by such certificate which have not been redeemed. Only whole shares of
Series B Preferred Stock may be redeemed. If the Corporation shall fail to pay
the Share Limitation Redemption Price of any shares of Series B Preferred Stock
in full when due, then the amount thereof shall bear interest to the extent not
prohibited by applicable law at the rate of 12% per annum from the due date
thereof until paid in full.
(5) If the Corporation shall have failed to pay in full the
Share Limitation Redemption Price (other than by reason of an Inconvertibility
Day) or the Optional Redemption Price for any share of Series B Preferred Stock
when the same is due and payable, without in any way relieving the Corporation
of its obligation to pay such amount in accordance herewith (except to the
extent expressly provided in Section 7(a)(7)), the holder of such share of
Series B Preferred Stock shall have the right to convert such share of Series B
Preferred Stock into Common Stock in accordance with Section 10(a) (subject to
the limitation based on beneficial ownership contained in the second sentence of
Section (10(a)); provided, however, that the shares of Common Stock received by
the holder upon any such conversion in certain circumstances may be subject to
restrictions on resale by such holder arising under applicable securities laws
to the extent not registered for resale by the holder pursuant to the
Registration Statement.
(6) If the Corporation shall have failed to pay in full the
Share Limitation Redemption Price for any portion (which, if applicable, may be
all) of any holder's shares of Series B Preferred Stock when the same is due and
payable by reason of an Inconvertibility Day and the Stockholder Approval shall
not have been obtained, without in any way relieving the Corporation of its
obligation to pay such amount in accordance herewith
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(except to the extent expressly provided in Section 7(a)(7)), upon the written
request of the Majority Holders, the Corporation shall use its best efforts to
obtain a waiver from the Nasdaq Stock Market (or other applicable securities
market or securities exchange) of the requirement for Stockholder Approval for
issuance of all shares of Common Stock issuable upon conversion of the Series B
Preferred Stock and the Warrants. If such waiver, in form reasonably
satisfactory to the Majority Holders, is not obtained within 15 days after the
Corporation's receipt of such request from the Majority Holders, then the
Corporation promptly shall call a special meeting of its stockholders, to be
held not later than 60 days after the expiration of the foregoing 15-day period,
to seek the Stockholder Approval for issuance of all shares of Common Stock
issuable upon conversion of the Series B Preferred Stock in accordance with
Section 10 and shall use its best efforts to obtain the Stockholder Approval.
(7) If a holder of shares of Series B Preferred Stock
converts all or any portion of such holder's shares of Series B Preferred Stock
pursuant to Section 7(a)(5), the amount of the Share Limitation Redemption Price
or the Optional Redemption Price, as the case may be, due to such holder with
respect to the number of shares of Series B Preferred Stock so converted shall
be reduced by $1,000 for each share of Series B Preferred Stock so converted.
(8) (A) Notwithstanding any other provision of this
Certificate of Designations, if an Inconvertibility Day occurs by reason of
events which are not solely within the control of the Corporation, the
Corporation shall have the right to give a Control Notice to the holders of
Series B Preferred Stock at any time after such Inconvertibility Day occurs and
prior to the earlier of (1) the date on which all holders of shares of Series B
Preferred Stock who had the right (other than as limited by this Section
7(a)(8)) to require redemption of any shares of Series B Preferred Stock by
reason of the occurrence of such Inconvertibility Day no longer have such right
and (2) the applicable Share Limitation Redemption Date by reason of the
earliest Redemption Election given by any holder of shares of Series B Preferred
Stock by reason of such Inconvertibility Day. For purposes of this Section
7(a)(8), an Inconvertibility Day shall be deemed to have occurred by reason of
events which are not solely within the control of the Corporation if a
requirement of the Corporation to redeem, or a right of any holder of shares of
Series B Preferred Stock to require redemption of, shares of Series B Preferred
Stock by reason thereof would result in the Corporation being required to
classify the Series B Preferred Stock as redeemable preferred stock on a balance
sheet of the Corporation prepared in accordance with Generally Accepted
Accounting Principles. If the Corporation timely gives a Control Notice to the
holders of shares of Series B Preferred Stock, then in lieu of payment of the
Share Limitation Redemption Price pursuant to a Redemption Election given by any
holder of shares of Series B Preferred Stock by reason of such Inconvertibility
Day and commencing on such Inconvertibility Day (i) the Conversion Price for all
outstanding shares of Series B Preferred Stock will be 80% of the amount the
Conversion Price would otherwise be and (ii) the Accrual Amount shall accrue on
all outstanding shares of Series B Preferred Stock at the rate of 18% per annum.
Such adjustments of the Conversion Price and the Accrual Amount shall continue
in effect until the earliest of (x) the date which is 90 days after the
Stockholder Approval shall have been obtained from the stockholders of the
Corporation or waived by the Nasdaq Stock Market or other securities market on
which the Common Stock is then listed, (y) the date any further adjustments are
made following a failure to obtain the Stockholder Approval as provided below,
and (z) the
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date when shares of Series B Preferred Stock are no longer outstanding. On or
after the date the Corporation gives such Control Notice, upon notice from the
Outstanding Majority Holders, the Corporation promptly shall call a special
meeting of its stockholders, to be held not later than 60 days after such notice
is given, to seek the Stockholder Approval for the issuance of all shares of
Common Stock issuable upon conversion of the Series B Preferred Stock in
accordance with Section 10 and shall use its best efforts to obtain the
Stockholder Approval. The Corporation shall prepare and file with the SEC within
20 days after such notice is given preliminary proxy materials which set forth a
proposal to seek such Stockholder Approval. The Corporation shall provide the
Outstanding Majority Holders an opportunity to consult with the Corporation
regarding the content of such proxy materials insofar as it relates to the
Stockholder Approval by providing copies of such preliminary proxy materials and
any revised preliminary proxy materials to the Outstanding Majority Holders a
reasonable period of time prior to their filing with the SEC. The Corporation
shall furnish to each holder of shares of Series B Preferred Stock a copy of its
definitive proxy materials for such special meeting and any amendments or
supplements thereto promptly after the same are mailed to stockholders or filed
with the SEC. Upon the earlier of (i) the failure to obtain the Stockholder
Approval at the special meeting or (ii) the failure to hold the special meeting
within such 60-day period, the Corporation shall so notify the holders of shares
of Series B Preferred Stock and such of the following as shall be specified by
notice to the Corporation from the Outstanding Majority Holders shall occur: (1)
commencing on the Business Day following the Corporation's receipt of such
notice, (i) the Conversion Price of the outstanding shares of Series B Preferred
Stock will be 70% of the amount the Conversion Price would otherwise be without
regard to other adjustments pursuant this Section 7(a)(8) or Section 11(b)(4)
and (ii) the Accrual Amount shall accrue on the outstanding shares of Series B
Preferred Stock at the rate of 30% per annum and (2) the Corporation shall
promptly file applications and take all other actions necessary to (i) list the
Common Stock for trading and quotation on the OTC Bulletin Board or such other
securities market or exchange which will not restrict the number of shares of
Common Stock issuable upon conversion of the Series B Preferred Stock and (ii)
upon filing such applications, request the immediate removal of the Common Stock
from listing on the securities market on which it is then listed which restricts
the issuance of shares of Common Stock upon conversion of shares of Series B
Preferred Stock without the Stockholder Approval.
(B) If and for so long as an adjustment of the Conversion
Price and/or the Accrual Amount is simultaneously required by this Section
7(a)(8) and by Section 11(b)(4), the applicable Conversion Price shall be the
lower of the two amounts required by each such section and the applicable
Accrual Amount shall be the higher of the two amounts required by each such
section.
(C) On or before the effective date of each adjustment to
the Conversion Price or the Accrual Amount made pursuant to this Section 7(a)(8)
or Section 11(b)(4), the Corporation shall give an Adjustment Notice (which may
be combined with a Control Notice) to each holder of shares of Series B
Preferred Stock. No failure of the Corporation to give an Adjustment Notice
shall affect the validity or effectiveness of such adjustments.
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(D) The rights of holders of shares of Series B Preferred
Stock to require redemption of their shares and exercise other rights pursuant
to Sections 7(a)(1) through 7(a)(7) by reason of an Inconvertibility Day as to
which the Corporation does not have a right to give a Control Notice, or fails
to exercise such right on a timely basis, shall not be limited by the operation
of this Section 7(a)(8).
(b) NO OTHER MANDATORY REDEMPTION. The shares of Series B
Preferred Stock shall not be subject to mandatory redemption by the Corporation
except as provided in this Section 7 and in Section 11.
SECTION 8. NO SINKING FUND. The shares of Series B Preferred Stock shall
not be entitled to the benefits of any sinking fund for the redemption or
repurchase of shares of Series B Preferred Stock.
SECTION 9. REDEMPTION AT OPTION OF CORPORATION.
(a) OPTIONAL REDEMPTION. (1) So long as (w) the Corporation shall
be in compliance in all material respects with its obligations to the holders of
the Series B Preferred Stock (including, without limitation, its obligations
under the Stock Purchase Agreements, this Certificate of Designations, the
Conversion Agent Agreement and the Warrants), (x) the Registration Statement
shall be effective and available for use by the selling stockholders named
therein on the date the Corporation gives the Redemption Notice and on the
Redemption Date, (y) no Optional Redemption Event shall have occurred with
respect to which on the Redemption Date any holder of shares of Series B
Preferred Stock shall be entitled to exercise redemption rights under Sections
11(a) and 11(b) or with respect to which any holder of shares of Series B
Preferred Stock shall have exercised such rights and the Optional Redemption
Price shall not have been paid and (z) on the date the Corporation gives the
Redemption Notice and on the Redemption Date, the Corporation has Net Cash and
Cash Equivalent Balances which are sufficient, after taking into account the
Corporation's cash requirements during the period from the date the Redemption
Notice is given to the Redemption Date, to pay the Redemption Price of the
shares of Series B Preferred Stock to be redeemed, the Corporation shall have
the right in a single instance to redeem all or any part of the outstanding
shares of Series B Preferred Stock pursuant to this Section 9(a) at the
Redemption Price. In order to exercise it right of redemption under this Section
9(a), the Corporation shall give a Redemption Notice to the holders of shares of
Series B Preferred Stock not less than 30 or more than 60 days prior to the
Redemption Date.
(2) On the Redemption Date (or such later date as a holder
of shares of Series B Preferred Stock shall surrender to the Corporation the
certificate(s) for the shares of Series B Preferred Stock redeemed), the
Corporation shall pay to or upon the order of each holder of shares of Series B
Preferred Stock by wire transfer of immediately available funds to such account
as shall be specified for such purpose by such holder in an amount equal to the
Redemption Price of all of such holder's shares of Series B Preferred Stock to
be redeemed. A holder of shares of Series B Preferred Stock which are redeemed
pursuant to this Section 9(a) shall not be entitled to payment of the Redemption
Price of such shares of Series B Preferred Stock until such holder shall have
surrendered the certificate(s) for such shares of Series B
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Preferred Stock to the Corporation or, in the case of the loss, theft or
destruction of any such certificate, given indemnity in accordance with Section
15(b). If the Corporation shall fail to pay the Redemption Price of any shares
of Series B Preferred Stock in full when due, then the amount thereof shall bear
interest to the extent not prohibited by applicable law at the rate of 12% per
annum from the due date thereof until paid in full.
(3) Notwithstanding the giving of a Redemption Notice, each
holder of shares of Series B Preferred Stock shall be entitled to convert in
accordance with Section 10 any shares of Series B Preferred Stock which are to
be redeemed at any time prior to (1) the Redemption Date or (2) if the
Corporation fails to pay the Redemption Price in full to such holder on the
Redemption Date, the date on which the Corporation pays the Redemption Price in
full for all shares of Series B Preferred Stock to be redeemed from such holder.
(4) Any redemption of shares of Series B Preferred Stock
pursuant to this Section 9(a) shall be made as nearly as practical pro rata from
all holders of shares of Series B Preferred Stock outstanding, subject to
reduction of the shares of Series B Preferred Stock to be redeemed from any
holder by reason of conversions of shares of Series B Preferred Stock of such
holder between the date the Redemption Notice is given and the Redemption Date.
(5) Upon receipt by the Corporation from a holder of shares
of Series B Preferred Stock of certificates for shares of Series B Preferred
Stock evidencing a greater number of shares of Series B Preferred Stock than the
number of shares of Series B Preferred Stock to be redeemed in accordance with
this Section 9(a), the Corporation shall, within three Trading Days after such
surrender, issue and deliver to or upon the order of such holder a new
certificate for the balance of shares of Series B Preferred Stock, if any.
(b) NO OTHER REDEMPTION AT THE OPTION OF THE CORPORATION.
Except as otherwise specifically provided in Section 9(a), the
Corporation shall not have any right to redeem any shares of Series B Preferred
Stock at the option of the Corporation.
SECTION 10. CONVERSION.
(a) CONVERSION AT OPTION OF HOLDER. The holders of the Series B
Preferred Stock may convert at any time all or from time to time any part of
their outstanding shares of Series B Preferred Stock into fully paid and
nonassessable shares of Common Stock and such other securities and property as
hereinafter provided. Commencing on the Issuance Date, and at any time
thereafter, each share of Series B Preferred Stock may be converted at the
office of the Conversion Agent or at such additional office or offices, if any,
as the Board of Directors may designate, into such number of fully paid and
nonassessable shares of Common Stock (calculated as to each conversion to the
nearest 1/100th of a share) determined by dividing (x) the sum of (i) $1,000
plus (ii) an amount equal to the Accrual Amount on the share of Series B
Preferred Stock being converted to the applicable Conversion Date by (y) the
Conversion Price on the applicable Conversion Date; provided, however, that in
no event shall any holder of shares of Series B Preferred Stock be entitled to
convert any shares of Series B Preferred Stock in excess of that
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number of shares of Series B Preferred Stock upon conversion of which the sum of
(1) the number of shares of Common Stock beneficially owned by such holder
(including shares of Common Stock beneficially owned by all Aggregated Persons
of such holder) (other than shares of Common Stock deemed beneficially owned by
such holder or any Aggregated Person of such holder through the ownership of (x)
unconverted shares of Series B Preferred Stock and (y) the unconverted or
unexercised portion of any instrument which contains limitations similar to
those set forth in this sentence) and (2) the number of shares of Common Stock
issuable upon the conversion of the number of shares of Series B Preferred Stock
with respect to which the determination in this proviso is being made, would
result in beneficial ownership by such holder and all Aggregated Persons of such
holder of more than 4.9% of the outstanding shares of Common Stock. For purposes
of the proviso to the immediately preceding sentence, beneficial ownership shall
be determined in accordance with Section 13(d) of the 1934 Act and Regulation
13D-G thereunder, except as otherwise provided in clause (1) of the proviso to
the immediately preceding sentence. For purposes of the proviso to the second
preceding sentence, the Corporation shall be entitled to rely, and shall be
fully protected in relying, on any statement or representation made by a holder
of shares of Series B Preferred Stock to the Corporation in connection with a
particular conversion, without any obligation on the part of the Corporation to
make any inquiry or investigation or to examine its records or the records of
any transfer agent for the Common Stock and without any liability of the
Corporation with respect thereto.
(b) OTHER PROVISIONS. (1) The holders of shares of Series B
Preferred Stock at the close of business on the record date for any dividend
payment to holders of Series B Preferred Stock shall be entitled to receive the
dividend payable on such shares on the corresponding dividend payment date
notwithstanding the conversion thereof after the record date for such dividend
payment date or the Corporation's default in payment of the dividend due on such
dividend payment date; provided, however, that the holder of shares of Series B
Preferred Stock converted during the period between the close of business on any
record date for a dividend payment and the opening of business on the
corresponding dividend payment date must pay to the Corporation, within five
days after receipt by such holder, an amount equal to the dividend payable on
such shares on such dividend payment date if such dividend is paid by the
Corporation to such holder. A holder of shares of Series B Preferred Stock on a
record date for a dividend payment who (or whose transferee) converts any of
such shares into shares of Common Stock on or after such dividend payment date
will receive the dividend payable by the Corporation on such shares of Series B
Preferred Stock on such dividend payment date, and the converting holder need
not make any payment of the amount of such dividend in connection with such
conversion of shares of Series B Preferred Stock. Except as provided above, no
adjustment shall be made in respect of cash dividends on Common Stock or Series
B Preferred Stock that may be accrued and unpaid at the date of conversion of
shares of Series B Preferred Stock.
(2) The right of the holders of Series B Preferred Stock to
convert their shares shall be exercised by delivering (which may be made by
telephone line facsimile transmission) a Conversion Notice to the Conversion
Agent at the address or telephone line facsimile transmission number provided in
or pursuant to the Conversion Agent Agreement, with a copy to the Corporation at
the address or telephone line facsimile transmission number provided in or
pursuant to Section 15(a); provided, however, that any failure or delay in the
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giving of a copy of the Conversion Notice to the Corporation shall not affect
the validity or the Conversion Date for any such Conversion Notice. The number
of shares of Common Stock to be issued upon each conversion of shares of Series
B Preferred Stock shall be the number set forth in the applicable Conversion
Notice, which number shall be conclusive absent manifest error. The Corporation
shall notify a holder who has given a Conversion Notice of any claim of manifest
error within three Trading Days after such holder gives such Conversion Notice,
and no such claim of error shall limit or delay performance of the Corporation's
obligation to issue upon such conversion the number of shares of Common Stock
which are not in dispute. A Conversion Notice shall be deemed for all purposes
to be in proper form unless the Corporation notifies a holder of shares of
Series B Preferred Stock being converted within three Trading Days after a
Conversion Notice has been given (which notice shall specify all defects in such
Conversion Notice), and any Conversion Notice containing any such defect shall
nonetheless be effective on the date given if the converting holder agrees to
correct all such defects promptly.
(3) If a holder of Series B Preferred Stock elects to
convert any shares of Series B Preferred Stock in accordance with Section 10(a),
such holder shall not be required to surrender the certificate(s) representing
such shares of Series B Preferred Stock physically to the Corporation unless all
of the shares of Series B Preferred Stock represented thereby are so converted.
Each holder of shares of Series B Preferred Stock and the Corporation shall
maintain records showing the number of shares so converted and the dates of such
conversions or shall use such other method, satisfactory to such holder and the
Corporation, so as to not require physical surrender of such certificates upon
each such conversion. In the event of any dispute or discrepancy, such records
of the Corporation shall be controlling and determinative in the absence of
manifest error. Notwithstanding the foregoing, if any shares of Series B
Preferred Stock evidenced by a particular certificate therefor are converted as
aforesaid, the holder of Series B Preferred Stock may not transfer the
certificate(s) representing such shares of Series B Preferred Stock unless such
holder first physically surrenders such certificate(s) to the Corporation,
whereupon the Corporation will forthwith issue and deliver upon the order of
such holder of shares of Series B Preferred Stock new certificate(s) of like
tenor, registered as such holder of shares of Series B Preferred Stock (upon
payment by such holder of shares of Series B Preferred Stock of any applicable
transfer taxes) may request, representing in the aggregate the remaining number
of shares of Series B Preferred Stock represented by such certificate(s). Each
holder of shares of Series B Preferred Stock, by acceptance of a certificate for
such shares, acknowledges and agrees that (1) by reason of the provisions of
this paragraph, following conversion of any shares of Series B Preferred Stock
represented by such certificate, the number of shares of Series B Preferred
Stock represented by such certificate may be less than the number of shares
stated on such certificate and by reason of Section 7(a), the number of shares
of Common Stock from the Maximum Share Amount allocated to the shares of Series
B Preferred Stock represented by such certificate for purposes of conversion of
such shares may be less than the number thereof stated on such certificate and
(2) the Corporation may place one or more legends on the certificates for shares
of Series B Preferred Stock which refers to or describes the provisions of this
paragraph and Section 7(a). The Corporation may by notice to any holder of
shares of Series B Preferred Stock require such holder to surrender the
certificate(s) for such holder's shares of Series B Preferred Stock in exchange
for issuance by the Corporation of one or more new certificates for the number
of shares evidenced by the certificate(s) so surrendered.
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<PAGE> 25
(4) The Corporation shall pay any transfer tax arising in
connection with any conversion of shares of Series B Preferred Stock except that
the Corporation shall not, however, be required to pay any tax which may be
payable in respect of any transfer involved in the issue and delivery upon
conversion of shares of Common Stock or other securities or property in a name
other than that of the holder of the shares of the Series B Preferred Stock
being converted, and the Corporation shall not be required to issue or deliver
any such shares or other securities or property unless and until the Person or
Persons requesting the issuance thereof shall have paid to the Corporation the
amount of any such tax or shall have established to the satisfaction of the
Corporation that such tax has been paid. A holder of shares of Series B
Preferred Stock who converts such shares shall be responsible for the amount of
any withholding tax payable in connection with such conversion.
(5) The Corporation (and any successor corporation) shall
take all action necessary so that a number of shares of the authorized but
unissued Common Stock (or common stock in the case of any successor corporation)
sufficient to provide for the conversion of the Series B Preferred Stock
outstanding upon the basis hereinbefore provided are at all times reserved by
the Corporation (or any successor corporation), free from preemptive rights, for
such conversion, subject to the provisions of the next succeeding paragraph. If
the Corporation shall issue any securities or make any change in its capital
structure which would change the number of shares of Common Stock into which
each share of the Series B Preferred Stock shall be convertible as herein
provided, the Corporation shall at the same time also make proper provision so
that thereafter there shall be a sufficient number of shares of Common Stock
authorized and reserved, free from preemptive rights, for conversion of the
outstanding Series B Preferred Stock on the new basis. If at any time the number
of authorized but unissued shares of Common Stock shall not be sufficient to
effect the conversion of all of the outstanding shares of Series B Preferred
Stock, the Corporation promptly shall seek such corporate action as may, in the
opinion of its counsel, be necessary to increase its authorized but unissued
shares of Common Stock to such number of shares as shall be sufficient for such
purpose.
(6) (A) In case of any consolidation or merger of the
Corporation with any other corporation (other than a wholly-owned subsidiary of
the Corporation) in which the Corporation is not the surviving corporation, or
in case of any sale or transfer of all or substantially all of the assets of the
Corporation, or in the case of any share exchange pursuant to which all of the
outstanding shares of Common Stock are converted into other securities or
property, the Corporation shall make appropriate provision or cause appropriate
provision to be made so that each holder of shares of Series B Preferred Stock
then outstanding shall have the right thereafter to convert such shares of
Series B Preferred Stock into the kind of shares of stock and other securities
and property receivable upon such consolidation, merger, sale, transfer, or
share exchange by a holder of shares of Common Stock into which such shares of
Series B Preferred Stock could have been converted immediately prior to the
effective date of such consolidation, merger, sale, transfer, or share exchange
and on a basis which preserves the economic benefits of the conversion rights of
the holders of shares of Series B Preferred Stock on a basis as nearly as
practical as such rights exist hereunder prior thereto. If, in connection with
any such consolidation, merger, sale, transfer, or share exchange, each holder
of shares of Common Stock is entitled to elect to receive securities, cash, or
other assets upon completion of
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<PAGE> 26
such transaction, the Corporation shall provide or cause to be provided to each
holder of Series B Preferred Stock the right to elect prior to completion of
such transaction the securities, cash, or other assets into which the Series B
Preferred Stock held by such holder shall be convertible after completion of any
such transaction on the same terms and subject to the same conditions applicable
to holders of the Common Stock (including, without limitation, notice of the
right to elect, limitations on the period in which such election shall be made,
and the effect of failing to exercise the election). Notwithstanding the
forgoing, in connection with any such merger, consolidation, sale, transfer or
exchange, the Corporation shall have the right, in lieu of making provision for
preservation of economic benefits of the conversion rights of the holders of
shares of Series B Preferred Stock, to redeem all outstanding shares of Series B
Preferred Stock immediately after completion of such transaction at a price per
share of Series B Preferred Stock in cash equal to the Business Combination
Redemption Price. Such right of redemption shall be exercised by notice from the
Corporation to the holders of shares of Series B Preferred Stock stating that
the Corporation is exercising its redemption right under this Section 10(b)(6),
which notice shall be given at least 20 Trading Days and not more than 30
Trading Days prior to completion of such transaction and shall specify that such
redemption shall occur on the Business Day immediately following the date of
completion of such transaction. On the date specified in such notice (or such
later date as a holder of shares of Series B Preferred Stock surrenders such
holder's certificates for shares of Series B Preferred Stock redeemed) the
Corporation shall make payment in immediately available funds of the applicable
Business Combination Redemption Price to each holder of shares of Series B
Preferred Stock to be redeemed to such account as specified by such holder in
writing to the Corporation at least one Business Day prior to such payment of
the Business Combination Redemption Price. A holder of shares of Series B
Preferred Stock which are redeemed pursuant to this Section 10(b)(6) shall not
be entitled to payment of the Business Combination Redemption Price of such
shares of Series B Preferred Stock until such holder shall have surrendered the
certificate(s) for such shares of Series B Preferred Stock to the Corporation
or, in the case of the loss, theft or destruction of any such certificate, given
indemnity in accordance with Section 15(b). If the Corporation shall fail to pay
the Business Combination Redemption Price of any shares of Series B Preferred
Stock in full when due, then the amount thereof shall bear interest to the
extent not prohibited by applicable law at the rate of 12% per annum from the
due date thereof until paid in full. Notwithstanding the giving of a notice of
redemption pursuant to this Section 10(b)(6), each holder of shares of Series B
Preferred Stock shall be entitled to convert in accordance with this Section 10
any shares of Series B Preferred Stock which are to be redeemed at any time
prior to (1) the redemption date specified in the notice of redemption or (2) if
the Corporation fails to pay the Business Combination Redemption Price in full
to such holder when due, the date on which the Corporation pays the Business
Combination Redemption Price in full to such holder for all shares of Series B
Preferred Stock to be redeemed from such holder. The Corporation shall not
effect any such transaction unless it shall have complied with the provisions of
this paragraph. The above provisions shall similarly apply to successive
consolidations, mergers, sales, transfers, or share exchanges.
(B) Whenever the Corporation shall propose to take any of the
actions specified in this Section 10(b)(6), the Corporation shall cause a notice
to be mailed, at least 20 days prior to the date on which the books of the
Corporation will close or on which the
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security holders entitled to participate in such transaction will be determined,
to the holders of record of the outstanding Series B Preferred Stock on the date
of such notice. Such notice shall specify the action proposed to be taken by the
Corporation and the date as of which holders of record of the Common Stock shall
participate in any such actions or be entitled to exchange their Common Stock
for securities or other property, as the case may be.
(7) Upon receipt by the Conversion Agent from a holder of
shares of Series B Preferred Stock of a Conversion Notice, the Corporation shall
issue and deliver or cause to be issued and delivered to or upon the order of
such holder certificates for the Common Stock issuable upon such conversion by
the close of business on the third Trading Day after such Conversion Notice is
received, and as of the close of business on the date of such receipt such
holder (or such holder's assignee) shall be deemed to be the holder of record of
the Common Stock issuable upon such conversion, and all rights with respect to
the shares of Series B Preferred Stock so converted shall forthwith terminate
except the right to receive the Common Stock or other securities, cash, or other
assets, as herein provided, on such conversion. If a holder of Series B
Preferred Stock shall have given a Conversion Notice in accordance with the
terms of this Certificate of Designations, the Corporation's obligation to issue
and deliver the certificates for Common Stock issuable upon such conversion
shall be absolute and unconditional, irrespective of any action or inaction by
the converting holder to enforce the same, any waiver or consent with respect to
any provision thereof, the recovery of any judgment against any Person or any
action to enforce the same, any failure or delay in the enforcement of any other
obligation of the Corporation to the holder of record, or any setoff,
counterclaim, recoupment, limitation or termination, or any breach or alleged
breach by the holder or any other Person of any obligation to the Corporation,
or any violation or alleged violation of law by such holder or any other Person,
and irrespective of any other circumstance which might otherwise limit such
obligation of the Corporation to such holder in connection with such conversion;
provided, however, that nothing herein shall limit or prejudice the right of the
Corporation to pursue any such claim in any other manner permitted by applicable
law. The occurrence of an event which requires an equitable adjustment of the
Trading Price as contemplated by the definition thereof in Section 1 shall in no
way restrict or delay the right of any holder of shares of Series B Preferred
Stock to receive shares of Common Stock upon conversion of shares of Series B
Preferred Stock, and the Corporation shall use its best efforts to implement
each such adjustment on terms reasonably acceptable to the Majority Holders
within two Trading Days after such occurrence. If the Corporation fails to issue
and deliver the certificates for the Common Stock to the holder converting
shares of Series B Preferred Stock as and when required to do so, in addition to
any other liabilities the Corporation may have hereunder and under applicable
law (1) the Corporation shall pay or reimburse such holder on demand for all
out-of-pocket expenses, including, without limitation, reasonable fees and
expenses of legal counsel, incurred by such holder as a result of such failure,
(2) the percentage used to calculate the Conversion Price applicable to such
conversion shall be reduced by one-tenth of a percentage point from the
percentage otherwise used to calculate the Conversion Price applicable to such
conversion for each Trading Day during the period from the date the Corporation
was required to deliver such shares of Common Stock to the date the Corporation
so delivers such shares of Common Stock; provided, however, that in no event
shall any such reduction be made for any Trading Day in such period which is
after the date which is 120 days after the date the
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Corporation was required to deliver such shares of Common Stock in connection
with such conversion, and (3) such holder may by written notice (which may be
given by mail, courier, personal service or telephone line facsimile
transmission) or oral notice (promptly confirmed in writing) given at any time
prior to delivery to such holder of the certificates for the shares of Common
Stock issuable upon such conversion of shares of Series B Preferred Stock,
rescind such conversion, whereupon such holder shall have the right to convert
such shares of Series B Preferred Stock thereafter in accordance herewith;
provided, however, that the Corporation shall not be liable to any holder of
shares of Series B Preferred Stock under the preceding clause (1) or clause (2)
to the extent the failure of the Corporation to deliver or to cause to be
delivered such shares of Common Stock results from fire, flood, storm,
earthquake, shipwreck, strike, war, acts of terrorism, crash involving
facilities of a common carrier, acts of God, or any similar event outside the
control of the Corporation (it being understood that the action or failure to
act of the Conversion Agent shall not be deemed an event outside the control of
the Corporation except to the extent resulting from fire, flood, storm,
earthquake, shipwreck, strike, war, acts of terrorism, crash involving
facilities of a common carrier, acts of God, the bankruptcy, liquidation or
reorganization of the Conversion Agent under any bankruptcy, insolvency or other
similar law or any similar event outside the control of the Conversion Agent). A
holder of shares of Series B Preferred Stock who has given a Conversion Notice
shall notify the Corporation in writing (or by telephone conversation, confirmed
in writing) as promptly as practicable after becoming aware that shares of
Common Stock issued upon such conversion have not been received as provided in
this Section 10(b)(7).
(8) No fractional shares of Common Stock shall be issued
upon conversion of Series B Preferred Stock but, in lieu of any fraction of a
share of Common Stock which would otherwise be issuable in respect of the
aggregate number of shares of Series B Preferred Stock surrendered for
conversion at one time by the same holder, the Corporation shall pay in cash to
such holder at the time of issuance of shares of Common Stock in connection with
such conversion an amount equal to the product of (i) the arithmetic average of
the Market Price of a share of Common Stock on the three consecutive Trading
Days ending on the Trading Day immediately preceding the Conversion Date times
(ii) such fraction of a share of Common Stock.
SECTION 11. REDEMPTION UPON AN OPTIONAL REDEMPTION EVENT.
(a) REDEMPTION RIGHT UPON OPTIONAL REDEMPTION EVENT. If an
Optional Redemption Event occurs, then each holder of shares of Series B
Preferred Stock shall have the right, at such holder's option, to require the
Corporation to redeem all of such holder's shares of Series B Preferred Stock,
or any portion thereof, on the date that is three Business Days after the date
of the Holder Notice given with respect to such Optional Redemption Event. Each
holder of shares of Series B Preferred Stock shall have the right to require the
Corporation to redeem all or any such portion of such holder's shares of Series
B Preferred Stock if an Optional Redemption Event occurs at any time while any
of such holder's shares of Series B Preferred Stock are outstanding at a price
equal to the Optional Redemption Price.
(b) NOTICES; METHOD OF EXERCISING OPTIONAL REDEMPTION RIGHTS,
ETC. (1) On or before the fifth Business Day after the occurrence of an Optional
Redemption Event, the
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Corporation shall give to each holder of outstanding shares of Series B
Preferred Stock a Corporation Notice of the occurrence of such Optional
Redemption Event and of the redemption right set forth herein arising as a
result thereof. The Corporation Notice shall set forth:
(i) the date by which the optional redemption right must be
exercised, and
(ii) a description of the procedure (set forth below) which
each such holder must follow to exercise such holder's optional
redemption right.
No failure of the Corporation to give a Corporation Notice or defect therein
shall limit the right of any holder of shares of Series B Preferred Stock to
exercise the optional redemption right or affect the validity of the proceedings
for the redemption of such holder's shares of Series B Preferred Stock.
(2) To exercise its optional redemption right, each holder
of outstanding shares of Series B Preferred Stock shall deliver to the
Corporation on or before the thirtieth day after a Corporation Notice is given
to such holder (or if no Corporation Notice has been given to such holder,
within forty days after such holder first learns of the Optional Redemption
Event) a Holder Notice to the Corporation setting forth the name of such holder
and the number of such holder's shares of Series B Preferred Stock to be
redeemed. A Holder Notice may be revoked by such holder giving such Holder
Notice by giving notice of such revocation to the Corporation at any time prior
to the time the Corporation pays the Optional Redemption Price to such holder.
(3) If a holder of shares of Series B Preferred Stock shall
have given a Holder Notice, on the date which is three Business Days after the
date such Holder Notice is given (or such later date as such holder surrenders
such holder's certificates for the shares of Series B Preferred Stock redeemed)
the Corporation shall make payment in immediately available funds of the
applicable Optional Redemption Price to such account as specified by such holder
in writing to the Corporation at least one Business Day prior to the applicable
redemption date. A holder of shares of Series B Preferred Stock which are
redeemed pursuant to Sections 11(a) and 11(b) shall not be entitled to payment
of the Optional Redemption Price of such shares of Series B Preferred Stock
until such holder shall have surrendered the certificate(s) for such shares of
Series B Preferred Stock to the Corporation or, in the case of the loss, theft
or destruction of any such certificate, given indemnity in accordance with
Section 15(b).
(4) Notwithstanding any other provision of this Certificate
of Designations, if an Optional Redemption Event occurs by reason of the
occurrence of an event described in clause (1), (2) or (3) of the definition of
the term Optional Redemption Event, and such occurrence is by reason of events
which are not solely within the control of the Corporation, the Corporation
shall have the right to give a Control Notice to the holders of shares of Series
B Preferred Stock at any time after such Optional Redemption Event occurs and
prior to the earlier of (1) the date on which all holders of shares of Series B
Preferred Stock who had the right (other than as limited by this Section
11(b)(4)) to require redemption of any shares of Series B Preferred Stock by
reason of the occurrence of such Optional Redemption Event no longer have
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such right and (2) the applicable Optional Redemption Date by reason of the
earliest Holder Notice given by any holder of shares of Series B Preferred Stock
by reason of such Optional Redemption Event. If the Corporation timely gives
such Control Notice and an Adjustment Notice (which may be combined in a single
notice) to the holders of shares of Series B Preferred Stock, then in lieu of
payment of the Optional Redemption Price by reason of any such Optional
Redemption Event and commencing on the first date on which such Optional
Redemption Event occurs the following adjustments shall take effect (subject to
the provisions of Section 7(a)(8)(B)):
(A) In the case of an Optional Redemption Event described in
clause (1) of the definition of the term Optional Redemption Event, for a period
of 180 days after the occurrence of such Optional Redemption Event (i) the
Conversion Price will be 80% of the amount which the Conversion Price would
otherwise be and (ii) the Accrual Amount shall accrue on the Series B Preferred
Stock at the rate of 18% per annum.
(B) In the case of an Optional Redemption Event described in
clause (2) of the definition of the term Optional Redemption Event, for so long
as such Optional Redemption Event continues (i) the Conversion Price will be 80%
of the amount which the Conversion Price would otherwise be and (ii) the Accrual
Amount shall accrue on the Series B Preferred Stock at the rate of 18% per
annum.
(C) In the case of an Optional Redemption Event described in
clause (3) of the definition of the term Optional Redemption Event, for so long
as any shares of Preferred Stock are outstanding (i) the Conversion Price will
be 70% of the amount which the Conversion Price would otherwise be and (ii) the
Accrual Amount shall accrue on the Series B Preferred Stock at the rate of 30%
per annum.
For purposes of this Section 11(b)(4), an Optional Redemption Event described in
clause (1), (2) or (3) of the definition of the term Optional Redemption Event
shall be deemed to have occurred by reason of events which are not solely within
the control of the Corporation if a requirement of the Corporation to redeem, or
a right of any holder of shares of Series B Preferred Stock to require
redemption of, shares of Series B Preferred Stock by reason thereof would result
in the Corporation being required to classify the Series B Preferred Stock as
redeemable preferred stock on a balance sheet of the Corporation prepared in
accordance with Generally Accepted Accounting Principles, and, in the case of an
Optional Redemption Event described in clause (3) of the definition of the term
Optional Redemption Event, the Board or the stockholders of the Corporation do
not have the right to approve or disapprove the transactions resulting in such
event.
(c) OTHER. (1) If the Corporation fails to pay in full when due the
Optional Redemption Price for the number of shares of Series B Preferred Stock
specified in a Holder Notice, then the amount thereof shall bear interest to the
extent not prohibited by applicable law at the rate of 12% per annum from the
due date thereof until paid in full.
(2) In connection with a redemption pursuant to this Section 11
of less than all of the shares of Series B Preferred Stock evidenced by a
particular certificate, promptly,
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but in no event later than three Business Days after surrender of such
certificate to the Corporation, the Corporation shall issue and deliver to such
holder a replacement certificate for the shares of Series B Preferred Stock
evidenced by such certificate which have not been redeemed.
(3) A Holder Notice given by a holder of shares of Series B
Preferred Stock shall be deemed for all purposes to be in proper form unless the
Corporation notifies such holder in writing within three Business Days after
such Holder Notice has been given (which notice shall specify all defects in the
Holder Notice), and any Holder Notice containing any such defect shall
nonetheless be effective on the date given if such holder promptly undertakes in
writing to correct all such defects. Notwithstanding the absence of any such
undertaking from such holder, no such claim of error shall limit or delay
performance of the Corporation's obligation to redeem all shares of Series B
Preferred Stock not in dispute.
SECTION 12. VOTING RIGHTS; CERTAIN RESTRICTIONS.
(a) VOTING RIGHTS. Except as otherwise required by law or
expressly provided herein, shares of Series B Preferred Stock shall not be
entitled to vote on any matter.
(b) CERTIFICATE OF INCORPORATION; CERTAIN STOCK. The affirmative
vote or written consent of the Majority Holders, voting separately as a class,
will be required for (1) any amendment, alteration, or repeal, whether by merger
or consolidation or otherwise, of the Corporation's Certificate of Incorporation
if the amendment, alteration, or repeal materially and adversely affects the
powers, preferences, or special rights of the Series B Preferred Stock, or (2)
the creation or issuance of any Senior Dividend Stock or Senior Liquidation
Stock; provided, however, that any increase in the authorized Preferred Stock of
the Corporation or the creation and issuance of any stock which is both Junior
Dividend Stock and Junior Liquidation Stock shall not be deemed to affect
materially and adversely such powers, preferences, or special rights and any
such increase or creation and issuance may be made without any such vote by the
holders of Series B Preferred Stock except as otherwise required by law; and
provided further, however, that no such amendment, alteration or repeal shall
(i) reduce the Optional Redemption Price, Redemption Price, Share Limitation
Redemption Price or the amount payable to a holder of shares of Series B
Preferred Stock pursuant to Section 5(b), 5(c) or 10(b)(6)(A), (ii) reduce the
percentage in, or otherwise change the definition of Majority Holders, (iii)
change the method of calculating the Conversion Price in a manner adverse to the
holders of shares of Series B Preferred Stock or reduce the number of shares of
Common Stock issuable upon any conversion of shares of Series B Preferred Stock
or (iv) amend, modify or repeal any provision of this Section 12(b), unless in
each such case referred to in the preceding clauses (i) through (iv) such
amendment, modification or repeal has been approved by the affirmative vote or
written consent of the holders of all outstanding shares of Series B Preferred
Stock, voting separately or as a class.
(c) REPURCHASES OF SERIES B PREFERRED STOCK. The Corporation
shall not repurchase or otherwise acquire any shares of Series B Preferred Stock
(other than pursuant to Section 7(a), Section 9(a) or Section 11) unless the
Corporation offers to repurchase or otherwise
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<PAGE> 32
acquire simultaneously a pro rata portion of each holder's shares of Series B
Preferred Stock for cash at the same price per share.
(d) OTHER. So long as any shares of Series B Preferred Stock are
outstanding:
(1) LIMITATION ON INDEBTEDNESS. The Corporation will not
itself, and will not permit any subsidiary of the Corporation to, create,
assume, incur, in any manner become liable in respect of, including, without
limitation, by reason of any business combination transaction, or suffer to
exist (all of which are referred to herein as "incurring"), any Indebtedness
other than Permitted Indebtedness.
(2) PAYMENT OF OBLIGATIONS. The Corporation will pay and
discharge, and will cause each subsidiary of the Corporation to pay and
discharge, all their respective material obligations and liabilities, including,
without limitation, tax liabilities, except where the same may be contested in
good faith by appropriate proceedings.
(3) MAINTENANCE OF PROPERTY; INSURANCE. (A) The Corporation
will keep, and will cause each subsidiary of the Corporation to keep, all
material property useful and necessary in its business in good working order and
condition, ordinary wear and tear excepted.
(B) The Corporation will maintain, and will cause each
subsidiary of the Corporation to maintain, with financially sound and
responsible insurance companies, insurance in at least such amounts and against
such risks as are usually insured against in the same geographic region by
companies of comparable size that are engaged in the same or a similar business,
subject to customary deductibles.
(4) CONDUCT OF BUSINESS AND MAINTENANCE OF EXISTENCE. The
Corporation will continue, and will cause each subsidiary of the Corporation to
continue, to engage in business of the same general type as conducted by the
Corporation and such subsidiaries at the time this Certificate of Designations
is filed with the Secretary of State of the State of Delaware, and will
preserve, renew and keep in full force and effect, and will cause each
subsidiary of the Corporation to preserve, renew and keep in full force and
effect, their respective corporate existence and their respective material
rights, privileges and franchises necessary or desirable in the normal conduct
of business.
(5) COMPLIANCE WITH LAWS. The Corporation will comply, and
will cause each subsidiary of the Corporation to comply, in all material
respects with all applicable laws, ordinances, rules, regulations, decisions,
orders and requirements of governmental authorities and courts (including,
without limitation, environmental laws) except (i) where compliance therewith is
contested in good faith by appropriate proceedings or (ii) where non-compliance
therewith could not reasonably be expected to have a material adverse effect on
the business, condition (financial or otherwise), operations, performance,
properties or prospects of the Corporation and its subsidiaries taken as a
whole.
(6) INVESTMENT COMPANY ACT. The Corporation will not be or
become an open-end investment trust, unit investment trust or face-amount
certificate company
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<PAGE> 33
that is or is required to be registered under Section 8 of the Investment
Company Act of 1940, as amended, or any successor provision.
(7) TRANSACTIONS WITH AFFILIATES. The Corporation will not,
and will not permit any subsidiary of the Corporation, directly or indirectly,
to pay any funds to or for the account of, make any investment (whether by
acquisition of stock or Indebtedness, by loan, advance, transfer of property,
guarantee or other agreement to pay, purchase or service, directly or
indirectly, any Indebtedness, or otherwise) in, lease, sell, transfer or
otherwise dispose of any assets, tangible or intangible, to, or participate in,
or effect any transaction in connection with, any joint enterprise or other
joint arrangement with, any Affiliate of the Corporation, except, on terms to
the Corporation or such subsidiary no less favorable than terms that could be
obtained by the Corporation or such subsidiary from a Person that is not an
Affiliate of the Corporation, as determined in good faith by the Board of
Directors.
SECTION 13. OUTSTANDING SHARES. For purposes of this Certificate of
Designations, all shares of Series B Preferred Stock shall be deemed outstanding
except (i) from the date a Conversion Notice is given by a holder of Series B
Preferred Stock, all shares of Series B Preferred Stock converted into Common
Stock; (ii) from the date of registration of transfer, all shares of Series B
Preferred Stock held of record by the Corporation or any subsidiary or Affiliate
(as defined herein) of the Corporation (other than any original holder of shares
of Series B Preferred Stock) and (iii) from the applicable Share Limitation
Redemption Date, Redemption Date, Optional Redemption Date or date of redemption
pursuant to Section 10(b)(6)(A), all shares of Series B Preferred Stock which
are redeemed, so long as in each case the Share Limitation Redemption Price,
Redemption Price, Optional Redemption Price, or Business Combination Redemption
Price as the case may be, of such shares of Series B Preferred Stock shall have
been paid by the Corporation as and when due hereunder.
SECTION 14. FORMS OF NOTICES.
(a) Notice of Conversion of Series B Custom Convertible Preferred
Stock.
NOTICE OF CONVERSION
OF
SERIES B CUSTOM CONVERTIBLE PREFERRED STOCK
OF
SHAMAN PHARMACEUTICALS, INC.
TO: BankBoston, N.A., with a copy to:
as Conversion Agent
150 Royall Street Shaman Pharmaceuticals, Inc.
Canton, Massachusetts 02021 213 East Grand Avenue
South San Francisco, California 94080
Facsimile No.: (781) 575-2549 Attention: President and Chief Executive
Officer
Facsimile No.: (650) 873-8367
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<PAGE> 34
(1) Pursuant to the terms of the Series B Custom Convertible
Preferred Stock (the "Preferred Stock"), of Shaman Pharmaceuticals, Inc., a
Delaware corporation (the "Corporation"), the undersigned (the "Holder") hereby
elects to convert _______________ shares of the Preferred Stock, including the
aggregate Accrual Amount of $_______________ into shares of Common Stock, $.001
par value (the "Common Stock"), of the Corporation, at a Conversion Price per
share of Common Stock of $ _______________ or such other securities into which
the Preferred Stock is currently convertible. Capitalized terms used in this
Notice and not otherwise defined herein have the respective meanings provided in
the Certificate of Designations of Series B Custom Convertible Preferred Stock.
(2) The number of shares of Common Stock issuable upon the
conversion of the shares of Preferred Stock to which this Notice relates is
___________________________.
(3) Set forth below or on a schedule which accompanies this
Notice are the Trading Prices during the Measurement Period applicable to this
Notice and an indication of the Trading Price used to determine the Conversion
Price set forth above.
<TABLE>
<CAPTION>
Date Trading Price
- - ---- -------------
<S> <C>
1. ________________________ , _____________ $___________________
2. ________________________ , _____________ $___________________
3. ________________________ , _____________ $___________________
4. ________________________ , _____________ $___________________
5. ________________________ , _____________ $___________________
6. ________________________ , _____________ $___________________
7. ________________________ , _____________ $___________________
8. ________________________ , _____________ $___________________
9. ________________________ , _____________ $___________________
10.________________________ , _____________ $___________________
11.________________________ , _____________ $___________________
12.________________________ , _____________ $___________________
</TABLE>
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<PAGE> 35
(4) Please issue certificates for the number of shares of
Common Stock or other securities into which such number of shares of Preferred
Stock is convertible in the name(s) specified immediately below or, if
additional space is necessary, on an attachment hereto:
Name Name
Address Address
SS or Tax ID Number SS or Tax ID Number
(5) The undersigned hereby represents to the Corporation
that the exercise of conversion rights contained in this Notice does not violate
the provisions of Section 10(a) of the Certificate of Designations relating to
beneficial ownership in excess of 4.9% of the Common Stock.
(6) If the shares of Common Stock issuable upon conversion
of the Preferred Stock have not been registered for resale under the 1933 Act
and this Notice is given prior to the end of the Registration Period under the
Stock Purchase Agreement by which the Holder is bound, the Holder represents and
warrants that (i) the shares of Common Stock not so registered are being
acquired for the account of the Holder for investment, and not with a view to,
or for resale in connection with, the public distribution thereof other than
pursuant to registration under the 1933 Act or an exemption from registration
under the 1933 Act, and that the Holder has no present intention of distributing
or reselling the shares of Common Stock not so registered other than pursuant to
registration under the 1933 Act or an exemption from registration under the 1933
Act and (ii) the Holder is an "accredited investor" as defined in Regulation D
under the 1933 Act. The Holder further agrees that (A) the shares of Common
Stock not so registered shall not be sold or transferred unless either (i) they
first shall have been registered under the 1933 Act or (ii) the Corporation
first shall have been furnished with an opinion of legal counsel reasonably
satisfactory to the Corporation to the effect that such sale or transfer is
exempt from the registration requirements of the 1933 Act and (B) until such
shares are registered for resale under the 1933 Act, the Corporation may place a
legend on the certificate(s) for the shares of Common Stock not so registered to
that effect and place a stop-transfer restriction in its records relating to the
shares of Common Stock not so registered, all in accordance with the Stock
Purchase Agreement by which the Holder is bound.
Date:__________________ ____________________________________________
Signature of Holder
(Must be signed exactly as name
appears on the Preferred Stock Certificate.)
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<PAGE> 36
(b) Form of Corporation Inconvertibility Notice.
CORPORATION INCONVERTIBILITY NOTICE
(SECTION 7(a)(2) OF CERTIFICATE OF DESIGNATIONS OF
SERIES B CUSTOM CONVERTIBLE PREFERRED STOCK)
TO: _________________________________________
(Name of Holder)
(1) Pursuant to the terms of the Series B Custom Convertible
Preferred Stock (the "Preferred Stock"), Shaman Pharmaceuticals, Inc., a
Delaware corporation (the "Corporation"), hereby notifies the above-named holder
(the "Holder") of shares of Preferred Stock that on (fill in date) an
Inconvertibility Day or a Registration Restriction Inconvertibility had occurred
and on such date (fill in number) shares of Preferred Stock became inconvertible
by reason of such occurrence.
(2) Check (a) or (b):
[ ] (a) This Notice relates to an Inconvertibility Day
[ ] (b) This Notice related to a Registration Restriction
Inconvertibility and the five Trading Days resulting in such Registration
Restriction Inconvertibility and the applicable Conversion Price on each such
Trading Day are as follows:
______________, _____ $
______________, _____ $
______________, _____ $
______________, _____ $
______________, _____ $
(3) Capitalized terms used herein and not otherwise defined
herein have the respective meanings provided in the Certificate of Designations
of Series B Custom Convertible Preferred Stock.
Date:_____________________ SHAMAN PHARMACEUTICALS, INC.
By:________________________________
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<PAGE> 37
Title:
(c) Form of Holder Inconvertibility Notice.
HOLDER INCONVERTIBILITY NOTICE
(SECTION 7(a)(2) OF CERTIFICATE OF DESIGNATIONS OF
SERIES B CUSTOM CONVERTIBLE PREFERRED STOCK)
TO: SHAMAN PHARMACEUTICALS, INC.
(1) Pursuant to the terms of the Series B Custom Convertible
Preferred Stock (the "Preferred Stock"), the undersigned (the "Holder"), hereby
notifies Shaman Pharmaceuticals, Inc., a Delaware corporation (the
"Corporation"), that on ___________ (fill in date) an Inconvertibility Day or a
Registration Restriction Inconvertibility had occurred and on such date (fill in
number) shares of Preferred Stock became inconvertible by reason of such
occurrence.
(2) Check (a) or (b):
[ ] (a) This Notice relates to an Inconvertibility Day
[ ] (b) This Notice related to a Registration Restriction
Inconvertibility and the five Trading Days resulting in such Registration
Restriction Inconvertibility and the applicable Conversion Price on each such
Trading Day are as follows:
______________, _____ $
______________, _____ $
______________, _____ $
______________, _____ $
______________, _____ $
(3) If the following date and amounts are completed in this
Notice, the Holder hereby directs the Corporation to redeem the number of shares
of Preferred Stock set forth below in accordance with Section 7(a) of the
Certificate of Designations of Series B Custom Convertible Preferred Stock (the
"Certificate of Designations") as set forth below:
(a) Number of shares of Preferred Stock to be redeemed:
__________________
(fill in)
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<PAGE> 38
(b) On ______________ (fill in Share Limitation Redemption
Date) or such later date as the Holder shall surrender to the Corporation the
certificates for the shares of Preferred Stock redeemed, the Corporation shall
pay to the Holder the Share Limitation Redemption Price per share of Preferred
Stock to be redeemed of $ ________. The Share Limitation Redemption Price is
equal to the product obtained by multiplying (A) the sum of (i) $1,000.00 plus
(ii) $ ________ for the Accrual Amount on such share to such Share Limitation
Redemption Date times (B) 112.5%.
(4) Capitalized terms used herein and not otherwise defined
herein have the respective meanings provided in the Certificate of Designations.
Date:_________________ NAME OF HOLDER:
___________________________________
By:________________________________
Title:
(d) Form of Redemption Election.
HOLDER REDEMPTION NOTICE
(SECTION 7(a)(2) OF CERTIFICATE OF DESIGNATIONS OF
SERIES B CUSTOM CONVERTIBLE PREFERRED STOCK)
TO: SHAMAN PHARMACEUTICALS, INC.
(1) Pursuant to the terms of the Series B Custom Convertible
Preferred Stock (the "Preferred Stock"), the undersigned (the "Holder") hereby
notifies Shaman Pharmaceuticals, Inc., a Delaware corporation (the
"Corporation"), that the Holder is exercising its right to require the
Corporation to redeem shares of Preferred Stock in accordance with Section 7(a)
of the Certificate of Designations of Series B Custom Convertible Preferred
Stock (the "Certificate of Designations"). On ______________________ (fill in
Share Limitation Redemption Date) or such later date as the Holder shall
surrender to the Corporation the certificates for the shares of Preferred Stock
redeemed, the Corporation shall pay the Holder the Share Limitation Redemption
Price per share of Preferred Stock to be redeemed of $ . The Share Limitation
Redemption Price is equal to the product obtained by multiplying (A) the sum of
(i) $1,000.00 plus (ii) $ for the Accrual Amount on such share to such Share
Limitation Redemption Date times (B) 112.5%.
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<PAGE> 39
(2) Capitalized terms used herein and not otherwise defined
herein have the respective meanings provided in the Certificate of Designations.
Date:___________________ NAME OF HOLDER:
___________________________________
By:________________________________
(c) Form of Mandatory Redemption Waiver.
MANDATORY REDEMPTION WAIVER
(SECTION 7(a)(2) OF CERTIFICATE OF DESIGNATIONS OF
SERIES B CUSTOM CONVERTIBLE PREFERRED STOCK)
Shaman Pharmaceuticals, Inc., a Delaware corporation (the
"Corporation"), and the undersigned holder (the "Holder") of shares of the
Corporation's Series B Custom Convertible Preferred Stock (the "Preferred
Stock") hereby agree as follows:
1. The Corporation's or the Holder's Inconvertibility Notice
given on _______________ (the "Waiver Commencement Date"), if any, is hereby
rescinded and the Holder's shares of Preferred Stock shall not be redeemed
pursuant to Section 7(a) of the Certificate of Designations of Series B Custom
Convertible Preferred Stock (the "Certificate of Designations") by reason of
such Inconvertibility Notice or any inconvertibility of any of the Holder's
shares of Preferred Stock which may arise pursuant to Section 7(a) of the
Certificate of Designations during the period ending on the date set forth below
in this Section 1 (the "Waiver Period").
Date for end of Waiver Period:______________________ ,_____
2. If this Mandatory Redemption Waiver is given in
connection with a Registration Restriction Inconvertibility, promptly, but in no
event later than the date which is 15 days after the date of this Mandatory
Redemption Waiver, the Corporation shall file a Registration Statement with the
SEC relating to the resale by the Holder of the number of Registrable Securities
(as defined in the Holder's Stock Purchase Agreement) set forth below in this
Section 2, which Registration Statement may be constituted in any manner which
does not have the effect of suspending or terminating the effectiveness of any
and all Registration Statements filed by the Corporation pursuant to Section
8(b)(1) of the Stock Purchase Agreement or otherwise with respect to the
Registrable Securities which names the Holder as a selling stockholder, and
shall thereafter use its best efforts to obtain effectiveness of such
Registration Statement. Such Registration Statement shall in all respects be
deemed a Registration Statement (as defined in the Certificate of Designations).
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<PAGE> 40
Number of Registrable Securities:_________________
3. If the Corporation shall default in the performance of
its obligations set forth herein or shall fail to comply in any material
respects with any of its obligations under the Certificate of Designations, the
Stock Purchase Agreements, the Conversion Agent Agreement, the Warrants or any
document or instrument executed and delivered by the Corporation in connection
therewith, this Mandatory Redemption Waiver shall cease to be of further force
and effect and the rights, liabilities and obligations of the parties shall be
restored to those which would have existed in the absence of this Mandatory
Redemption Waiver.
4. This Agreement shall be governed by the laws of the State
of New York. Capitalized terms used herein and not otherwise defined herein
shall have the respective meanings provided in the Certificate of Designations.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed by their respective officers or other
representatives thereunto duly authorized as of the respective dates set forth
below.
SHAMAN PHARMACEUTICALS, INC.
By :_______________________________
Title:
Date:______________________________
NAME OF HOLDER:
___________________________________
By :_______________________________
Title:
Date:______________________________
(f) Form of Redemption Notice.
REDEMPTION NOTICE
(SECTION 9(a) OF CERTIFICATE OF DESIGNATIONS OF
SERIES B CUSTOM CONVERTIBLE PREFERRED STOCK)
TO: _______________________________
(Name of Holder)
(1) Pursuant to the terms of the Series B Custom Convertible
Preferred Stock (the "Preferred Stock"), Shaman Pharmaceuticals, Inc., a
Delaware corporation (the
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<PAGE> 41
"Corporation"), hereby notifies the above-named holder (the "Holder") that the
Corporation is exercising its right to redeem shares of Preferred Stock held by
the Holder in accordance with Section 9(a) of the Certificate of Designations of
the Series B Custom Convertible Preferred Stock (the "Certificate of
Designations").
(2) The Redemption Date is [BEFORE FILING, INSERT MONTH AND
DAY OF INITIAL ISSUANCE DATE], 1999.
(3) The Redemption Price per share of Preferred Stock is
$_________.
(4) Upon surrender to the Corporation of the certificate(s)
for the shares of Preferred Stock to be redeemed (but in no event earlier than
the Redemption Date), the Corporation will make payment of the applicable
Redemption Price in accordance with the Certificate of Designations.
(5) Capitalized terms used herein and not otherwise defined
herein have the respective meanings provided in the Certificate of Designations.
SHAMAN PHARMACEUTICALS, INC.
By _____________________________
Title:
(h) Form of Corporation Notice.
CORPORATION NOTICE
(SECTION 11(b)(1) OF CERTIFICATE OF DESIGNATIONS OF
SERIES B CUSTOM CONVERTIBLE PREFERRED STOCK)
TO: ______________________________
(Name of Holder)
(1) An Optional Redemption Event described in the
Certificate of Designations (the "Certificate of Designations") of Series B
Custom Convertible Preferred Stock (the "Preferred Stock") of Shaman
Pharmaceuticals, Inc., a Delaware corporation (the "Corporation"), occurred on
____________, ____. As a result of such Optional Redemption Event, the
above-named holder (the "Holder") is entitled to exercise its optional
redemption rights pursuant to Section 11(b)(2) of the Certificate of
Designations.
(2) The Holder's optional redemption right must be exercised
on or before ______________, ____.
(3) At or before the date set forth in the preceding
paragraph (2), the Holder must deliver to the Corporation:
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<PAGE> 42
(a) a Holder Notice, in the form set forth in Section 14(h)
of the Certificate of Designations; and
(b) the certificates for the shares of Preferred Stock to be
redeemed, duly endorsed for transfer to the Corporation the shares to be
redeemed.
(4) Capitalized terms used herein and not otherwise defined
herein have the respective meanings provided in the Certificate of Designations.
Date:______________________ SHAMAN PHARMACEUTICALS, INC.
By:________________________________
Title:
(f) Form of Holder Notice.
HOLDER NOTICE
(SECTION 11(b)(2) OF CERTIFICATE OF DESIGNATIONS OF
SERIES B CUSTOM CONVERTIBLE PREFERRED STOCK)
TO: SHAMAN PHARMACEUTICALS, INC.
(1) Pursuant to the terms of the Series B Custom Convertible
Preferred Stock (the "Preferred Stock") of Shaman Pharmaceuticals, Inc., a
Delaware corporation (the "Corporation"), the undersigned hereby elects to
exercise its right to require redemption by the Corporation pursuant to Sections
11(a) and 11(b) of the Certificate of Designations of Series B Custom
Convertible Preferred Stock (the "Certificate of Designations") of _______
shares of Preferred Stock at an Optional Redemption Price per share in cash
equal to the product obtained by multiplying (a) the sum of (i) $1,000 plus (ii)
an amount equal to $ _______ for the Accrual Amount on each share of Series B
Preferred Stock to be redeemed to the date of redemption times (b) the ____%
(fill in applicable Optional Redemption Percentage).
(2) The aggregate Optional Redemption Price of all shares of
Preferred Stock to be redeemed is $___________________.
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<PAGE> 43
(3) Capitalized terms used herein and not otherwise defined
herein have the respective meanings provided in the Certificate of Designations.
NAME OF HOLDER:
Date:___________________ ____________________________________________
Signature of Holder
(Must be signed exactly as name
appears on the Preferred Stock Certificate.)
(i) Form of Control Notice.
CONTROL NOTICE
(SECTIONS 7(a)(8) AND 11(b)(4) OF CERTIFICATE OF DESIGNATIONS OF
SERIES B CUSTOM CONVERTIBLE PREFERRED STOCK)
TO: _______________________________
(Name of Holder)
(1) Pursuant to the terms of the Series B Custom Convertible
Preferred Stock (the "Preferred Stock"), Shaman Pharmaceuticals, Inc., a
Delaware corporation (the "Corporation"), hereby notifies the above-named holder
(the "Holder") that in accordance with the Certificate of Designations of the
Series B Custom Convertible Preferred Stock (the "Certificate of Designations")
and by reason of events which are not solely within the control of the
Corporation, on _____________ (fill in date) the following occurred (check (a)
or (b)):
[ ] (a) An Inconvertibility Day subject to Section 7(a)(8)
of the Certificate of Designations; or
[ ] (b) An Optional Redemption Event subject to Section
11(b)(4) of the Certificate of Designations
(2) Attached to this Notice is an Auditors' Determination
with respect to the occurence referred to in paragraph (1).
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<PAGE> 44
(3) Capitalized terms used herein and not otherwise defined
herein have the respective meanings provided in the Certificate of Designations.
SHAMAN PHARMACEUTICALS, INC.
By _____________________________
Title:
(h) Form of Adjustment Notice.
ADJUSTMENT NOTICE
(SECTIONS 7(a)(8) AND 11(b)(4) OF CERTIFICATE OF DESIGNATIONS OF
SERIES B CUSTOM CONVERTIBLE PREFERRED STOCK)
VIA FACSIMILE
TO: ______________________________
(Name of Holder)
(1) Pursuant to the terms of the Series B Custom Convertible
Preferred Stock (the "Preferred Stock"), Shaman Pharmaceuticals, Inc., a
Delaware corporation (the "Corporation"), confirms to the above-named holder
(the "Holder") of shares of Preferred Stock that on (fill in date) the
Corporation gave the Holder and each other holder of shares of Preferred Stock a
Control Notice in accordance with the Certificate of Designations of the
Preferred Stock (the "Certificate of Designations"), and hereby notifies the
Holder of the adjustments set forth below.
(2) Effective on _________ (fill in date), the Conversion
Price of the Preferred Stock is ____% (fill in percentage) of the amount the
Conversion Price would otherwise be without regard to adjustments pursuant to
Sections 7(a)(8) and 11(b)(4) of the Certificate of Designations.
(3) Effective on _________ (fill in date), the Accrual
Amount shall accrue on the outstanding shares of Preferred Stock at the rate of
______% (fill in percentage) per annum.
(4) The foregoing adjustments to the Conversion Price and
the Accrual Amount will continue in effect until a subsequent Adjustment Notice
is given to the Holder.
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<PAGE> 45
(5) Capitalized terms used herein and not otherwise defined
herein have the respective meanings provided in the Certificate of Designations.
Date:___________________ SHAMAN PHARMACEUTICALS, INC.
By:________________________________
Title:
SECTION 15. MISCELLANEOUS.
(a) NOTICES. Any notices required or permitted to be given under
the terms of this Certificate of Designations shall be in writing and shall be
delivered personally (which shall include telephone line facsimile transmission)
or by courier, and shall be deemed given upon receipt, (a) in the case of the
Corporation, addressed to the Corporation at 213 East Grand Avenue, South San
Francisco, California 94080, Attention: President and Chief Executive Officer
(telephone line facsimile transmission number (650) 873-8367), or (b) in the
case of any holder of shares of Series B Preferred Stock, at such holder's
address or telephone line facsimile transmission number shown on the stock books
maintained by the Corporation with respect to the Series B Preferred Stock or
such other address as the Corporation shall have provided by notice to the
holders of shares of Series B Preferred Stock in accordance with this Section or
any holder of shares of Series B Preferred Stock shall have provided to the
Corporation in accordance with this Section.
(b) REPLACEMENT OF CERTIFICATES. Upon receipt by the Corporation
of evidence reasonably satisfactory to the Corporation of the ownership of and
the loss, theft, destruction or mutilation of any certificate for shares of
Series B Preferred Stock and (1) in the case of loss, theft or destruction, of
indemnity from the record holder of the certificate for such shares of Series B
Preferred Stock reasonably satisfactory in form to the Corporation (and without
the requirement to post any bond or other security) or (2) in the case of
mutilation, upon surrender and cancellation of the certificate for such shares
of Series B Preferred Stock, the Corporation will execute and deliver to such
holder a new certificate for such shares of Series B Preferred Stock without
charge to such holder.
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<PAGE> 46
IN WITNESS WHEREOF, Shaman Pharmaceuticals, Inc. has caused this
certificate to be signed by one of its officers thereunto duly authorized as of
the ___ day of ____________, 1998.
SHAMAN PHARMACEUTICALS, INC.
By:________________________________
Title:
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<PAGE> 1
[Letterhead of Brobeck, Phleger & Harrison LLP]
June 15, 1998
Shaman Pharmaceuticals, Inc.
213 East Grand Avenue
South San Francisco, CA 94080
Ladies and Gentlemen:
We have acted as counsel to Shaman Pharmaceuticals, Inc., a
Delaware corporation (the "Company"), in connection with the registration of up
to Two Million Four Hundred Twelve Thousand (2,412,000) shares of the Company's
Common Stock (the "Shares"), as described in the Company's Registration
Statement on Form S-3 as filed with the Securities and Exchange Commission (the
"SEC") on March 31, 1998, as amended by Amendment No. 1 filed wiht the SEC on
May 7, 1998 and refiled with SEC on May 11, 1998, under the Securities Act of
1933, as amended (the "Registration Statement").
This opinion is being furnished in accordance with the
requirements of Item 16 of Form S-3 and Item 601(b)(5)(i) of Regulation S-K.
We have examined originals or copies of (i) the Amended and
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
(iv) 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.
We consent to the filing of this opinion letter as Exhibit 5.1 to
the Registration Statement and to the reference to this firm under the caption
"Legal Matters" in the prospectus which is part of the Registration Statement.
In giving this consent, we do not thereby admit that we are within the category
of persons whose consent is required under Section 7 of the Act, the
<PAGE> 2
Shaman Pharmaceuticals, Inc. June 15, 1998
Page 2
rules and regulations of the Securities and Exchange Commission promulgated
thereunder, or Item 509 of Regulation S-K.
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.
This opinion letter is rendered as of the date first written
above and we disclaim any obligation to advise you of facts, circumstances,
events or developments which hereafter may be brought to our attention and which
may alter, affect or modify the opinion expressed herein. Our opinion is
expressly limited to the matters set forth above and we render no opinion,
whether by implication or otherwise, as to any other matters relating to the
Company or the Shares.
Very truly yours,
/s/ Brobeck, Phleger & Harrison LLP
BROBECK, PHLEGER & HARRISON LLP
<PAGE> 1
EXHIBIT 10.68
================================================================================
STOCK PURCHASE AGREEMENT
DATED AS OF JUNE 10, 1998
BY AND BETWEEN
SHAMAN PHARMACEUTICALS, INC.
AND
[BUYER]
--------------------
SERIES B CUSTOM CONVERTIBLE PREFERRED STOCK
AND
COMMON STOCK PURCHASE WARRANTS
--------------------
Placement Agent:
DIAZ & ALTSCHUL CAPITAL, LLC
================================================================================
<PAGE> 2
SHAMAN PHARMACEUTICALS, INC.
STOCK PURCHASE AGREEMENT
SERIES B CUSTOM CONVERTIBLE PREFERRED STOCK
AND
COMMON STOCK PURCHASE WARRANTS
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
1. DEFINITIONS ................................................................... 1
2. AGREEMENT TO SUBSCRIBE; PURCHASE PRICE ........................................ 8
(a) Commitment ............................................................ 8
(b) Exercise of Purchase Option ........................................... 9
(c) Closing ............................................................... 10
3. BUYER'S REPRESENTATIONS, WARRANTIES, ETC. ..................................... 10
(a) Purchase for Investment ............................................... 10
(b) Accredited Investor ................................................... 10
(c) Reoffers and Resales .................................................. 10
(d) Company Reliance ...................................................... 10
(e) Information Provided .................................................. 11
(f) Absence of Approvals .................................................. 11
(g) Purchase Agreement .................................................... 11
(h) Buyer Status .......................................................... 12
4. COMPANY'S REPRESENTATIONS, WARRANTIES, ETC. ................................... 12
(a) Organization and Authority ............................................ 12
(b) Qualifications ........................................................ 12
(c) Capitalization ........................................................ 12
(d) Concerning the Shares and the Common Stock ............................ 13
(e) Corporate Authorization ............................................... 14
(f) Non-contravention ..................................................... 14
(g) Approvals ............................................................. 15
(h) Information Provided .................................................. 15
(i) SEC Filings ........................................................... 15
(j) Conduct of Business ................................................... 15
(k) Absence of Certain Proceedings ........................................ 16
(l) Liabilities ........................................................... 16
(m) Absence of Certain Changes ............................................ 16
</TABLE>
-i-
<PAGE> 3
<TABLE>
<S> <C> <C>
(n) Material Losses ....................................................... 16
(o) Properties ............................................................ 17
(p) Intellectual Property ................................................. 17
(q) Internal Accounting Controls .......................................... 17
(r) Compliance with Law ................................................... 17
(s) Labor Relations ....................................................... 17
(t) Insurance ............................................................. 18
(u) Absence of Brokers, Finders, Etc. ..................................... 18
(v) Solicitation; Offering of Warrants and Preferred Shares ............... 18
(w) Certain Issuances of Securities ....................................... 18
(x) Investment Company .................................................... 18
(y) Absence of Rights Agreement ........................................... 19
(z) Classification of Preferred Stock ..................................... 19
5. CERTAIN COVENANTS AND ACKNOWLEDGMENTS ......................................... 19
(a) Transfer Restrictions ................................................. 19
(b) Restrictive Legends ................................................... 19
(c) Conversion Agent Agreement ............................................ 21
(d) Form D; Blue Sky Laws ................................................. 22
(e) Nasdaq Listing; Reporting Status ...................................... 22
(f) Use of Proceeds ....................................................... 22
(g) State Securities Laws ................................................. 23
(h) Certain Issuances of Securities ....................................... 23
(i) Limitation on Certain Actions ......................................... 24
(j) Certain Amendments .................................................... 24
(k) Best Efforts .......................................................... 24
(l) Decreases in Cash and Short-Term Investments .......................... 25
6. CONDITIONS TO THE EFFECTIVENESS OF THE BUYER'S COMMITMENT ..................... 25
(a) Company's Conditions .................................................. 25
(b) Buyer's Conditions .................................................... 25
7. CONDITIONS TO THE COMPANY'S OBLIGATION TO ISSUE PREFERRED SHARES AND
THE BUYER'S OBLIGATION TO PURCHASE PREFERRED SHARES ........................... 26
(a) Company's Conditions .................................................. 26
(b) Buyer's Conditions .................................................... 27
8. REGISTRATION RIGHTS ........................................................... 28
(a) Mandatory Registration ................................................ 28
(b) Obligations of the Company ............................................ 30
(c) Obligations of the Buyer and other Investors .......................... 33
(d) Reports under 1934 Act ................................................ 35
9. INDEMNIFICATION AND CONTRIBUTION .............................................. 35
(a) Indemnification ....................................................... 35
</TABLE>
-ii-
<PAGE> 4
<TABLE>
<S> <C> <C>
(b) Contribution .......................................................... 37
(c) Other Rights .......................................................... 37
10. MISCELLANEOUS ................................................................. 37
(a) Governing Law ......................................................... 37
(b) Headings .............................................................. 37
(c) Severability .......................................................... 38
(d) Notices ............................................................... 38
(e) Counterparts; Dating .................................................. 38
(f) Entire Agreement; Benefit ............................................. 38
(g) Waiver ................................................................ 39
(h) Amendment ............................................................. 39
(i) Further Assurances .................................................... 39
(j) Assignment of Certain Rights and Obligations .......................... 39
(k) Certain Expenses ...................................................... 40
(l) Termination ........................................................... 40
(m) Survival .............................................................. 40
(n) Public Statements, Press Releases, Etc. ............................... 41
(o) Construction .......................................................... 41
</TABLE>
-iii-
<PAGE> 5
SCHEDULES
<TABLE>
<S> <C>
Schedule 4(c) Antidilution Adjustments
ANNEXES
Annex I Form of Certificate of Designations
Annex II Form of Purchase Option Notice
Annex III Form of Conversion Agent Agreement
Annex IV Form of Common Stock Purchase Warrant
Annex V Form of Opinion of Brobeck, Phleger & Harrison LLP to Be Delivered on
Effective Date
Annex VI Form of Opinion of Brobeck, Phleger & Harrison LLP to Be Delivered on
each Closing Date
Annex VII Form of Opinion of Pennie & Edmonds LLP to Be Delivered on each Closing
Date
Annex VIII Form of Instruction to the Conversion Agent
</TABLE>
-iv-
<PAGE> 6
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT, dated as of June 10, 1998 (this
"Agreement"), by and between SHAMAN PHARMACEUTICALS, INC., a Delaware
corporation, with headquarters located at 213 East Grand Avenue, South San
Francisco, California 94080 (the "Company"), and [BUYER], a [______________]
(the "Buyer").
W I T N E S S E T H:
WHEREAS, the Buyer wishes to commit to purchase, upon the terms and
subject to the conditions of this Agreement, shares of non-voting Series A
Custom Convertible Preferred Stock of the Company which will be convertible into
shares of Common Stock (such capitalized term and all other capitalized terms
used in this Agreement having the respective meanings provided in Section 1) and
in connection therewith the Company is to issue to the Buyer Warrants to
purchase the number of shares of Common Stock provided herein;
NOW THEREFORE, in consideration of the premises and the mutual covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
1. DEFINITIONS
(a) As used in this Agreement, the terms "Agreement", "Buyer" and
"Company" shall have the respective meanings assigned to such terms in the
introductory paragraph of this Agreement.
(b) All the agreements or instruments herein defined shall mean such
agreements or instruments as the same may from time to time be supplemented or
amended or the terms thereof waived or modified to the extent permitted by, and
in accordance with, the terms thereof and of this Agreement.
(c) The following terms shall have the following meanings (such meanings
to be equally applicable to both the singular and plural forms of the terms
defined):
"Accrual Amount" shall have the meaning provided in the Certificate of
Designations.
"AMEX" means the American Stock Exchange, Inc.
"Blackout Period" means the period of up to 20 consecutive days after
the date the Company notifies the Investors that they are required, pursuant to
Section 8(c)(4), to suspend offers and sales of Registrable Securities as a
result of an event or circumstance described in Section 8(b)(5)(A), during which
period, by reason of Section 8(b)(5)(B), the Company is not required to amend
the Registration Statement or to supplement the Prospectus; provided,
1
<PAGE> 7
however, that such period may be up to 30 consecutive days if the Company so
elects in accordance with Section 8(b)(5)(B), subject to the limitations
provided therein.
"Business Day" means any day other than a Saturday, Sunday or other day
on which commercial banks in The City of New York are authorized or required by
law to remain closed.
"Business Plan" shall mean the Company's business plan, dated May 26,
1998, in the form delivered on June 3, 1998 by the Company to Ernst & Young LLP,
the Company's independent public accountants.
"Cash Amount" on any date means the sum of (i) the Cash and Cash
Equivalent Balances of the Company and (ii) the amount of short-term investments
of the Company set forth, or which would be set forth, on the Company's balance
sheet as of such date determined in accordance with Generally Accepted
Accounting Principles and consistent with the meaning of the term "short-term
investments" as used in the financial statements contained in the 1997 10-K.
"Cash and Cash Equivalent Balances" shall have the meaning provided in
the Certificate of Designations.
"Certificate of Designations" means the Certificate of Designations of
Series A Custom Convertible Preferred Stock in the form attached hereto as ANNEX
I, as the same is filed with the Secretary of State of the State of Delaware.
"Claims" means any losses, claims, damages, liabilities or expenses
(joint or several), incurred by a Person or entity.
"Closing Date" or "Closing Dates" means 12:00 noon, New York City time,
on a date which is ten Business Days after the Company gives a Purchase Option
Notice, or such other date and time as are mutually agreed between the Company
and the Buyer, but in no event later than February 28, 1999.
"Code" means the Internal Revenue Code of 1986, as amended, and the
regulations thereunder and published interpretations thereof.
"Commitment Period" means the period commencing on the Effective Date
and ending on the date which is 270 days after the Effective Date.
"Common Shares" means the Conversion Shares and the Warrant Shares.
"Common Stock" means the Common Stock, $.001 par value per share, of the
Company.
"Conversion Agent" means BankBoston, N.A., or any successor thereof,
serving as transfer agent and registrar for the Common Stock, conversion agent
for the Preferred Stock and exercise agent for the Warrants.
2
<PAGE> 8
"Conversion Agent Agreement" means the Conversion Agent Agreement by and
among the Company, the Conversion Agent, the Buyer and the Other Buyers, in the
form attached hereto as ANNEX III.
"Conversion Notice" means the Notice of Conversion of Series A Custom
Convertible Preferred Stock substantially in the form of Section 14(a) of the
Certificate of Designations.
"Conversion Price" shall have the meaning provided in the Certificate of
Designations.
"Conversion Shares" means the shares of Common Stock issuable or issued
upon conversion of the Preferred Shares.
"Effective Date" means the date on which all of the conditions precedent
specified in Sections 6(a) and 6(b) are satisfied or waived in accordance
therewith.
"Equity Securities" means Common Stock or securities convertible into,
exchangeable for, or otherwise entitling the holder to acquire, any Common
Stock.
"Fletcher" means Fletcher International Limited, a company organized
under the laws of the Cayman Islands.
"Fletcher Stock Purchase Agreement" means the Stock Purchase Agreement,
dated July 25, 1996, between the Company and Fletcher.
"Generally Accepted Accounting Principles" shall have the meaning
provided in the Certificate of Designations.
"Indemnified Party" means the Company, each of its directors, each of
its officers who signs the Registration Statement, each Person, if any, who
controls the Company within the meaning of the 1933 Act or the 1934 Act, any
underwriter and any other stockholder selling securities pursuant to the
Registration Statement or any of its directors or officers or any Person who
controls such stockholder or underwriter within the meaning of the 1933 Act or
the 1934 Act.
"Indemnified Person" means each Investor and each Investor who sells
Registrable Securities in the manner permitted under this Agreement, the
directors, if any, of such Investor, the officers and agents, if any, of such
Investor, each Person, if any, who controls any Investor within the meaning of
the 1933 Act or the 1934 Act, any underwriter (as defined in the 1933 Act)
acting on behalf of an Investor who participates in the offering of Registrable
Securities of such Investor in accordance with the plan of distribution
contained in the Prospectus, the directors, if any, of such underwriter and the
officers, if any, of such underwriter, and each Person, if any, who controls any
such underwriter within the meaning of the 1933 Act or the 1934 Act.
"Initial Closing Date" means the first Closing Date to occur.
"Inspector" means any attorney, accountant or other agent retained by an
Investor for the purposes provided in Section 9(b)(9).
3
<PAGE> 9
"Investor" means the Buyer and any permitted transferee or assignee who
agrees to become bound by the provisions of Sections 5(a), 5(b), 8, 9, and 10 of
this Agreement.
"Majority Buyers" means at any time the Buyer and the Other Buyers who
(based on the number of shares of Series B Preferred Stock committed to be
purchased, or, on and after a Closing Date, actually purchased by the Buyer and
the Other Buyers) committed to purchase or purchased shares of Series B
Preferred Stock which constitute a majority of the shares of Series B Preferred
Stock so committed to be purchased, or purchased, as the case may be; provided,
however, that the shares of Series B Preferred Stock committed to be purchased
by the Buyer or any Other Buyer who defaults on its commitment shall be excluded
from such determination.
"Margin Stock" shall have the meaning provided in Regulation G of the
Board of Governors of the Federal Reserve System (12 C.F.R. Part 207).
"Market Price" of any security on any date means the closing bid price
of such security on such date on the Nasdaq or such other securities exchange or
other market on which such security is listed for trading which constitutes the
principal securities market for such security, as reported by Bloomberg, L.P.
"NASD" means the National Association of Securities Dealers, Inc.
"Nasdaq" means the Nasdaq National Market.
"Nasdaq SmallCap" means the Nasdaq SmallCap Market.
"Nasdaq Stock Market" means the Nasdaq Stock Market, Inc.
"Nasdaq Tangible Asset Criterion" means the requirement of Section
4450(a)(3) of the rules of the NASD that an issuer maintain net tangible assets
of at least $4 million in order that securities of such issuer be eligible for
continued inclusion in Nasdaq.
"1997 Notes" means the Senior Subordinated Convertible Notes issued by
the Company on August 30, 1997 in the aggregate principal amount of $10,400,000.
"1997 Registration Statements" means the Company's Registration
Statement on Form S-3 (Registration No. 333-18815), declared effective by the
SEC on January 16, 1997, and the Company's Registration Statement on Form S-3
(Registration No. 333-23211), declared effective by the SEC on April 15, 1997.
"1997 10-K" means the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1997, as amended by Amendments No. 1 and No. 2
thereto on Form 10-K/A.
"1934 Act" means the Securities Exchange Act of 1934, as amended.
"1933 Act" means the Securities Act of 1933, as amended.
4
<PAGE> 10
"Non-Responsive Investor" means an Investor who does not provide the
Required Information to the Company at least one Business Day prior to the
filing of the Registration Statement with the SEC.
"Optional Redemption Event" shall have the meaning provided in the
Certificate of Designations.
"Other Buyer Total Commitment Amount" means, with respect to each Other
Buyer, the total number of shares of Preferred Stock which such Other Buyer
committed to purchase pursuant to its Other Stock Purchase Agreement.
"Other Buyers" means each of the several buyers of shares of Preferred
Stock who have agreed to purchase the Preferred Stock pursuant to the Other
Stock Purchase Agreements.
"Other Stock Purchase Agreements" means the several Stock Purchase
Agreements, dated as of the date hereof, between the Company and the several
buyers named therein relating to the agreements of such buyers severally to
purchase shares of Preferred Stock.
"Person" means any natural person, corporation, partnership, limited
liability company, trust, incorporated organization, unincorporated association
or similar entity or any government, governmental agency or political
subdivision.
"Preferred Shares" means the shares of Preferred Stock to be purchased
by the Buyer pursuant to this Agreement in such number as specified by the
Company in the applicable Purchase Option Notice, but in no event in excess of
the number of shares set forth on the signature page of this Agreement.
"Preferred Stock" shall mean the Series B Custom Convertible Preferred
Stock, $.001 par value per share, of the Company.
"Primary Commitment Amount" means the number of Preferred Shares set
forth on the signature page of this Agreement as the Primary Commitment Amount.
"Prospectus" means the prospectus, including any preliminary prospectus,
used in connection with the Registration Statement and any amendment or
supplement thereto (including any documents or information incorporated therein
by reference).
"Purchase Option Notice" means a Purchase Option Notice in the form
attached hereto as ANNEX II.
"Purchase Option Threshold Price" means the arithmetic average of the
Market Price of the Common Stock for the five consecutive Trading Days ending on
the Trading Day prior to the date the Company gives a Purchase Option Notice
(subject to equitable adjustment on terms reasonably acceptable to the Majority
Buyers for (i) stock splits, (ii) stock dividends, (iii) combinations, (iv)
capital reorganizations, (v) issuance to all holders of Common Stock of rights
or warrants to purchase shares of Common Stock at a price per share less than
such price which
5
<PAGE> 11
would otherwise be applicable, (vi) the distribution by the Company to all
holders of Common Stock of evidences of indebtedness of the Company or cash
(other than regular quarterly cash dividends), (vii) tender offers by the
Company or any Subsidiary or other repurchases of shares of Common Stock in one
or more transactions which, individually or in the aggregate, result in the
purchase of more than 10% of the Common Stock outstanding and (viii) similar
events relating to the Common Stock, in each such case which occur, or with
respect to which "ex-" trading of the Common Stock begins, during such period of
five consecutive Trading Days).
"Purchase Price" means the aggregate purchase price for the Preferred
Shares to be purchased by the Buyer as set forth in the Purchase Option Notice,
computed as the product obtained by multiplying (x) such number of Preferred
Shares times (y) $1,000.00.
"Questionnaire" means the Prospective Purchaser Questionnaire completed
by the Buyer and furnished to the Company in connection with this Agreement.
"Record" shall mean all pertinent financial and other records, pertinent
corporate documents and properties of the Company and the Subsidiaries subject
to inspection for the purposes provided in Section 8(b)(9).
"register," "registered," and "registration" refer to a registration
effected by preparing and filing a Registration Statement or Statements in
compliance with the 1933 Act and pursuant to Rule 415, and the declaration or
ordering of effectiveness of such Registration Statement by the SEC.
"Registrable Securities" means the Conversion Shares and the Warrant
Shares and any stock or other securities into which or for which the Common
Stock may hereafter be changed, converted or exchanged by the Company or its
successor, as the case may be, and any other securities issued to holders of
such Common Stock (or such shares into which or for which such shares are so
changed, converted or exchanged) upon any reclassification, share combination,
share subdivision, share dividend, merger, consolidation or similar transaction
or event.
"Registration Period" means the period from the Effective Date to the
earlier of (i) the date which is three years after the last Closing Date to
occur and (ii) the date on which the Investors no longer own any Registrable
Securities (or, if (x) the Preferred Shares have been fully converted into
shares of Common Stock and the Warrants have been exercised in full or (y)
neither the Preferred Shares nor the Warrants remain outstanding, such date
after which each Investor may sell all of its Registrable Securities without
registration under the 1933 Act pursuant to Rule 144, free of any limitation on
the volume of such securities which may be sold during any period and any
limitation on the manner of sale).
"Registration Statement" means a registration statement on Form S-3 of
the Company under the 1933 Act, including any amendment thereto, which names the
Investors as selling stockholders (including any documents or information
incorporated therein by reference).
"Regulation D" means Regulation D promulgated by the SEC under the 1933
Act.
6
<PAGE> 12
"Required Information" means, with respect to each Investor, all
information regarding such Investor, the Registrable Securities held by such
Investor or which such Investor has the right to acquire and the intended method
of disposition of the Registrable Securities held by such Investor or which such
Investor has the right to acquire as shall be required by the 1933 Act to effect
the registration of the resale by such Investor of such Registrable Securities.
"Rule 415" means Rule 415 under the 1933 Act or any successor rule
providing for offering securities on a delayed or continuous basis.
"Rule 144" means Rule 144 promulgated by the SEC under the 1933 Act or
any other similar rule or regulation of the SEC that may at any time permit a
holder of any securities to sell such securities to the public without
registration under the 1933 Act.
"SEC" means the Securities and Exchange Commission.
"SEC Effective Date" means the date the Registration Statement is
declared effective by the SEC.
"SEC Reports" means the 1997 10-K and the Company's Quarterly Report on
Form 10-Q for the fiscal quarter ended March 31, 1998, as amended by Amendment
No. 1 thereto on Form 10-Q/A, in each case as filed with the SEC.
"Second Closing Date" means the Closing Date, if any, after the Initial
Closing Date.
"Secondary Commitment Amount" means the number of Preferred Shares set
forth on the signature page of this Agreement as the Secondary Commitment
Amount.
"Securities" means the Shares and the Warrants.
"Series A Preferred Stock" means the Series A Convertible Preferred
Stock, $.001 par value, of the Company.
"Shares" means the Preferred Shares and the Common Shares.
"Short Sale" shall have the meaning given such term in Rule 3b-3 under
the 1934 Act as in effect on the date of this Agreement.
"Subsidiary" means any corporation or other entity of which a majority
of the capital stock or other ownership interests having ordinary voting power
to elect a majority of the board of directors or other Persons performing
similar functions are at the time directly or indirectly owned by the Company.
"Total Commitment Amount" means the number of Preferred Shares set forth
on signature page of this Agreement as the Total Commitment Amount.
7
<PAGE> 13
"Trading Day" means a day on whichever of (x) the national securities
exchange, (y) the Nasdaq or (z) such other securities market, which at the time
constitutes the principal securities market for the Common Stock, is open for
general trading of securities.
"Transaction Documents" means, individually or collectively, this
Agreement, the Certificate of Designations, the Warrants, the Conversion Agent
Agreement and the other agreements, instruments and documents contemplated
hereby and thereby.
"Violation" means
(i) any untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement or any post-effective
amendment thereof or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading,
(ii) any untrue statement or alleged untrue statement of a
material fact contained in any Prospectus (as amended or supplemented, if the
Company files any amendment thereof or supplement thereto with the SEC) or the
omission or alleged omission to state therein any material fact necessary to
make the statements made therein, in light of the circumstances under which the
statements therein were made, not misleading,
(iii) any violation or alleged violation by the Company of
the 1933 Act, the 1934 Act, any state securities law or any rule or regulation
under the 1933 Act, the 1934 Act or any state securities law, or
(iv) any breach or alleged breach by any Person other than
the Buyer of any representation, warranty, covenant, agreement or other term of
any of the Transaction Documents.
"Warrants" means Common Stock Purchase Warrants in the form attached
hereto as Annex IV initially entitling the holder to purchase the number of
shares of Common Stock determined in accordance with Section 2(a).
"Warrant Shares" means the shares of Common Stock issuable or issued
upon exercise of the Warrants.
2. AGREEMENT TO SUBSCRIBE; PURCHASE PRICE.
(a) COMMITMENT. The Buyer hereby agrees to purchase from the Company, at
any time after the Effective Date and during the Commitment Period, upon the
terms and subject to the conditions of this Agreement, up to the number of
Preferred Shares set forth on the signature page of this Agreement, having the
terms and conditions as set forth in the form of Certificate of Designations
attached hereto as ANNEX I, at the price per share set forth on the signature
page of this Agreement and for the Purchase Price. The Purchase Price shall be
payable in United States Dollars. The Buyer's commitment to purchase the
Preferred Shares shall become effective on the Effective Date so long as the
Effective Date occurs on or before June 22, 1998. In
8
<PAGE> 14
consideration of the execution and delivery of this Agreement by the Buyer and
the commitment of the Buyer to purchase the Preferred Shares, on the Effective
Date the Company shall issue to the Buyer Warrants, registered in the name of
the Buyer or its nominee, initially entitling the holder to purchase the number
of shares of Common Stock set forth or the signature page of this Agreement.
(b) EXERCISE OF PURCHASE OPTION. (1) The Company shall have the right on
two occasions only to require the Buyer to purchase the Preferred Shares in an
aggregate number not in excess of the Total Commitment Amount. In order to
exercise its right to require the Buyer to purchase Preferred Shares, the
Company shall give a Purchase Option Notice to the Buyer and the Other Buyers,
which notice shall be given by the Company not later than the end of the
Commitment Period. Subject to the limitations provided in this Agreement and the
Other Stock Purchase Agreements, each Purchase Option Notice shall set forth the
number of Preferred Shares to be purchased by the Buyer and the number of shares
of Preferred Stock to be purchased by each of the Other Buyers, which shall be,
as nearly as practical, pro rata based on the Total Commitment Amount and the
Other Buyer Total Commitment Amounts.
(2) The Company shall not be entitled to give a Purchase Option Notice
unless the Purchase Option Threshold Price is at least $3.50 and the Market
Price of the Common Stock on the date such Purchase Option Notice is given is at
least $3.00. During the period from the Effective Date to the date which is 150
days after the Effective Date, the Company shall be entitled to give Purchase
Option Notices with respect to an aggregate number of Preferred Shares which is
not in excess of the Primary Commitment Amount unless at the time a Purchase
Option Notice is given the Purchase Option Threshold Price is at least $7.00 and
the Market Price of the Common Stock on the date such Purchase Option Notice is
given is at least $6.50, in which case, subject to the limitations in this
Agreement, up to two Purchase Option Notices may be given by the Company during
such period with respect to an aggregate number of Preferred Shares up to the
Total Commitment Amount. Subject to the limitations in this Section 2(b)(2), if
the Company shall have given one Purchase Option Notice, then the Company may
gave a second Purchase Option Notice with respect to a number of Preferred
Shares not in excess of the Secondary Commitment Amount (but in no event in
excess of the number of Preferred Shares determined by subtracting from the
Total Commitment Amount the number of Preferred Shares with respect to which the
first Purchase Option Notice was given).
(3) The Company shall not be obligated to sell the Preferred Shares to
the Buyer until the Company shall, in its sole discretion, have given a Purchase
Option Notice, whereupon the Company shall be obligated to sell the Preferred
Shares to the Buyer upon the terms and subject to the conditions of this
Agreement. Time shall be of the essence in the giving of a Purchase Option
Notice during the Commitment Period.
(4) The Purchase Option Threshold Prices and the Market Prices set forth
in Section 2(b)(2) shall be subject to equitable adjustment from time to time on
terms reasonably acceptable to the Majority Buyers for (i) stock splits, (ii)
stock dividends, (iii) combinations, (iv) capital reorganizations, (v) issuance
to all holders of Common Stock of rights or warrants to purchase shares of
Common Stock at a price per share less than such price which would otherwise be
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<PAGE> 15
applicable, (vi) the distribution by the Company to all holders of Common Stock
of evidences of indebtedness of the Company or cash (other than regular
quarterly cash dividends), (vii) tender offers by the Company or any Subsidiary
or other repurchases of shares of Common Stock in one or more transactions
which, individually or in the aggregate, result in the purchase of more than 10%
of the Common Stock outstanding and (viii) similar events relating to the Common
Stock, in each such case which occur, or with respect to which "ex-" trading of
the Common Stock begins, on or after the date of execution and delivery of this
Agreement by the parties hereto.
(c) CLOSING. The issuance and sale of the Preferred Shares shall occur
on the Initial Closing Date and on the Second Closing Date, if any, at the Law
Offices of Brian W Pusch, Penthouse Suite, 29 West 57th Street, New York, New
York. At the closing on each Closing Date, upon the terms and subject to the
conditions of this Agreement, (1) the Company shall issue and deliver to the
Buyer the Preferred Shares, registered in the name of the Buyer or its nominee,
against payment by the Buyer to the Company of an amount equal to the Purchase
Price, and (2) the Buyer shall pay the Purchase Price to the Company by wire
transfer of immediately available funds to such account within the United States
of America as the Company shall have specified by notice to the Buyer at least
one Business Day prior to the applicable Closing Date, against delivery by the
Company to the Buyer of the Preferred Shares.
3. BUYER'S REPRESENTATIONS, WARRANTIES, ETC.
The Buyer represents and warrants to, and covenants and agrees with, the
Company as follows:
(a) PURCHASE FOR INVESTMENT. The Buyer is purchasing the Preferred
Shares and acquiring the Warrants for its own account for investment only and
not with a view towards the public sale or distribution thereof; the Buyer did
not receive an offer of the Preferred Shares, the Warrants or the Common Shares
as part of or in connection with the offer and sale by the Company of the 1997
Notes or any transaction relating thereto; any Common Shares acquired by the
Buyer will be acquired for its own account for investment; and the Buyer has no
present intention of making any distribution, within the meaning of the 1933
Act, of the Common Shares except in compliance with the registration
requirements of the 1933 Act or pursuant to any exemption therefrom;
(b) ACCREDITED INVESTOR. The Buyer is an "accredited investor" as that
term is defined in Rule 501 of the General Rules and Regulations under the 1933
Act by reason of Rule 501(a)(3) or 501(a)(8) thereof;
(c) REOFFERS AND RESALES. All subsequent offers and sales of the Shares
by the Buyer shall be made pursuant to registration of the Shares being offered
and sold under the 1933 Act or pursuant to an exemption from registration;
(d) COMPANY RELIANCE. The Buyer understands that the Preferred Shares
are being offered and sold, the Warrants are being issued, and the Common Shares
are being offered, to it in reliance on one or more exemptions from the
registration requirements of the 1933 Act, including, without limitation,
Regulation D, and exemptions from state securities laws and that
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the Company is relying upon the truth and accuracy of, and the Buyer's
compliance with, the representations, warranties, agreements, acknowledgments
and understandings of the Buyer set forth herein and in the Questionnaire, a
true and accurate copy of which has been delivered by the Buyer to the Company,
in order to determine the availability of such exemptions and the eligibility of
the Buyer to acquire the Preferred Shares and the Warrants and to receive an
offer of the Common Shares; and the information with respect to the Buyer set
forth in the Questionnaire is accurate and complete in all material respects;
(e) INFORMATION PROVIDED. The Buyer and its advisors, if any, have
requested, received and considered all information relating to the business,
properties, operations, condition (financial or other), results of operations
and prospects of the Company and information relating to the offer and sale of
the Preferred Shares, the issuance of the Warrants and the offer and, upon
conversion of the Preferred Shares and exercise of the Warrants, sale of the
Conversion Shares and Warrant Shares deemed relevant by them; the Buyer and its
advisors, if any, have been afforded the opportunity to ask questions of the
Company concerning the terms of the Securities and the business, properties,
operations, condition (financial or other), results of operations and prospects
of the Company and have received satisfactory answers to any such inquiries
(assuming no material misstatement or omission to state a material fact in the
SEC Reports and the Company's responses to requests for information by the Buyer
and its advisors, if any); without limiting the generality of the foregoing, the
Buyer has had the opportunity to obtain and to review the SEC Reports; the Buyer
has, in connection with its decision to purchase the Preferred Shares and to
acquire the Warrants, relied solely upon the SEC Reports, the representations,
warranties, covenants and agreements of the Company set forth in this Agreement
and to be contained in the Certificate of Designations, the Warrants and the
Conversion Agent Agreement, as well as any investigation of the Company
completed by the Buyer or its advisors, if any; the Buyer understands that its
investment in the Securities involves a high degree of risk; and the Buyer
understands that the offering of the Preferred Shares is being made to the Buyer
as part of an offering without any minimum or maximum amount of the offering
(subject, however, to the right of the Company at any time prior to execution
and delivery of this Agreement by the Company, in its sole discretion, to accept
or reject the offer by the Buyer to commit to purchase the Preferred Shares);
(f) ABSENCE OF APPROVALS. The Buyer understands that no United States
federal or state agency or any other government or governmental agency has
passed on or made any recommendation or endorsement of the Securities;
(g) PURCHASE AGREEMENT. The Buyer has all requisite power and authority,
corporate or otherwise, to execute, deliver and perform its obligations under
this Agreement and the other agreements executed or to be executed by the Buyer
in connection herewith and to consummate the transactions contemplated hereby
and thereby; and this Agreement has been duly and validly authorized, duly
executed and delivered on behalf of the Buyer and, assuming due execution and
delivery by the Company, is a valid and binding agreement of the Buyer
enforceable in accordance with its terms, except as the enforceability hereof
may be limited by bankruptcy, insolvency, reorganization, fraudulent conveyance,
moratorium or other similar laws now or
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hereafter in effect relating to or affecting creditors' rights generally and
general principles of equity, regardless of whether enforcement is considered in
a proceeding in equity or at law; and
(h) BUYER STATUS. The Buyer is not a "broker" or "dealer" as these terms
are defined in the 1934 Act which is required to be registered under Section 15
of the 1934 Act.
4. COMPANY'S REPRESENTATIONS, WARRANTIES, ETC.
The Company represents and warrants to, and covenants and agrees with,
the Buyer that:
(a) ORGANIZATION AND AUTHORITY. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware, and has all requisite corporate power and authority to (i) own, lease
and operate its properties and to carry on its business as described in the SEC
Reports and as currently conducted, and (ii) to execute, deliver and perform its
obligations under this Agreement and the other Transaction Documents to be
executed and delivered by the Company in connection herewith, and to consummate
the transactions contemplated hereby and thereby; and the Company has no
subsidiaries or equity investments in any other Person.
(b) QUALIFICATIONS. The Company is duly qualified to do business as
foreign corporations and are in good standing in all jurisdictions wherein such
qualification is necessary and where failure so to qualify could have a material
adverse effect on the business, properties, operations, condition (financial or
other), results of operations or prospects of the Company.
(c) CAPITALIZATION. The authorized capital stock of the Company consists
of (a) 40,000,000 shares of Common Stock of which 18,412,108 shares were
outstanding as of the close of business on June 9, 1998, all of which are fully
paid and nonassessable; and (b) 1,000,000 shares of Preferred Stock, $.001 par
value, of which 400,000 shares have been designated Series A Preferred Stock, of
which 400,000 shares were outstanding at the close of business on June 9, 1998,
and of which up to 7,000 shares will be designated as Preferred Stock and issued
pursuant to this Agreement and the Other Stock Purchase Agreements; from June 9,
1998 to the Initial Closing Date and the Second Closing Date, if any, there will
be (x) no material increase in the number of shares of Common Stock outstanding
(except for shares issued (i) upon conversion of the Series A Preferred Stock or
the 1997 Notes, (ii) upon exercise of options and warrants outstanding on the
date hereof or options or similar rights granted subsequent to the date of this
Agreement pursuant to the Company's stock option plans in effect on the date of
this Agreement or (iii) pursuant to a public offering made directly by the
Company on a basis similar to the offerings made pursuant to the 1997
Registration Statements or underwritten on a firm commitment basis for the
account of the Company and, in each such case, registered under the 1933 Act)
and (y) no issuance of shares of preferred stock of the Company other than
pursuant to this Agreement and the Other Stock Purchase Agreements. The 1997
10-K discloses as of December 31, 1997 all outstanding options or warrants for
the purchase of, or other rights to purchase or subscribe for, or securities
convertible into or exchangeable for, or otherwise entitling the holder to
acquire, Common Stock or other capital stock of the Company, or any contracts or
commitments to issue or sell Common Stock or other capital stock of the Company
or any such options, warrants, rights or other securities; and from such date to
the date hereof
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<PAGE> 18
there has been, and to the Initial Closing Date and the Second Closing Date, if
any, there will be, no material change in the amount or terms of any of the
foregoing except for the grant of options to purchase shares of Common Stock
pursuant to the Company's stock option plans in effect on the date of this
Agreement. The Company has duly reserved from its authorized and unissued shares
of Common Stock the full number of shares required for (a) all options,
warrants, convertible securities, exchangeable securities, puts (including,
without limitation, puts pursuant to the Fletcher Stock Purchase Agreement) and
other rights to acquire shares of Common Stock which are outstanding and (b) all
shares of Common Stock and options and other rights to acquire shares of Common
Stock which may be issued or granted under the stock option and similar plans
which have been adopted by the Company; and, immediately following the Effective
Date and each Closing Date, after giving effect to any antidilution or similar
adjustment arising by reason of issuance of the Warrants and the common stock
purchase warrants to be issued pursuant to the Other Stock Purchase Agreements
and the issuance of the Preferred Shares and the shares of Preferred Stock to be
issued pursuant to the Other Stock Purchase Agreements, the total number of
shares of Common Stock reserved and required to be reserved from the authorized
and unissued shares of Common Stock for purposes of all such options, warrants,
convertible securities, puts, other rights and stock option and similar plans
(excluding the Preferred Shares and the Warrants and the shares of Preferred
Stock and the common stock purchase warrants to be issued pursuant to the Other
Stock Purchase Agreements) will be 8,846,464. Each outstanding class or series
of securities for which any such antidilution adjustment will occur is
identified on Schedule 4(c) attached hereto, together with the amount of such
antidilution adjustment for each such class or series. The outstanding shares of
Common Stock and Series A Preferred Stock and outstanding options, warrants and
other securities entitling the holders to purchase or otherwise acquire Common
Stock have been duly and validly authorized and issued. None of the outstanding
shares of Common Stock or Series A Preferred Stock or options, warrants and
other such securities has been issued in violation of the preemptive rights of
any securityholder of the Company. The offers and sales of the outstanding
shares of Common Stock and Series A Preferred Stock and options, warrants and
other rights to acquire Common Stock were at all relevant times either
registered under the 1933 Act and applicable state securities laws or exempt
from such requirements. No holder of any of the Company's securities has any
rights, "demand," "piggy-back" or otherwise, to have such securities registered
by reason of the intention to file, filing or effectiveness of the Registration
Statement.
(d) CONCERNING THE SHARES AND THE COMMON STOCK. The Shares have been
duly authorized and the Preferred Shares, when issued and paid for in accordance
with this Agreement, and the Conversion Shares, when issued upon conversion of
the Preferred Shares, and the Warrant Shares, when issued upon the exercise of
the Warrants, will be duly and validly issued, fully paid and non-assessable and
will not subject the holder thereof to personal liability by reason of being
such holder. There are no preemptive or similar rights of any stockholder of the
Company or any other Person to acquire any of the Shares or the Warrants. The
Company has duly reserved 1,910,800 shares of Common Stock for conversion of the
shares of Preferred Stock and 350,000 shares of Common Stock as the Warrant
Shares and for issuance upon the exercise of the warrants to be issued pursuant
to the Other Stock Purchase Agreements, and such shares shall remain so reserved
(subject to reduction from time to time for shares of Common
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<PAGE> 19
Stock issued upon conversion of shares of Preferred Stock and exercise of such
warrants), and the Company shall from time to time reserve such additional
shares of Common Stock as shall be required to be reserved pursuant to the
Certificate of Designations, as long as the Preferred Stock is convertible, and
pursuant to the Warrants, so long as the Warrants are outstanding. The Common
Stock is listed for trading on Nasdaq and (1) the Company and the Common Stock
meet the criteria for continued listing and trading on Nasdaq, except for the
failure or potential failure of the Company to meet the Nasdaq Tangible Asset
Criterion; (2) the Company has not been notified since January 1, 1996 by the
NASD or the Nasdaq Stock Market of any failure or potential failure to meet the
criteria for continued listing and trading on Nasdaq, except for the letter,
dated June 10, 1998, from the Nasdaq Stock Market to the Company, a copy of
which has been provided to the Buyer, and (3) no suspension of trading in the
Common Stock is in effect. The Company knows of no reason, other than the
failure or potential failure of the Company to meet the Nasdaq Tangible Asset
Criterion, that the Common Shares will not be eligible for listing on Nasdaq,
and the Company knows of no reason that the Common Shares will not be eligible
for listing on AMEX or Nasdaq SmallCap.
(e) CORPORATE AUTHORIZATION. The Transaction Documents have been duly
and validly authorized by the Company, this Agreement has been duly executed and
delivered on behalf of the Company and, assuming due execution and delivery by
the Buyer, this Agreement is, the Certificate of Designations, when executed by
the Company and filed with the Secretary of State of the State of Delaware, will
be, and the Warrants and the Conversion Agent Agreement, when executed and
delivered by the Company, will be, valid and binding obligations of the Company
enforceable in accordance with their respective terms, except as the
enforceability hereof may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws now or hereafter in effect relating to or
affecting creditors' rights generally and general principles of equity,
regardless of whether enforcement is considered in a proceeding in equity or at
law.
(f) NON-CONTRAVENTION. The execution and delivery of the Transaction
Documents by the Company and the consummation by the Company of the issuance of
the Securities as contemplated by this Agreement and the other transactions
contemplated by the Transaction Documents do not and will not, with or without
the giving of notice or the lapse of time, or both, (i) result in any violation
of any term of the certificate of incorporation or by-laws of the Company, (ii)
conflict with or result in a breach by the Company of any of the terms or
provisions of, or constitute a default under, or result in the modification of,
or result in the creation or imposition of any lien, security interest, charge
or encumbrance upon any of the properties or assets of the Company pursuant to,
any indenture, mortgage, deed of trust or other agreement or instrument to which
the Company is a party or by which the Company or any of its properties or
assets are bound or affected, (iii) violate or contravene any applicable law,
rule or regulation or any applicable decree, judgment or order of any court,
United States federal or state regulatory body, administrative agency or other
governmental body having jurisdiction over the Company or any of its properties
or assets or (iv) have any material adverse effect on any permit, certification,
registration, approval, consent, license or franchise necessary for the Company
to own or lease and operate any of its properties and to conduct any of its
business or the ability of the Company to make use thereof.
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<PAGE> 20
(g) APPROVALS. No authorization, approval or consent of any court,
governmental body, regulatory agency, self-regulatory organization, or stock
exchange or market or the stockholders of the Company is required to be obtained
by the Company for (1) the execution, delivery and performance by the Company of
the Transaction Documents, (2) the issuance and sale of Common Shares upon
conversion of the Preferred Shares or upon exercise of the Warrants as
contemplated by this Agreement and the other Transaction Documents and (3) the
performance by the Company of its other obligations under the Transaction
Documents, other than (1) listing of the Common Shares on Nasdaq, AMEX or Nasdaq
SmallCap, (2) registration of the resale of the Common Shares under the 1933 Act
as contemplated by Section 8, (3) as may be required under applicable state
securities or "blue sky" laws, and (4) filing of one or more Forms D with
respect to the Shares and the Warrants as required under Regulation D.
(h) INFORMATION PROVIDED. All written information provided by or on
behalf of the Company to the Buyer in connection with the transactions
contemplated by this Agreement, including, without limitation, the information
referred to in Section 3(e) of this Agreement, does not contain any untrue
statement of a material fact or omit to state any material fact necessary in
order to make the statements therein, in the light of the circumstances under
which they are made, not misleading, it being understood that for purposes of
this Section 4(h), any statement contained in such information shall be deemed
to be modified or superseded for purposes of this Section 4(h) to the extent
that a statement in any document included in such information which was prepared
or filed with the SEC on a later date modifies or replaces such statement,
whether or not such later prepared or filed statement so states.
(i) SEC FILINGS. The Company has timely filed all reports required to be
filed under the 1934 Act and any other material reports or documents required to
be filed with the SEC since January 1, 1995. All of such reports and documents
complied, when filed, in all material respects, with all applicable requirements
of the 1933 Act and the 1934 Act. The Company meets the requirements for the use
of Form S-3 for the registration of the resale of the Common Shares by the Buyer
and any other Investor. The Company has not filed any reports with the SEC under
the 1934 Act since December 31, 1997 other than the SEC Reports.
(j) CONDUCT OF BUSINESS. Except as set forth in the SEC Reports, since
December 31, 1997, the Company has not (i) incurred any material obligation or
liability (absolute or contingent) other than in the ordinary course of
business; (ii) canceled, without payment in full, any material notes, loans or
other obligations receivable or other debts or claims held by it other than in
the ordinary course of business; (iii) sold, assigned, transferred, abandoned,
mortgaged, pledged or subjected to lien any of its material properties, tangible
or intangible, or rights under any material contract, permit, license, franchise
or other agreement; (iv) conducted its business in a manner materially different
from its business as conducted on such date; (v) declared, made or paid or set
aside for payment any cash or non-cash distribution on any shares of its capital
stock; or (vi) consummated, or entered into any agreement with respect to, any
transaction or event which would constitute an Optional Redemption Event. Except
as disclosed in the SEC Reports, the Company owns, possesses or has obtained all
governmental, administrative and third party licenses, permits, certificates,
registrations, approvals, consents and other authorizations necessary to own or
lease (as the case may be) and operate their respective properties, whether
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<PAGE> 21
tangible or intangible, and to conduct their respective businesses or operations
as currently conducted, except such licenses, permits, certificates,
registrations, approvals, consents and authorizations the failure of which to
obtain would not have a material adverse effect on the business, properties,
operations, condition (financial or other), results of operations or prospects
of the Company.
(k) ABSENCE OF CERTAIN PROCEEDINGS. Except as described in the SEC
Reports, there is no action, suit or proceeding, before or by any court, public
board or body or governmental agency pending or, to the knowledge of the
Company, threatened against the Company and, to the knowledge of the Company,
there is no inquiry or investigation before or by any court, public board or
body or governmental agency pending or threatened against the Company, in any
such case wherein an unfavorable decision, ruling or finding could have a
material adverse effect on the business, properties, operations, condition
(financial or other), results of operations or prospects of the Company or the
transactions contemplated by the Transaction Documents or which could adversely
affect the validity or enforceability of, or the authority or ability of the
Company to perform its obligations under, the Transaction Documents; the Company
does not have pending before the SEC any request for confidential treatment of
information and to the best of the Company's knowledge no such request will be
made by the Company prior to the time the Registration Statement relating to the
Common Shares which is contemplated by Section 8 of this Agreement is first
ordered effective by the SEC; and to the best of the Company's knowledge there
is not pending or contemplated, and there has been no, investigation by the SEC
involving the Company or any current or former director or officer of the
Company.
(l) LIABILITIES. Except as and to the extent disclosed, reflected or
reserved against in the financial statements of the Company and the notes
thereto included in the 1997 10-K, the Company has no material (individually or
in the aggregate) liabilities, debts or obligations whether accrued, absolute,
contingent or otherwise, and whether due or to become due. Subsequent to
December 31, 1997, the Company has not incurred any liabilities, debts or
obligations of any nature whatsoever which are individually or in the aggregate
material to the Company, other than those incurred in the ordinary course of its
business.
(m) ABSENCE OF CERTAIN CHANGES. Since December 31, 1997, there has been
no material adverse change and no material adverse development in the business,
properties, operations, condition (financial or other), results of operations or
prospects of the Company, except as disclosed in the SEC Reports and except for
the failure or potential failure of the Company to meet the Nasdaq Tangible
Asset Criterion.
(n) MATERIAL LOSSES. Since December 31, 1997, the Company has not
sustained any loss or interference with its business or properties from fire,
flood, hurricane, accident or other calamity, whether or not covered by
insurance, or from any labor dispute or court or governmental action, order or
decree, which loss or interference could be material to the business,
properties, operations, condition (financial or other), results of operations or
prospects of the Company.
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(o) PROPERTIES. The Company has good title to all property real and
personal (tangible and intangible) and other assets owned by it which
individually or in the aggregate are material to the Company, free and clear of
all security interests, charges, mortgages, liens or other encumbrances, except
such as are described in the SEC Reports or such as do not materially interfere
with the use of such property made, or proposed to be made, by the Company. The
leases, licenses or other contracts or instruments under which the Company
leases, holds or is entitled to use any property, real or personal, which
individually or in the aggregate are material to the Company, are valid,
subsisting and enforceable with only such exceptions as do not materially
interfere with the use of such property made, or proposed to be made, by the
Company. The Company has not received notice of any material violation of any
applicable law, ordinance, regulation, order or requirement relating to its
owned or leased properties.
(p) INTELLECTUAL PROPERTY. Except as disclosed in the SEC Reports, the
Company owns, or possesses adequate rights to use, all patents, patent rights,
inventions, trade secrets, know-how, proprietary techniques, including processes
and substances, trademarks, service marks, trade names and copyrights described
or referred to in the SEC Reports or owned or used by it or which are necessary
for the conduct of its business as it is presently conducted or proposed to be
conducted. Except as disclosed in the SEC Reports, the Company has not received
any notice of, and is not aware of, any infringement of or conflict with
asserted rights of others with respect to, any patents, patent rights,
inventions, trade secrets, know-how, proprietary techniques, including processes
and substances, trademarks, service marks, trade names or copyrights or
allegations with respect thereto which, singly or in the aggregate, if the
subject of an unfavorable decision, ruling or finding, could have a material
adverse effect on the business, properties, operations, condition (financial or
other), results of operations or prospects of the Company.
(q) INTERNAL ACCOUNTING CONTROLS. The Company maintains a system of
internal accounting controls meeting the requirements of Section 13(b)(2) of the
1934 Act in all material respects.
(r) COMPLIANCE WITH LAW. Except as disclosed in the SEC Reports, the
Company is not in violation of any statute, law, rule, regulation, ordinance,
decision or order of any governmental agency or body or any court, domestic or
foreign, including, without limitation, those relating to the use, operation,
handling, transportation, disposal or release of hazardous or toxic substances
or wastes or relating to the protection or restoration of the environment or
human exposure to hazardous or toxic substances or wastes, except where such
violation would not individually or in the aggregate have a material adverse
effect on the business, properties, operations, condition (financial or other),
results of operations or prospects of the Company; and the Company is not aware
of any pending investigation which would reasonably be expected to lead to such
a claim.
(s) LABOR RELATIONS. No material labor problem exists or, to the
knowledge of the Company, is imminent with respect to any of the employees of
the Company.
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(t) INSURANCE. The Company maintains insurance against loss or damage by
fire or other casualty and such other insurance, including, but not limited to,
product liability insurance, in such amounts and covering such risks as is to
the Company's knowledge usually maintained by companies of comparable size
engaged in the same or a similar business and in the same geographic region as
the Company, subject to customary deductibles.
(u) ABSENCE OF BROKERS, FINDERS, ETC. No broker, finder or similar
Person other than Diaz & Altschul Capital, LLC is entitled to any commission,
fee or other compensation by reason of the transactions contemplated by this
Agreement, and the Company shall pay, and indemnify and hold harmless the Buyer
from, any claim made against the Buyer by any Person for any such commission,
fee or other compensation.
(v) SOLICITATION; OFFERING OF WARRANTS AND PREFERRED SHARES. No form of
general solicitation or general advertising was used by the Company or, to the
best of its knowledge, any other Person acting on behalf of the Company, in
respect of the Securities or in connection with the offer and sale of the
Securities. Neither the Company nor, to its knowledge, any Person acting on
behalf of the Company has, either directly or indirectly, sold or offered for
sale to any Person any of the Securities or, within the six months prior to the
date hereof, any other similar security of the Company except as contemplated by
this Agreement and the Other Stock Purchase Agreements; and neither the Company
nor any Person authorized to act on its behalf will sell or offer for sale any
shares of Preferred Stock, shares of Common Stock or common stock purchase
warrants or other securities of the Company, or solicit any offers to buy any
shares of Preferred Stock, shares of Common Stock or common stock purchase
warrants or similar securities so as thereby to cause the issuance or sale of
any of the Securities to be in violation of Section 5 of the 1933 Act. The
Company did not offer the Warrants or the Preferred Shares to the Buyer as part
of or in connection with the Company's offers and sales of the 1997 Notes or any
transaction entered into by the Company in connection therewith.
(w) CERTAIN ISSUANCES OF SECURITIES. The Company has not issued any
shares of Common Stock or shares of any series of preferred stock (other than
the common stock purchase warrants and the shares of Preferred Stock issuable
pursuant to the Other Stock Purchase Agreements) or other securities convertible
into, exchangeable for or otherwise entitling the holder to acquire shares of
Common Stock which are subject to Section 4460(i)(1)(D) of the rules of the NASD
(or any successor or replacement provision thereof) and which would be
integrated with the sale of the Preferred Shares to the Buyer or the issuance of
Conversion Shares upon conversion thereof or the issuance of the Warrants or the
Warrant Shares upon the exercise of the Warrants for purposes of such Section
4460(i)(1)(D) (or any successor or replacement provision thereof or similar
provision of any other securities market or securities exchange on which the
Common Stock is listed at the time of determination).
(x) INVESTMENT COMPANY. Neither the Company nor the Subsidiary is an
"investment company" within the meaning of such term under the Investment
Company Act of 1940, as amended and the rules and regulations of the SEC
thereunder.
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(y) ABSENCE OF RIGHTS AGREEMENT. The Company has not adopted a
shareholder rights plan or similar arrangement relating to accumulations of
beneficial ownership of Common Stock or a change in control of the Company.
(z) CLASSIFICATION OF PREFERRED STOCK. The Company has been advised by
Ernst & Young LLP, its independent public accountants, that, based on a review
of the Transaction Documents under Generally Accepted Accounting Principles and
applicable accounting principles and practices of the SEC in effect on the date
of this Agreement, the Preferred Stock, when issued, will be classified as
equity on the Company's balance sheet and not as redeemable preferred stock.
5. CERTAIN COVENANTS AND ACKNOWLEDGMENTS.
(a) TRANSFER RESTRICTIONS. The Buyer acknowledges and agrees that (1)
the Preferred Shares and the Warrants to be issued to it hereunder have not been
and are not being registered under the provisions of the 1933 Act or any state
securities laws and, except as provided in Section 8, the Common Shares have not
been and are not being registered under the 1933 Act or any state securities
laws, and that the Preferred Shares, the Common Shares and the Warrants may not
be transferred unless the Buyer shall have delivered to the Company an opinion
of counsel, reasonably satisfactory in form, scope and substance to the Company,
to the effect that the Securities to be transferred may be transferred without
such registration; (2) no sale, assignment or other transfer of the Preferred
Shares, the Warrants or any interest therein may be made except in accordance
with the terms hereof; (3) the Common Shares may not be resold by the Buyer
unless the resale has been registered under the 1933 Act or is made pursuant to
an exemption from such registration; (4) any sale of the Securities made in
reliance on Rule 144 may be made only in accordance with the terms of said Rule
and further, if the exemption provided by Rule 144 is not available, any resale
of the Securities under circumstances in which the seller, or the Person through
whom the sale is made, may be deemed to be an underwriter, as that term is used
in the 1933 Act, may require compliance with some other exemption under the 1933
Act or the rules and regulations of the SEC thereunder; and (5) the Company is
under no obligation to register the Securities (other than registration of the
resale of the Common Shares in accordance with Section 8) under the 1933 Act or,
except as provided in Sections 5(d), 5(e) and 8, to comply with the terms and
conditions of any exemption thereunder. The Buyer may not transfer the Common
Shares in a transaction which does not constitute a transfer thereof pursuant to
the Registration Statement in accordance with the plan of distribution set forth
therein or in any supplement to the Prospectus forming part of the Registration
Statement unless the Buyer shall have delivered to the Company an opinion of
counsel, reasonably satisfactory in form, scope and substance to the Company,
that such Common Shares may be transferred without registration under the 1933
Act.
(b) RESTRICTIVE LEGENDS. (1) The Buyer acknowledges and agrees that the
certificates for the Preferred Shares shall bear restrictive legends in
substantially the following form (and a stop-transfer order may be placed
against transfer of the Preferred Shares):
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These securities have not been registered under the Securities Act of
1933, as amended (the "Act"). The sale to the holder of these securities
of the shares of common stock issuable upon conversion of these
securities is not covered by a registration statement under the Act.
These securities have been acquired, and such shares of common stock
must be acquired, for investment and may not be resold, transferred or
assigned in the absence of an effective registration statement under the
Act or an opinion of counsel reasonably satisfactory in form, scope and
substance to the Company that registration is not required under the
Act.
The number of shares constituting the portion of the Maximum Share
Amount, as defined in the Certificate of Designations (the "Certificate
of Designations") of the Series B Custom Convertible Preferred Stock
(the "Series B Shares"), allocated to the Series B Shares represented by
this certificate for purposes of conversion thereof is [INSERT PRO RATA
PORTION OF 20% OF THE NUMBER OF SHARES OF COMMON STOCK OUTSTANDING
IMMEDIATELY PRIOR TO THE EFFECTIVE DATE] (or such greater number
resulting from an increase in the Maximum Share Amount as provided in
the Certificate of Designations above [INSERT 20% OF THE NUMBER OF
SHARES OF COMMON STOCK OUTSTANDING IMMEDIATELY PRIOR TO THE EFFECTIVE
DATE] shares).
Section 10(b)(3)(A) of the Certificate of Designations permits a holder
of the securities represented by this certificate to convert such
securities in accordance with the Certificate of Designations without
being required to physically surrender this certificate to the Company
unless all of the securities represented hereby are so converted.
Consequently, following conversion of any of the securities represented
by this certificate, the number of shares represented by this
certificate may be less than the number of shares stated hereon.
(2) The Buyer further acknowledges and agrees that the Warrants
shall bear a restrictive legend in substantially the following form (and a
stop-transfer order may be placed against transfer of the Warrants):
The securities represented by this certificate have not been registered
under the Securities Act of 1933, as amended. The securities have been
acquired for investment and may not be resold, transferred or assigned
in the absence of an effective registration statement for the securities
under the Securities Act of 1933, as amended, or an opinion of counsel
that registration is not required under said Act.
(3) The Buyer further acknowledges and agrees that until such
time as the Common Shares have been registered for resale under the 1933 Act as
contemplated by Section 8, the certificates for the Common Shares may bear a
restrictive legend in substantially the following form (and a stop-transfer
order may be placed against transfer of the certificates for the Common Shares):
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<PAGE> 26
The securities represented by this certificate have not been registered
under the Securities Act of 1933, as amended (the "Act"). The securities
have been acquired for investment and may not be resold, transferred or
assigned in the absence of an effective registration statement for the
securities under the Act, or an opinion of counsel reasonably
satisfactory in form, scope and substance to the Company that
registration is not required under the Act.
(4) Once the Registration Statement required to be filed by the
Company pursuant to Section 8 has been declared effective, thereafter (1) upon
request of the Buyer the Company will substitute certificates without
restrictive legend for certificates for any Common Shares issued prior to the
SEC Effective Date which bear such restrictive legend and remove any
stop-transfer restriction relating thereto promptly, but in no event later than
three days after surrender of such certificates by the Buyer and (2) the Company
shall not place any restrictive legend on certificates for Conversion Shares
issued on conversion of the Preferred Shares or Warrant Shares issued upon
exercise of the Warrants or impose any stop-transfer restriction thereon.
(c) CONVERSION AGENT AGREEMENT. Prior to the Effective Date, the Company
will (1) enter into the Conversion Agent Agreement substantially in the form
attached hereto as Annex III and pursuant thereto irrevocably instruct the
Conversion Agent, to issue certificates for the Common Shares from time to time
upon conversion of the Preferred Shares and exercise of the Warrants in such
amounts as specified from time to time (x) to the Conversion Agent in the
Conversion Notices surrendered in connection with such conversions and (y) upon
exercise of the Warrants in such amounts as specified from time to time to the
Conversion Agent in the Form of Subscription to be attached to the Warrants and
surrendered in connection with such exercises, and (2) appoint the Conversion
Agent the conversion agent for the Preferred Stock and the exercise agent for
the Warrants. The certificates for the Common Shares may bear the restrictive
legend specified in Section 5(b) of this Agreement prior to registration of the
resale of the Common Shares under the 1933 Act. The certificates for the Common
Shares shall be registered in the name of the Buyer or its nominee and in such
denominations to be specified by the Buyer in connection with each conversion of
Preferred Shares or exercise of the Warrants, as the case may be. The Company
warrants that, except as otherwise expressly permitted by the Conversion Agent
Agreement, no instruction other than (x) such instructions referred to in this
Section 5(c), (y) stop transfer instructions to give effect to Section 5(a)
hereof prior to registration of the resale of the Common Shares under the 1933
Act and (z) the instructions required by Section 8(b)(12) hereof will be given
by the Company to the Conversion Agent and that the Common Shares shall
otherwise be freely transferable on the books and records of the Company as and
to the extent provided in this Agreement. Nothing in this Section 5(c) shall
limit in any way the Buyer's obligations and agreement to comply with the
registration requirements of the 1933 Act or an exception therefrom upon resale
of the Shares or the Warrants. If the Buyer provides the Company with an opinion
of counsel reasonably satisfactory in form, scope and substance to the Company
that registration of a resale by the Buyer of any of the Shares or the Warrants
in accordance with the last sentence of Section 5(a) of this Agreement is not
required under the 1933 Act, the Company shall permit the transfer of such
Shares and Warrants and, in the case of the Common Shares, promptly, but in no
event later than three days
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after receipt of such opinion, instruct the Conversion Agent to issue upon
transfer one or more share certificates in such names and in such denominations
as specified by the Buyer. Nothing in this Section 5(c) shall limit the
obligations of the Company under Section 8 of this Agreement.
(d) FORM D; BLUE SKY LAWS. The Company agrees to file a Form D with
respect to the Securities to give notice of reliance on the exemption provided
by Rule 506 under the 1933 Act as required under Regulation D and to provide a
copy thereof to the Buyer promptly after such filing.
(e) NASDAQ LISTING; REPORTING STATUS. Prior to the Effective Date, the
Company shall file an application for listing of additional shares with the
Nasdaq Stock Market covering the Common Shares and shall provide evidence of
such filing to the Buyer. The Company shall use its best efforts to obtain the
listing, subject to official notice of issuance, of the Common Shares on Nasdaq
or, if the Company or the Common Stock is not eligible for continued listing and
trading on Nasdaq, on AMEX or Nasdaq SmallCap prior to the Effective Date. So
long as the Buyer beneficially owns any Preferred Shares or Common Shares, (1)
the Company will use its best efforts to maintain the listing of the Common
Stock on Nasdaq or a registered national securities exchange or, if Nasdaq or
such exchange is not available, on the first available of (i) Nasdaq SmallCap,
and (ii) such other securities exchange, OTC Bulletin Board or other market as
may then be available, and (2) the Company shall assure that at all times there
are at least two broker-dealers who are members of the NASD who are market
makers in the Common Stock. During the Registration Period, the Company shall
timely file all reports required to be filed with the SEC pursuant to Section 13
or 15(d) of the 1934 Act, and the Company shall not terminate its status as an
issuer required to file reports under the 1934 Act even if the 1934 Act or the
rules and regulations thereunder would permit such termination. So long as the
Buyer owns any Shares or Warrants, the Company shall furnish to the Buyer copies
of all reports and other information filed by the Company with the SEC pursuant
to Sections 13, 14(a), 14(c) and 15(d) of the 1934 Act promptly, but in no event
later than five days, after the same are filed with the SEC.
(f) USE OF PROCEEDS. The Company does not own or have any present
intention of acquiring any Margin Stock. The proceeds of sale of the Preferred
Shares will be used for general working capital purposes and in the operation of
the Company's business. None of such proceeds will be used, directly or
indirectly (1) to make any loan to or investment in any other Person or (2) for
the purpose, whether immediate, incidental or ultimate, of purchasing or
carrying any Margin Stock or for the purpose of maintaining, reducing or
retiring any indebtedness which was originally incurred to purchase or carry any
stock that is a Margin Stock or for any other purpose which might constitute the
transactions contemplated by this Agreement a "purpose credit" within the
meaning of Regulation G of the Board of Governors of the Federal Reserve System.
Neither the Company nor any agent acting on its behalf has taken or will take
any action which might cause this Agreement or the transactions contemplated
hereby to violate Regulation G, Regulation T or any other regulation of the
Board of Governors of the Federal Reserve System or to violate the 1934 Act, in
each case as in effect now or as the same may hereafter be in effect.
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<PAGE> 28
(g) STATE SECURITIES LAWS. On or before each Closing Date, the Company
shall take such action as shall be necessary to qualify, or to obtain an
exemption for, the Preferred Shares for sale to the Buyer pursuant to this
Agreement, the Warrants for issuance to the Buyer pursuant to this Agreement and
the Common Shares for issuance to the Buyer on conversion of the Preferred
Shares or exercise of the Warrants under such of the securities or "blue sky"
laws of jurisdictions as shall be applicable to the sale of the Preferred Shares
and the issuance of the Warrants pursuant to this Agreement and the issuance to
the Buyer of Conversion Shares on conversion of the Preferred Shares and Warrant
Shares upon exercise of the Warrants. In connection with the foregoing
obligations of the Company in this Section 5(g), the Company shall not be
required (1) to qualify to do business in any jurisdiction where it would not
otherwise be required to qualify but for this Section 5(g), (2) to subject
itself to general taxation in any such jurisdiction, (3) to file a general
consent to service of process in any such jurisdiction, (4) to provide any
undertakings that cause more than nominal expense or burden to the Company, or
(5) to make any change in its charter or by-laws which the Board of Directors of
the Company determines to be contrary to the best interests of the Company and
its stockholders. The Company shall furnish copies of all filings, applications,
orders and grants or confirmations of exemptions relating to such securities or
"blue sky" laws on or prior to each Closing Date.
(h) CERTAIN ISSUANCES OF SECURITIES. (1) Unless the Company obtains the
Stockholder Approval (as defined in the Certificate of Designations) or a waiver
thereof from the Nasdaq Stock Market, the Company will not issue any shares of
Common Stock or shares of any other series of preferred stock or other
securities convertible into, exchangeable for, or otherwise entitling the holder
to acquire, shares of Common Stock which would be subject to the requirements of
Section 4460(i)(1)(D) of the rules of the NASD (or any successor or replacement
provision thereof or any similar provision of any other securities market or
securities exchange on which the Common Stock is listed at the time of
determination) and which would be integrated with the issuance of the Warrants
or the sale of the Preferred Shares to the Buyer or the issuance of Common
Shares upon conversion or exercise thereof, as the case may be, or for purposes
of such Section 4460(i)(1)(D) (or any successor or replacement provision thereof
or any similar provision of any other securities market or securities exchange
on which the Common Stock is listed at the time of determination).
(2) During the period from the date of execution and delivery of
this Agreement by the parties hereto to the date which is 90 days after the
Initial Closing Date and during the period from the Second Closing Date, if any,
to the date which is 90 days thereafter, without the prior written consent of
the Majority Buyers the Company shall not offer, sell, contract to sell or issue
(or engage any Person to assist the Company in taking any such action) any
Equity Securities at a price below the market price of the Common Stock;
provided, however, that nothing in this Section 5(h)(2) shall prohibit the
Company from issuing securities (x) pursuant to compensation plans for
employees, directors, officers, advisers or consultants of the Company and in
accordance with the terms of such plans as in effect as of the date of this
Agreement, (y) upon exercise of conversion, exchange, purchase or similar rights
issued, granted or given by the Company and outstanding as of the date of this
Agreement or (z) pursuant to a public offering made directly by the Company on a
basis similar to the offerings made pursuant
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<PAGE> 29
to the 1997 Registration Statements or underwritten on a firm commitment basis
and, in each such case, registered under the 1933 Act.
(3) During each period from the date the Company gives a Purchase
Option Notice to the date which is 180 days after the Closing Date with respect
to such Purchase Option Notice, the Company shall not without the prior written
consent of the Majority Buyers (a) exercise any option to sell to Fletcher newly
issued shares of Common Stock pursuant to the Fletcher Stock Purchase Agreement
unless (i) the Registration Statement shall have been effective with the SEC and
available for use by the selling stockholders named therein for 90 consecutive
days and (ii) the arithmetic average of the Market Price of the Common Stock for
any period of twenty consecutive Trading Days beginning on or after the period
of 90 consecutive days referred to in the immediately preceding clause (ii)
shall have been at least $8.00 per share and the Market Price of the Common
Stock on the Trading Day immediately preceding such exercise is at least $8.00
per share (subject to equitable adjustment for stock splits, stock dividends,
recapitalizations, reorganizations and similar changes affecting the Common
Stock from time to time after the date of this Agreement on terms reasonably
acceptable to the Majority Buyers) or (b) enter into any other agreement or
arrangement similar to the Fletcher Stock Purchase Agreement, or exercise any
similar right, to put shares of Common Stock to any third party if such shares
may be freely resold to the public without registration, or are entitled to
registration rights under, the 1933 Act during such six-month period; provided,
however, that this Section 5(h)(3) shall not restrict sales of shares of Common
Stock by the Company pursuant to the Stock Purchase Agreement, dated as of
September 23, 1996, between the Company and LIPHA, Lyonnaise Industrielle
Pharmaceutique s.a.
(i) LIMITATION ON CERTAIN ACTIONS. From the date of execution and
delivery of this Agreement by the parties hereto to the date of issuance of the
Preferred Shares, the Company (1) shall comply with Sections 5 and 12 of the
Certificate of Designations as if the Preferred Shares were outstanding, (2)
shall not take any action which, if the Preferred Shares were outstanding, would
constitute an Optional Redemption Event or, with the giving of notice or the
passage of time or both, would constitute an Optional Redemption Event.
(j) CERTAIN AMENDMENTS. On or before the Effective Date, the Company and
the Buyer (or a Person designated by the Buyer) shall execute and deliver an
amendment to the letter agreement, dated as of June 30, 1997, as amended,
entered into in connection with the issuance of the 1997 Notes, which amendment
shall be in the form provided to the Company and the Buyer prior to the
execution and delivery of this Agreement. Except for such amendment, nothing in
this Agreement or any of the other Transaction Documents shall be deemed to
amend, modify, waive or alter any agreement entered into in connection with the
1997 Notes.
(k) BEST EFFORTS. Each of the parties shall use its best efforts timely
to satisfy each of the conditions to the other party's obligations to sell and
purchase the Preferred Shares set forth in Section 6(a) or 6(b), as the case may
be, of this Agreement on or before the Effective Date and Section 7(a) or 7(b),
as the case may be, on or before each Closing Date.
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(l) DECREASES IN CASH AND SHORT-TERM INVESTMENTS. As of June 30,
1998 and as of the last day of each other fiscal quarter thereafter through
March 31, 1999, the Cash Amount as of each such date set forth in the Company's
Quarterly Reports on Form 10-Q, Annual Report on Form 10-K or in any other
publicly disclosed document shall not be less than 90% of the estimated Cash
Amount for such date set forth in the Business Plan. On the date the Cash Amount
as of each such end-of-quarter date is first publicly disclosed by the Company,
the Company shall provide the Buyer with a copy of the portion of the Business
Plan containing the estimated Cash Amount for such date. If the Company is then
in breach of this Section 5(l), (1) the Company shall simultaneously notify the
Buyer in writing of such breach and (2) such breach shall constitute a default
in the timely performance of a material obligation of the Company under the
terms of this Agreement.
6. CONDITIONS TO THE EFFECTIVENESS OF THE BUYER'S COMMITMENT.
(a) COMPANY'S CONDITIONS. The Buyer understands that the Company's
obligation to issue the Warrants to the Buyer pursuant to this Agreement is
conditioned upon the satisfaction of the following conditions precedent on or
before the Effective Date (any or all of which may be waived by the Company in
its sole discretion):
(1) On the Effective Date, no legal action, suit or
proceeding shall be pending or threatened which seeks to restrain or prohibit
the transactions contemplated by this Agreement; and
(2) The representations and warranties of the Buyer
contained in this Agreement and in the Questionnaire shall be true and correct
on the Effective Date as if made on the Effective Date and the Buyer shall have
performed on or before the Effective Date all covenants and agreements of the
Buyer required to be performed on or before the Effective Date.
(b) BUYER'S CONDITIONS. The Company understands that the
effectiveness of the Buyer's commitment to purchase the Preferred Shares on the
Effective Date is conditioned upon the satisfaction of the following conditions
precedent on or before the Effective Date (any or all of which may be waived by
the Buyer in its sole discretion):
(1) The Conversion Agent shall have executed and delivered
the Conversion Agent Agreement in the form attached hereto as Annex III;
(2) On the Effective Date, no legal action, suit or
proceeding shall be pending or threatened which seeks to restrain or prohibit
the transactions contemplated by this Agreement;
(3) The representations and warranties of the Company
contained in this Agreement and the other Transaction Documents shall be true
and correct on the Effective Date as if made on the Effective Date (except for
any notice given by the NASD or the Nasdaq Stock Market to the Company of a
failure or potential failure to meet the Nasdaq Tangible Asset Criterion); and
on or before the Effective Date the Company shall have performed all covenants
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<PAGE> 31
and agreements of the Company contained in the Transaction Documents and
required to be performed by the Company on or before the Effective Date;
(4) No event which, if the Preferred Shares were
outstanding, would constitute an Optional Redemption Event or, with the giving
of notice or the lapse of time, or both, would constitute an Optional Redemption
Event shall have occurred and be continuing;
(5) The Company shall have delivered to the Buyer its
certificate, dated the Effective Date, duly executed by its Chief Executive
Officer, to the effect set forth in subparagraphs (2), (3), and (4) of this
Section 6(b);
(6) The Common Shares shall have been approved for listing,
subject to official notice of issuance, by Nasdaq, Nasdaq SmallCap or AMEX and
the Buyer shall have received written evidence of such approval by such market
or exchange;
(7) The Buyer shall have received a certificate, dated the
Effective Date, of the Secretary of the Company certifying (1) the Certificate
of Incorporation and By-Laws of the Company as in effect on the Effective Date,
(2) all resolutions of the Board of Directors (and committees thereof) of the
Company relating to this Agreement and the transactions contemplated hereby and
(3) such other matters as reasonably requested by the Buyer;
(8) The Buyer shall have received on the Effective Date an
opinion of Brobeck, Phleger & Harrison LLP, counsel for the Company, dated the
Effective Date, addressed to the Buyer, in form, scope and substance reasonably
satisfactory to the Buyer, as set forth in Annex V attached hereto; and
(9) On the Effective Date, (i) trading in securities on the New
York Stock Exchange, Inc., AMEX, Nasdaq, or Nasdaq SmallCap shall not have been
suspended or materially limited and (ii) a general moratorium on commercial
banking activities in the State of California or the State of New York shall not
have been declared by either federal or state authorities.
7. CONDITIONS TO THE COMPANY'S OBLIGATION TO ISSUE PREFERRED SHARES AND THE
BUYER'S OBLIGATION TO PURCHASE PREFERRED SHARES.
(a) COMPANY'S CONDITIONS. The Buyer understands that the Company's
obligation to sell the Preferred Shares to the Buyer pursuant to this Agreement
at and as of the Initial Closing Date and the Second Closing Date, respectively,
is conditioned upon the satisfaction of the following conditions precedent on or
before the Initial Closing Date and the Second Closing Date, respectively, if
any, (any or all of which may be waived by the Company in its sole discretion):
(1) On the Closing Date, no legal action, suit or proceeding
shall be pending or threatened which seeks to restrain or prohibit the
transactions contemplated by this Agreement; and
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<PAGE> 32
(2) The representations and warranties of the Buyer
contained in this Agreement and in the Questionnaire shall be true and correct
on the Closing Date as if made on the Closing Date and the Buyer shall have
performed on or before the Closing Date all covenants and agreements of the
Buyer required to be performed on or before the Closing Date.
(3) The SEC Effective Date shall have occurred; no stop
order or similar proceeding relating to the Registration Statement shall be
pending or threatened (it being understood that the inclusion of the closing
condition set forth in this clause (d) shall not limit the Company's obligations
set forth in Section 8); and on the Closing Date the Registration Statement
shall be effective and available for use by the Buyer for resale of the Common
Shares;
(4) No event which, if the Preferred Shares were
outstanding, would constitute an Optional Redemption Event or, with the giving
of notice or the lapse of time, or both, would constitute an Optional Redemption
Event shall have occurred and be continuing;
(b) BUYER'S CONDITIONS. The Company understands that the Buyer's
obligation to purchase the Preferred Shares on the Initial Closing Date and on
the Second Closing Date, if any, is conditioned upon the satisfaction of the
following conditions precedent on or before the applicable Closing Date (any or
all of which may be waived by the Buyer in its sole discretion):
(1) The Buyer's commitment to purchase the Preferred Shares
shall have become effective on the Effective Date in accordance with this
Agreement;
(2) The SEC Effective Date shall have occurred; no stop
order or similar proceeding relating to the Registration Statement shall be
pending or threatened (it being understood that the inclusion of the closing
condition set forth in this clause (d) shall not limit the Company's obligations
set forth in Section 8); and on the Closing Date the Registration Statement
shall be effective and available for use by the Buyer for resale of the Common
Shares;
(3) The Company shall have given the Purchase Option Notice
in accordance with this Agreement;
(4) The Conversion Agent shall have executed and delivered
the Conversion Agent Agreement in the form attached hereto as Annex III;
(5) On the Closing Date, no legal action, suit or proceeding
shall be pending or threatened which seeks to restrain or prohibit the
transactions contemplated by this Agreement;
(6) The representations and warranties of the Company
contained in this Agreement and the other Transaction Documents shall be true
and correct on the Closing Date as if made on the Closing Date (except for any
notice given by the NASD or the Nasdaq Stock Market to the Company of a failure
or potential failure to meet the Nasdaq Tangible Asset Criterion); and on or
before the Closing Date the Company shall have performed all covenants and
agreements of the Company contained in the Transaction Documents and required to
be performed by the Company on or before the Closing Date;
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<PAGE> 33
(7) No event which, if the Preferred Shares were
outstanding, would constitute an Optional Redemption Event or, with the giving
of notice or the lapse of time, or both, would constitute an Optional Redemption
Event shall have occurred and be continuing;
(8) The Company shall have delivered to the Buyer its
certificate, dated the Closing Date, duly executed by its Chief Executive
Officer to the effect set forth in subparagraphs (5), (6), and (7) of this
Section 7(b);
(9) The Buyer shall have received satisfactory confirmation
of the filing with the Secretary of State of the State of Delaware of the
Certificate of Designations;
(10) The Common Shares shall have been approved for listing,
subject to official notice of issuance, by Nasdaq, Nasdaq SmallCap or AMEX and
the Buyer shall have received written evidence of such approval by such market
or exchange;
(11) The Buyer shall have received a certificate, dated the
Closing Date, of the Secretary of the Company certifying (1) the Certificate of
Incorporation and By-Laws of the Company as in effect on the Closing Date, (2)
all resolutions of the Board of Directors (and committees thereof) of the
Company relating to this Agreement and the transactions contemplated hereby and
(3) such other matters as reasonably requested by the Buyer;
(12) The Buyer shall have received on the Closing Date an
opinion of Brobeck, Phleger & Harrison LLP, counsel for the Company, dated the
Closing Date, addressed to the Buyer, in form, scope and substance reasonably
satisfactory to the Buyer, as set forth in Annex VI attached hereto and an
opinion of Pennie & Edmonds LLP, special counsel for the Company, dated the
Closing Date, in form, scope and substance reasonably satisfactory to the Buyer,
as set forth in Annex VII attached hereto;
(13) On the Closing Date, (i) trading in securities on the
New York Stock Exchange, Inc., AMEX, Nasdaq or Nasdaq SmallCap shall not have
been suspended or materially limited and (ii) a general moratorium on commercial
banking activities in the State of California or the State of New York shall not
have been declared by either federal or state authorities; and
(14) From the date of execution and delivery of this
Agreement to the Initial Closing Date, the Corporation shall not have redeemed,
repurchased or otherwise acquired any shares of Common Stock which are
outstanding at any time during such period, except for repurchases of shares
pursuant to compensation plans for employees, directors, officers, advisers or
consultants of the Company and in accordance with the terms of such plans as in
effect as of the date of this Agreement.
8. REGISTRATION RIGHTS.
(a) MANDATORY REGISTRATION. (1) The Company shall prepare promptly
and, on or prior to the date which is 20 days after the Effective Date, file
with the SEC a pre-effective amendment on Form S-3/A to the Company's previously
filed Registration Statement No. 333-
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<PAGE> 34
49025 (which Registration Statement shall be deemed the initial Registration
Statement required by this Section 8), or if such pre-effective amendment is
prohibited by the staff of the SEC, a separate Registration Statement on Form
S-3 covering the resale by the Buyer of a number of shares of Common Stock equal
to (A) at least the number of Conversion Shares issuable to the Buyer upon
conversion of the Preferred Shares, determined on the day such pre-effective
amendment or such separate Registration Statement is filed with the SEC as if
the Accrual Amount had accrued for 18 months on such Preferred Shares (and
determined without regard to the limitation on beneficial ownership contained in
the second sentence of Section 10(a) of the Certificate of Designations) and (B)
the number of Warrant Shares issuable to the Buyer and which Registration
Statement shall state that, in accordance with Rule 416 under the 1933 Act, such
Registration Statement also covers such indeterminate number of additional
shares of Common Stock as may become issuable upon conversion of the Preferred
Shares or exercise of the Warrants to prevent dilution resulting from stock
splits, stock dividends or similar transactions. If, notwithstanding Rule 416
under the 1933 Act, the Registration Statement is not deemed to cover such
indeterminate number of additional shares of Common Stock as shall be issuable
upon conversion of the Preferred Shares or exercise of the Warrants based on
changes from time to time in the Conversion Price or the purchase price of the
shares subject to the Warrants (or number of shares subject to the Warrants), as
the case may be, such that at any time the number of additional shares of Common
Stock included in the Registration Statement required to be filed as provided in
the first sentence of this Section 8(a) shall be insufficient to cover the
number of shares of Common Stock issuable on conversion in full of the
unconverted Preferred Shares or exercise in full of the Warrants, then promptly,
but in no event later than 15 days after such insufficiency shall occur, the
Company shall file with the SEC an additional Registration Statement on Form S-3
(which shall not constitute a post-effective amendment to the Registration
Statement filed pursuant to the first sentence of this Section 8(a)) covering
such number of shares of Common Stock as shall be sufficient to permit such
conversion and exercise; provided, however, that nothing in this Section 8(a)
shall limit the rights of the holders of the Preferred Shares to have all or a
portion of the Preferred Shares redeemed pursuant to Section 11 of the
Certificate of Designations. For all purposes of this Agreement such additional
Registration Statement shall be deemed to be the Registration Statement required
to be filed by the Company pursuant to this Section 8(a), and the Company and
the Investors shall have the same rights and obligations with respect to such
additional Registration Statement as they shall have with respect to the initial
Registration Statement required to be filed by the Company pursuant to this
Section 8(a).
(2) Prior to the SEC Effective Date or during any time
subsequent to the SEC Effective Date when the Registration Statement for any
reason is not available for use by any Investor for the resale of any of
Registrable Securities, the Company shall not file any other registration
statement or any amendment thereto with the SEC under the 1933 Act or request
the acceleration of the effectiveness of any other registration statement
previously filed with the SEC, other than (A) any registration statement on Form
S-8 and (B) any registration statement or amendment which the Company is
required to file or as to which the Company is required to request acceleration
pursuant to any obligation in effect on the date of execution and delivery of
this Agreement by the parties hereto. The Company's obligation to register the
Registrable
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Securities under this Section 8 shall constitute a registration pursuant to a
demand registration right held by the Investors.
(b) OBLIGATIONS OF THE COMPANY. In connection with the registration
of the Registrable Securities, the Company shall, if the Effective Date occurs,
thereafter:
(1) use its best efforts to cause the Registration Statement
referred to in the first sentence of Section 8(a)(1) to become effective as
promptly as possible after the execution and delivery of this Agreement by the
parties hereto, and keep the Registration Statement effective pursuant to Rule
415 at all times during the Registration Period. The Company shall submit to the
SEC, within three Business Days after the Company learns that no review of the
Registration Statement will be made by the staff of the SEC or that the staff of
the SEC has no further comments on the Registration Statement, as the case may
be, a request for acceleration of effectiveness of the Registration Statement to
a time and date not later than 48 hours after the submission of such request.
The Company represents and warrants to the Investors that (a) the Registration
Statement (including any amendments or supplements thereto and prospectuses
contained therein), at the time it is first filed with the SEC, at the time it
is ordered effective by the SEC and at all times during which it is required to
be effective hereunder (and each such amendment and supplement at the time it is
filed with the SEC and at all times during which it is available for use in
connection with the offer and sale of the Registrable Securities) shall not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading and (b) the Prospectus, at the time the Registration Statement is
declared effective by the SEC and at all times that the Prospectus is required
by this Agreement to be available for use by any Investor, shall not contain any
untrue statement of a material fact or omit to state 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;
(2) prepare and file with the SEC such amendments (including
post-effective amendments) and supplements to the Registration Statement and the
Prospectus as may be necessary to keep the Registration Statement effective, and
the Prospectus current, at all times during the Registration Period, and, during
the Registration Period, comply with the provisions of the 1933 Act applicable
to the Company in order to permit the disposition by the Investors of all
Registrable Securities covered by the Registration Statement;
(3) furnish to each Investor whose Registrable Securities
are included in the Registration Statement and its legal counsel, (i) promptly
after the same is prepared and publicly distributed, filed with the SEC or
received by the Company, five copies of the Registration Statement and any
amendment thereto, each Prospectus and each amendment or supplement thereto,
(ii) one copy of each letter written by or on behalf of the Company to the SEC
or the staff of the SEC and each item of correspondence from the SEC or the
staff of the SEC relating to such Registration Statement (other than any portion
of any thereof which contains information for which the Company has sought
confidential treatment), each of which the Company hereby determines to be
confidential information and which the Buyer hereby agrees to keep confidential
as a confidential Record in accordance with Section 8(b)(9), (iii) on the SEC
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Effective Date, written notice by telephone line facsimile transmission of the
effectiveness of the Registration Statement and (iv) such number of copies of a
Prospectus and all amendments and supplements thereto and such other documents,
as such Investor may reasonably request in order to facilitate the disposition
of the Registrable Securities owned by such Investor;
(4) use its best efforts to (i) to register and qualify the
Registrable Securities covered by the Registration Statement under the
securities or blue sky laws of such jurisdictions as the Investors who hold a
majority in interest of the Registrable Securities reasonably request, (ii) to
prepare and to file in those jurisdictions such amendments (including
post-effective amendments) and supplements to such registrations and
qualifications as may be necessary to maintain the effectiveness thereof at all
times during the Registration Period and (iii) to take all other actions
reasonably necessary or advisable to qualify the Registrable Securities for sale
by the Investors in such jurisdictions; provided, however, that the Company
shall not be required in connection therewith or as a condition thereto (I) to
qualify to do business in any jurisdiction where it would not otherwise be
required to qualify but for this Section 8(b)(4), (II) to subject itself to
general taxation in any such jurisdiction, (III) to file a general consent to
service of process in any such jurisdiction, (IV) to provide any undertakings
that cause more than nominal expense or burden to the Company or (V) to make any
change in its charter or by-laws which the Board of Directors of the Company
determines to be contrary to the best interests of the Company and its
stockholders;
(5) (A) as promptly as practicable after becoming aware
of such event or circumstance, notify each Investor of any event or circumstance
of which the Company has knowledge, as a result of which the Prospectus included
in the Registration Statement, as then in effect, includes an untrue statement
of a material fact or omits to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, and use its best
efforts promptly to prepare a supplement or amendment to the Registration
Statement and Prospectus to correct such untrue statement or omission or to add
any new or additional information, and deliver a number of copies of such
supplement or amendment to each Investor as such Investor may reasonably
request;
(B) notwithstanding Section 8(b)(5)(A) above, if at
any time the Company notifies the Investors as contemplated by Section
8(b)(5)(A) that the event giving rise to such notice relates to a development
involving the Company which occurred subsequent to the later of (x) the SEC
Effective Date and (y) the latest date prior to such notice on which the Company
has amended or supplemented the Registration Statement, then the Company shall
not be required to use best efforts to make such amendment during a Blackout
Period; provided, however, that in any period of 360 consecutive days the
Company shall not be entitled to avail itself of its rights under this Section
8(b)(5)(B) with respect to more than (i) two Blackout Periods, if the Company
does not make an election pursuant to the next succeeding clause (ii) of this
proviso or (ii) if the Company so elects by notice to the Investors given not
later than 18 days after the commencement of a Blackout Period, one Blackout
Period of up to 30 consecutive days and; provided further, however, that no
Blackout Period may commence sooner than 45 days after the end of another
Blackout Period;
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(6) as promptly as practicable after becoming aware of such
event, notify each Investor who holds Registrable Securities being sold of the
issuance by the SEC of any stop order or other suspension of effectiveness of
the Registration Statement at the earliest possible time;
(7) permit the Investors who hold Registrable Securities
being included in the Registration Statement and a single firm of counsel
designated as selling stockholders' counsel by the Investors who hold a majority
in interest of the Registrable Securities being included, at such Investors'
sole cost and expense, to review the Registration Statement and all amendments
and supplements thereto a reasonable period of time prior to their filing with
the SEC;
(8) make generally available to its security holders as soon
as practical, but not later than 90 days after the close of the period covered
thereby, an earning statement (in form complying with the provisions of Rule 158
under the 1933 Act) covering a 12-month period beginning not later than the
first day of the Company's fiscal quarter next following the SEC Effective Date;
(9) make available for inspection by any Investor and any
Inspector retained by any such Investor, at such Investor's sole expense, all
Records as shall be reasonably necessary to enable each Investor to exercise its
due diligence responsibility and cause the Company's officers, directors and
employees to supply all information which any Inspector may reasonably request
for purposes of such due diligence; provided, however, that each Inspector shall
hold in confidence and shall not make any disclosure (except to an Investor) of
any Record or other information which the Company determines in good faith to be
confidential, and of which determination the Inspectors are so notified, unless
(i) the release of such Record is ordered pursuant to a subpoena or other order
from a court or government body of competent jurisdiction or (ii) the
information in such Record has been made generally available to the public other
than by disclosure in violation of this or any other agreement; provided
further, however, that each Investor understands that in the course of
exercising the rights provided in this Section 8(b)(9) such Investor may come
into possession of material non-public information about the Company and that by
reason of the requirements of the 1934 Act any such Investor who possesses such
material non-public information may be restricted in making purchases and sales
of the Common Stock unless such information has been publicly disclosed. The
Company shall not be required to disclose any confidential information in such
Records to any Inspector until and unless such Inspector shall have entered into
a confidentiality agreement with the Company with respect thereto, substantially
in the form of this Section 8(b)(9), which agreement shall permit such Inspector
to disclose such information to the Investor who has retained such Inspector.
Each Investor agrees that it shall, upon learning that disclosure of such
Records is sought in or by a court or governmental body of competent
jurisdiction or through other means, give prompt notice to the Company and allow
the Company, at the Company's expense, to undertake appropriate action to
prevent disclosure of, or to obtain a protective order for, the Records deemed
confidential. The Company shall hold in confidence and shall not make any
disclosure of information concerning an Investor provided to the Company
pursuant to this Agreement unless (i) the disclosure of such information is
necessary to comply with federal or state securities laws, (ii) the disclosure
of such information is necessary to avoid or correct a
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misstatement or omission in any Registration Statement, (iii) the release of
such information is ordered pursuant to a subpoena or other order from a court
or governmental body of competent jurisdiction, or (iv) such information has
been made generally available to the public other than by disclosure in
violation of this or any other agreement. The Company agrees that it shall, upon
learning that disclosure of such information concerning an Investor is sought in
or by a court or governmental body of competent jurisdiction or through other
means, give prompt notice to such Investor and allow such Investor, at such
Investor's expense, to undertake appropriate action to prevent disclosure of, or
to obtain a protective order for, such information;
(10) use its best efforts to cause all the Registrable
Securities covered by the Registration Statement as of the SEC Effective Date to
be listed on Nasdaq prior to the Initial Closing Date or such other principal
securities market on which securities of the same class or series issued by the
Company are then listed or traded;
(11) provide a transfer agent and registrar, which may be a
single entity, for the Registrable Securities not later than the SEC Effective
Date;
(12) cooperate with the Investors who hold Registrable
Securities being offered to facilitate the timely preparation and delivery of
certificates (not bearing any restrictive legends) representing Registrable
Securities to be offered pursuant to the Registration Statement and enable such
certificates to be in such denominations or amounts as the Investors may
reasonably request and registered in such names as the Investors may request;
and, not later than the SEC Effective Date, the Company shall deliver, and shall
cause legal counsel selected by the Company to deliver to the Conversion Agent
(with copies to the Investors whose Registrable Securities are included in such
Registration Statement) an instruction substantially in the form attached hereto
as Annex VIII;
(13) during the Registration Period, the Company shall not
bid for or purchase any Common Stock or any right to purchase Common Stock or
attempt to induce any Person to purchase any such security or right if such bid,
purchase or attempt would in any way limit the right of the Investors to sell
Registrable Securities by reason of the limitations set forth in Regulation M
under the 1934 Act; and
(14) take all other reasonable actions necessary to expedite
and facilitate disposition by the Investors of the Registrable Securities
pursuant to the Registration Statement.
(c) OBLIGATIONS OF THE BUYER AND OTHER INVESTORS. In connection with
the registration of the Registrable Securities, the Investors shall have the
following obligations:
(1) It shall be a condition precedent to the obligations of
the Company to complete the registration pursuant to this Agreement with respect
to the Registrable Securities of a particular Investor that such Investor shall
furnish to the Company such of the Required Information as shall be reasonably
requested by the Company to effect the registration of such Registrable
Securities and shall execute such documents in connection with such registration
as the Company may reasonably request. At least five Business Days prior to the
first filing date of the Registration Statement, the Company shall notify each
Investor of the Required Information
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if any of such Investor's Registrable Securities are eligible for inclusion in
the Registration Statement. If at least one Business Day prior to the filing
date the Company has not received the Required Information from an Investor,
then the Company may postpone filing the Registration Statement until the date
which is one Business Day after the Company receives the Required Information
from such Non-Responsive Investor provided that on the same day the Company
gives notice to each Investor by telephone line facsimile transmission of such
postponement identifying the Non-Responsive Investor and, if the failure of a
Non-Responsive Investor to provide Required Information to the Company causes
the Company to be unable to file the Registration Statement with the SEC by the
deadline specified in Section 8(a), the Company shall not have any liability to
any Investor by reason of such failure to file the Registration Statement on a
timely basis in accordance with Section 8(a) so long as in such circumstance the
Company files the Registration Statement with the SEC within one Business Day
after the date on which the Company receives the Required Information from all
Non-Responsive Investors;
(2) Each Investor by such Investor's acceptance of the
Registrable Securities agrees to cooperate with the Company as reasonably
requested by the Company in connection with the preparation and filing of the
Registration Statement hereunder, unless such Investor has notified the Company
in writing of such Investor's election to exclude all of such Investor's
Registrable Securities from the Registration Statement;
(3) Each Investor agrees that it will not effect any
disposition of the Registrable Securities except as contemplated in the
Registration Statement or as shall otherwise be in compliance with the
registration requirements of applicable securities laws or an exemption
therefrom and that it will promptly notify the Company of any material changes
in the information set forth in the Registration Statement regarding such
Investor or its plan of distribution; each Investor agrees (a) to notify the
Company in writing in the event that such Investor enters into any material
agreement with a broker or a dealer for the sale of the Registrable Securities
through a block trade, special offering, exchange distribution or a purchase by
a broker or dealer and (b) in connection with such agreement, to provide to the
Company in writing the information necessary to prepare any supplemental
prospectus pursuant to Rule 424(c) under the 1933 Act which is required with
respect to such transaction;
(4) Each Investor acknowledges that there may occasionally
be times as specified in Section 8(b)(5) or 8(b)(6) when the Company must
suspend the use of the Prospectus until such time as an amendment to the
Registration Statement has been filed by the Company and declared effective by
the SEC, the Company has prepared a supplement to the Prospectus or the Company
has filed an appropriate report with the SEC pursuant to the 1934 Act. Each
Investor hereby covenants that it will not sell any Registrable Securities
pursuant to the Prospectus during the period commencing at the time at which the
Company gives such Investor notice of the suspension of the use of the
Prospectus in accordance with Section 8(b)(5) or 8(b)(6) and ending at the time
the Company gives such Investor notice that such Investor may thereafter effect
sales pursuant to the Prospectus, or until the Company delivers to such Investor
an amended or supplemented Prospectus; and
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(5) In connection with any sale of Registrable Securities
which is made pursuant to the Registration Statement through a broker, each
Investor shall instruct its broker or brokers to deliver the Prospectus to the
purchaser or purchasers in connection with such sale, shall supply copies of
such Prospectus to such broker or brokers and shall otherwise use its reasonable
best efforts to comply with the prospectus delivery requirements of the 1933
Act;
(6) Each Investor agrees to notify the Company promptly
after the event of the completion of the sale by such Investor of all
Registrable Securities to be sold by such Investor pursuant to the Registration
Statement; and
(7) Each Investor agrees not to use Registrable Securities
for the purpose of covering any Short Sale by such Investor of Common Stock
unless at the time of such Short Sale such Investor shall have complied with the
requirements of Section 8(c)(5) with respect to such Short Sale to the extent
compliance with such requirements is necessary under the 1933 Act.
(d) REPORTS UNDER 1934 ACT. With a view to making available to the
Investors the benefits of Rule 144, the Company agrees to:
(1) furnish to each Investor so long as such Investor owns
Registrable Securities, promptly upon request, such information, and cooperate
with such Investor, as may be necessary to permit such Investor to sell its
Registrable Securities pursuant to Rule 144 without registration under the 1933
Act; and
(2) if at any time the Company is not required to file
reports with the SEC pursuant to Section 13 or 15(d) of the 1934 Act, use its
best efforts to, upon the request of an Investor, make publicly available other
information so long as is necessary to permit publication by brokers and dealers
of quotations for the Common Stock and sales of the Registrable Securities in
accordance with Rule 15c2-11 under the 1934 Act.
9. INDEMNIFICATION AND CONTRIBUTION.
(a) INDEMNIFICATION. (1) To the extent not prohibited by applicable
law, the Company will indemnify and hold harmless each Indemnified Person
against any Claims to which any of them may become subject under the 1933 Act,
the 1934 Act or otherwise, insofar as such Claims (or actions or proceedings,
whether commenced or threatened, in respect thereof) arise out of or are based
upon any Violation. Subject to the restrictions set forth in Section 9(a)(3)
with respect to the number of legal counsel, the Company shall reimburse the
Investors and each such controlling Person, promptly as such expenses are
incurred and are due and payable, for any reasonable legal fees or other
reasonable expenses incurred by them in connection with investigating or
defending any such Claim. Notwithstanding anything to the contrary contained
herein, the indemnification agreement contained in this Section 9(a)(1) shall
not apply to: (I) a Claim arising out of or based upon a Violation which occurs
in reliance upon and in conformity with information relating to an Indemnified
Person furnished in writing to the Company by any Indemnified Person or
underwriter for such Indemnified Person expressly for use in connection with the
preparation of the Registration Statement or any such amendment thereof or
supplement thereto, if such Prospectus was timely made available by the Company
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pursuant to Section 8(b)(3) hereof; (II) an Indemnified Person with respect to a
Claim which arises solely from the failure of such Indemnified Person to comply
in any material respect with Section 8(c)(4); and (III) amounts paid in
settlement of any Claim if such settlement is effected without the prior written
consent of the Company. Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of the Indemnified Person
and shall survive the transfer of the Registrable Securities by the Investors
pursuant to Section 10(j).
(2) In connection with the Registration Statement, each
Investor agrees to indemnify and hold harmless, to the same extent and in the
same manner set forth in Section 9(a)(1), each Indemnified Party against any
Claim to which any of them may become subject, under the 1933 Act, the 1934 Act
or otherwise, insofar as such Claim arises out of or is based upon any
Violation, in each case to the extent (and only to the extent) that such
Violation occurs (A) in reliance upon and in conformity with written information
furnished to the Company by such Investor expressly for use in connection with
such Registration Statement or (B) from the failure of such Indemnified Person
to comply in any material respect with Section 8(c)(4); provided, however, that
the indemnity agreement contained in this Section 9(a)(2) shall not apply to
amounts paid in settlement of any Claim if such settlement is effected without
the prior written consent of such Investor, which consent shall not be
unreasonably withheld; provided, further, however, that such Investor shall be
liable under this Section 9(a)(2) for only that amount of a Claim as does not
exceed the amount by which the proceeds to such Investor as a result of the sale
of Registrable Securities pursuant to such Registration Statement exceeds the
price paid by such Investor for such Registrable Securities unless the closing
shall have occurred on the Initial Closing Date, in which case such Investor
shall be liable under this Section 9(a)(2) for only the greater of (i) that
amount of a Claim as does not exceed the amount by which the proceeds to such
Investor as a result of the sale of Registrable Securities pursuant to such
Registration Statement exceeds the price paid by such Investor for such
Registrable Securities and (ii) an amount in cash equal to 10% of the aggregate
Purchase Price paid by the Buyer. Such indemnity shall remain in full force and
effect regardless of any investigation made by or on behalf of such Indemnified
Party and shall survive the transfer of the Registrable Securities by the
Investors. Notwithstanding anything to the contrary contained herein, the
indemnification agreement contained in this Section 9(a)(2) with respect to any
preliminary prospectus shall not inure to the benefit of any Indemnified Party
if the untrue statement or omission of material fact contained in the
preliminary prospectus was corrected on a timely basis in the Prospectus, as
then amended or supplemented.
(3) Promptly after receipt by an Indemnified Person or
Indemnified Party under this Section 9(a) of notice of the commencement of any
action (including any governmental action), such Indemnified Person or
Indemnified Party shall, if a Claim in respect thereof is to be made against any
indemnifying party under this Section 9(a), deliver to the indemnifying party a
written notice of the commencement thereof and the indemnifying party shall have
the right to participate in, and, to the extent the indemnifying party so
desires, jointly with any other indemnifying party similarly noticed, to assume
control of the defense thereof with counsel reasonably satisfactory to the
Indemnified Person or the Indemnified Party, as the case may be; provided,
however, that an Indemnified Person or Indemnified Party shall have the right to
retain its own counsel with the fees and expenses to be paid by the indemnifying
party,
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if, in the reasonable opinion of counsel retained by the indemnifying party, the
representation by such counsel of the Indemnified Person or Indemnified Party
and the indemnifying party would be inappropriate due to actual or potential
differing interests between such Indemnified Person or Indemnified Party and any
other party represented by such counsel in such proceeding. The failure to
deliver written notice to the indemnifying party within a reasonable time of the
commencement of any such action shall not relieve such indemnifying party of any
liability to the Indemnified Person or Indemnified Party under this Section
9(a), except to the extent that the indemnifying party is prejudiced in its
ability to defend such action. The indemnification required by this Section 9(a)
shall be made by periodic payments of the amount thereof during the course of
the investigation or defense, as such expense, loss, damage or liability is
incurred and is due and payable.
(b) CONTRIBUTION. To the extent any indemnification by an
indemnifying party as set forth in Section 9(a) above is applicable by its terms
but is prohibited or limited by law, the indemnifying party agrees to make the
maximum contribution with respect to any amounts for which it would otherwise be
liable under Section 9(a) to the fullest extent permitted by law. In determining
the amount of contribution to which the respective parties are entitled, there
shall be considered the relative fault of each party, the parties' relative
knowledge of and access to information concerning the matter with respect to
which the claim was asserted, the opportunity to correct and prevent any
statement or omission and any other equitable considerations appropriate under
the circumstances; provided, however, that (a) no contribution shall be made
under circumstances where the maker would not have been liable for
indemnification under the fault standards set forth in Section 9(a), (b) no
Person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the 1933 Act) shall be entitled to contribution from any other Person
who was not guilty of such fraudulent misrepresentation and (c) contribution by
any Investor shall be limited to the amount by which the proceeds received by
such Investor from the sale of such Registrable Securities exceeds the amount
paid by such Investor for such Registrable Securities unless the closing shall
have occurred on the Initial Closing Date, in which case contribution by an
Investor of Registrable Securities shall be limited to the greater of (i) the
amount by which the proceeds received by such Investor from the sale of such
Registrable Securities exceeds the amount paid by such Investor for such
Registrable Securities and (ii) an amount in cash equal to 10% of the aggregate
Purchase Price paid by the Buyer.
(c) OTHER RIGHTS. The indemnification and contribution provided in
this Section shall be in addition to any other rights and remedies available at
law or in equity.
10. MISCELLANEOUS.
(a) GOVERNING LAW. This Agreement shall be governed by and
interpreted in accordance with the laws of the State of New York.
(b) HEADINGS. The headings, captions and footers of this Agreement
are for convenience of reference and shall not form part of, or affect the
interpretation of, this Agreement.
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(c) SEVERABILITY. If any provision of this Agreement shall be
invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall not affect the validity or enforceability of the
remainder of this Agreement or the validity or enforceability of this Agreement
in any other jurisdiction.
(d) NOTICES. Any notices required or permitted to be given under the
terms of this Agreement shall be sent by mail or delivered personally (which
shall include telephone line facsimile transmission) or by courier and shall be
effective five days after being placed in the mail, if mailed, or upon receipt,
if delivered personally or by courier, in the case of the Company addressed to
the Company at its address shown in the introductory paragraph of this
Agreement, Attention: President and Chief Executive Officer (telephone line
facsimile transmission number (650) 873-8367) and a copy shall also be given to:
Brobeck, Phleger & Harrison LLP, Two Embarcadero Place, 2200 Geng Road, Palo
Alto, California 94303-0913, Attention: J. Stephan Dolezalek, Esq. (telephone
line facsimile transmission number (650) 496-2736) or, in the case of the Buyer,
at its address or telephone line facsimile transmission number shown on the
signature page of this Agreement with a copy to Diaz & Altschul Advisors, LLC,
745 Fifth Avenue, Suite 3001, New York, New York 10151 (telephone line facsimile
transmission number (212) 751-5757) or such other address as a party shall have
provided by notice to the other party in accordance with this provision. The
Buyer hereby designates as its address for any notice required or permitted to
be given to the Buyer pursuant to the Certificate of Designations the address
shown on the signature page of this Agreement, with a copy to: Diaz & Altschul
Advisors, LLC, 745 Fifth Avenue, Suite 3001, New York, New York 10151 (telephone
line facsimile transmission number (212) 751-5757), until the Buyer shall
designate another address for such purpose. In each case, a copy shall be sent
to: Diaz & Altschul Capital, LLC, 745 Fifth Avenue, Suite 3001, New York, New
York 10151 (telephone line facsimile transmission number (212) 751-5757).
(e) COUNTERPARTS; DATING. This Agreement may be executed in
counterparts and by the parties hereto on separate counterparts, each of which
shall be deemed an original and all of which together shall constitute one and
the same instrument. A telephone line facsimile transmission of this Agreement
bearing a signature on behalf of a party hereto shall be legal and binding on
such party. Although this Agreement is dated as of the date first set forth
above, the actual date of execution and delivery of this Agreement by each party
is the date set forth below such party's signature on the signature page hereof.
Any reference in this Agreement or in any of the documents executed and
delivered by the parties hereto in connection herewith to (1) the date of
execution and delivery of this Agreement by the Buyer shall be deemed a
reference to the date set forth below the Buyer's signature on the signature
page hereof, (2) the date of execution and delivery of this Agreement by the
Company shall be deemed a reference to the date set forth below the Company's
signature on the signature page hereof and (3) the date of execution and
delivery of this Agreement, or the date of execution and delivery of this
Agreement by the Buyer and the Company, shall be deemed a reference to the later
of the dates set forth below the signatures of the parties on the signature page
hereof.
(f) ENTIRE AGREEMENT; BENEFIT. This Agreement, including the
Annexes, Exhibits and Schedules hereto, constitutes the entire agreement among
the parties hereto with respect to
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the subject matter hereof. There are no restrictions, promises, warranties, or
undertakings, other than those set forth or referred to herein. This Agreement,
including the Annexes, Exhibits and Schedules hereto, supersedes all prior
agreements and understandings, whether written or oral among the parties hereto
with respect to the subject matter hereof. This Agreement and the terms and
provisions hereof are for the sole benefit of the Company, the Buyer and their
respective successors and permitted assigns.
(g) WAIVER. Failure of any party to exercise any right or remedy
under this Agreement or otherwise, or delay by a party in exercising such right
or remedy, or any course of dealings between the parties, shall not operate as a
waiver thereof or an amendment hereof, nor shall any single or partial exercise
of any such right or power, or any abandonment or discontinuance of steps to
enforce such a right or power, preclude any other or further exercise thereof or
exercise of any other right or power.
(h) AMENDMENT. No amendment, modification, waiver, discharge or
termination of any provision of this Agreement nor consent to any departure by
the Buyer or the Company therefrom shall in any event be effective unless the
same shall be in writing and signed by the party to be charged with enforcement,
and then shall be effective only in the specific instance and for the purpose
for which given. No course of dealing between the parties hereto shall operate
as an amendment of this Agreement.
(i) FURTHER ASSURANCES. Each party to this Agreement will perform
any and all acts and execute any and all documents as may be necessary and
proper under the circumstances in order to accomplish the intents and purposes
of this Agreement and to carry out its provisions.
(j) ASSIGNMENT OF CERTAIN RIGHTS AND OBLIGATIONS. The rights of the
Buyer or any other Investor under Sections 5(a), 5(b), 8, 9 and 10 of this
Agreement shall be automatically assigned by such Investor to any transferee of
all or any portion of such Investor's Registrable Securities (or all or any
portion of the Preferred Shares or Warrants) only if: (1) such Investor agrees
in writing with the transferee or assignee to assign such rights, and a copy of
such agreement is furnished to the Company within a reasonable time after such
assignment, (2) the Company is, within a reasonable time after such transfer or
assignment, furnished with written notice of (A) the name and address of such
transferee or assignee and (B) the securities with respect to which such
registration rights are being transferred or assigned, (3) in the case of any
transfer of rights under Section 8, immediately following such transfer or
assignment the further disposition of such securities by the transferee or
assignee is restricted under the 1933 Act and applicable state securities laws,
(4) at or before the time the Company received the written notice contemplated
by clause (2) of this sentence the transferee or assignee agrees in writing with
the Company to be bound by all of the provisions contained in Sections 5(a),
5(b), 8, 9 and 10 hereof and (e) such transferee holds at least 50,000 shares of
Common Stock, shares of Preferred Stock, Warrants, common stock purchase
warrants issued pursuant to the Other Stock Purchase Agreements or 1997 Notes,
or any combination thereof, which at the time of transfer are convertible into
or exercisable for at least 50,000 shares of Common Stock or such lesser amount
of shares into which the Preferred Shares are then convertible or which may be
purchased upon exercise of the Warrants. Upon any such assignment, the Company
shall be obligated to such
39
<PAGE> 45
transferee to perform all of its covenants under Sections 5, 8, 9 and 10 of this
Agreement as if such transferee were the Buyer. In connection with any such
transfer the Company shall, at its sole cost and expense, promptly after such
assignment take such actions as shall be reasonably acceptable to the Buyer or
other Investor and such transferee to assure that the Registration Statement and
related Prospectus are available for use by such transferee for sales of the
Registrable Securities in respect of which the rights to registration have been
so assigned.
(k) CERTAIN EXPENSES. The Company and the Buyer shall be responsible
for their expenses (including, without limitation, the respective legal fees and
expenses of their counsel) incurred by them in connection with the negotiation
and execution of, and closing under, this Agreement. All reasonable expenses
incurred in connection with securities registrations, filings or qualifications
pursuant to this Agreement shall be paid by the Company, including, without
limitation, all registration, listing and qualifications fees, printers and
accounting fees and the fees and disbursements of counsel for the Company, but
excluding (a) fees and expenses of investment bankers retained by any Investor,
(b) brokerage commissions incurred by any Investors and (c), except as otherwise
specifically provided in the next succeeding sentence, fees and disbursements of
counsel for the Investors. The Company shall pay on demand all expenses incurred
by the Buyer, including reasonable attorneys' fees and expenses, as a
consequence of, or in connection with (1) any default or breach of any of the
Company's obligations set forth in any of the Transaction Documents and (2) the
enforcement or restructuring of any right of, including the collection of any
payments due, the Buyer under any of the Transaction Documents, including any
action or proceeding relating to such enforcement or any order, injunction or
other process seeking to restrain the Company from paying any amount due the
Buyer. Except as provided in this Section 10(k), each of the Company and the
Buyer shall bear its own expenses in connection with this Agreement and the
transactions contemplated hereby. Nothing herein shall limit the rights of Diaz
& Altschul Capital, LLC under its Engagement Agreement with the Company.
(l) TERMINATION. The Buyer shall have the right to terminate this
Agreement by giving notice to the Company at any time at or prior to the
Effective Date if:
(1) the Company shall have failed, refused, or been unable
at or prior to the date of such termination of this Agreement to perform any of
its obligations hereunder;
(2) any other condition of the Buyer's obligations hereunder
is not fulfilled; or
(3) the Effective Date shall not have occurred on a date on
or before June 22, 1998, other than solely by reason of a breach of this
Agreement by the Buyer.
Any such termination shall be effective upon the giving of notice thereof by the
Buyer. Upon such termination, the Buyer shall have no further obligation to the
Company hereunder and the Company shall remain liable for any breach of this
Agreement or the other documents contemplated hereby which occurred on or prior
to the date of such termination.
(m) SURVIVAL. The respective representations, warranties, covenants
and agreements of the Buyer and the Company contained in this Agreement or made
by or on behalf of them,
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<PAGE> 46
respectively, pursuant to this Agreement shall survive the execution and
delivery of this Agreement and the delivery of and payment for the Preferred
Shares and shall remain in full force and effect regardless of any investigation
made by or on behalf of the Buyer or any Person controlling or acting on behalf
of the Buyer or by the Company or any Person controlling or acting on behalf of
the Company.
(n) PUBLIC STATEMENTS, PRESS RELEASES, ETC. The Company and the
Buyer shall have the right to approve before issuance any press releases or any
other public statements with respect to the transactions contemplated hereby;
provided, however, that the Company shall be entitled, without the prior
approval of the Buyer, to make any press release or other public disclosure with
respect to such transactions as is required by applicable law and regulations or
the Nasdaq Stock Market (although the Buyer shall be consulted by the Company in
connection with any such press release or other public disclosure prior to its
release and shall be provided with a copy thereof).
(o) CONSTRUCTION. The language used in this Agreement will be deemed
to be the language chosen by the parties to express their mutual intent, and no
rules of strict construction will be applied against any party.
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<PAGE> 47
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective officers or other representatives thereunto
duly authorized as of the date first set forth above.
PRIMARY COMMITMENT AMOUNT:
SECONDARY COMMITMENT AMOUNT:
TOTAL COMMITMENT AMOUNT:
PRICE PER SHARE: $1,000.00
SHARES OF COMMON STOCK SUBJECT TO WARRANTS:
[BUYER]
By:______________________________________
Name:
Title:
Date:____________________________________
Address:
Facsimile No:
SHAMAN PHARMACEUTICALS, INC.
By:______________________________________
Name:
Title:
Date:____________________________________
42
<PAGE> 1
EXHIBIT 10.69
SECOND AMENDMENT AGREEMENT
THIS SECOND AMENDMENT AGREEMENT, dated as of June 10, 1998 (this
"Agreement"), by and between SHAMAN PHARMACEUTICALS, INC., a Delaware
corporation (the "Company"), and the undersigned holders of the Company's Senior
Subordinated Convertible Notes (each, a "Holder" and collectively, the
"Holders").
W I T N E S S E T H:
WHEREAS, the Company and each Holder are parties to (i) a Note
Purchase Agreement, dated as of June 30, 1997 (each, a "Note Purchase
Agreement"), pursuant to which the Company issued to the respective Holder a
Senior Subordinated Convertible Note (each, a "Note" and collectively, the
"Notes"), and (ii) the Amendment Agreement, dated as of March 18, 1998 (the
"Amendment Agreement"), pursuant to which each Holder's Note was amended; and
WHEREAS, the Company and each Holder wish to further amend such
Holder's Note upon the terms and subject to the conditions of this Agreement;
NOW THEREFORE, in consideration of the premises and the mutual
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
1. AMENDMENTS OF NOTES. On the Effective Date:
(a) the definition of the term "Nasdaq" in Section 7.1(b) of each
Note shall be amended by deleting the existing definition in its entirety and
substituting in lieu thereof the following:
"Nasdaq" means the Nasdaq National Market or, for any date on or
before March 31, 1999 only, the Nasdaq SmallCap Market.
(b) The following additional definitions shall be added to Section
7.1(b) of each Note:
"Business Plan" shall mean the Company's business plan, dated May
26, 1998, in the form delivered on June 3, 1998 by the Company to Ernst &
Young LLP, the Company's independent public accountants.
"Cash Amount" on any date means the sum of (i) the Cash and Cash
Equivalent Balances of the Company and (ii) the amount of short-term
investments of the Company set forth, or which would be set forth, on the
Company's balance sheet as of such date determined in accordance with
Generally Accepted Accounting Principles and consistent with the meaning
of the term "short-term investments" as used in the financial statements
contained in the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1997, as amended by Amendments No. 1 and No. 2 thereto
on Form 10-K/A.
<PAGE> 2
(c) Article III of each Note shall be amended by adding the
following new Section 3.9 at the end thereof:
3.9 DECREASES IN CASH AND SHORT-TERM INVESTMENTS. As of June
30, 1998 and as of the last day of each fiscal quarter thereafter through
March 31, 1999, the Cash Amount as of each such date set forth in the
Company's Quarterly Reports on Form 10-Q, Annual Report on Form 10-K or in
any other publicly disclosed document shall not be less than 90% of the
estimated Cash Amount for such date set forth in the Business Plan. On the
date the Cash Amount as of each such end-of-quarter date is first publicly
disclosed by the Company, the Company shall provide the Holder with a copy
of the portion of the Business Plan containing the estimated Cash Amount
for such date. If the Company is then in breach of this Section 3.9, (1)
the Company shall simultaneously notify the Holder in writing of such
breach and (2) such breach shall constitute an Event of Default pursuant
to Section 4.3(b).
2. REPRESENTATIONS, WARRANTIES, COVENANTS, ETC. OF THE COMPANY.
The Company represents and warrants to each Holder that the
following matters are true and correct on the date of execution and delivery of
this Agreement and will be true and correct on the Effective Date, and the
Company covenants and agrees with each Holder as follows:
(a) ORGANIZATION AND AUTHORITY. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware, and has all requisite corporate power and authority to (i) own, lease
and operate its properties and to carry on its business as described in the SEC
Reports and as currently conducted, and (ii) to execute, deliver and perform its
obligations under this Agreement and the other Transaction Documents, and to
consummate the transactions contemplated hereby and thereby.
(b) CORPORATE AUTHORIZATION. This Agreement and the other
Transaction Documents have been duly and validly authorized by the Company; this
Agreement has been duly executed and delivered by the Company and, assuming due
execution and delivery by each Holder, this Agreement is a valid and binding
obligation of the Company enforceable in accordance with its terms, except as
the enforceability thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance or other similar laws now or
hereafter in effect relating to or affecting creditors' rights generally and
general principles of equity, regardless of whether enforcement is considered in
a proceeding in equity or at law.
(c) NON-CONTRAVENTION. The execution and delivery of this
Agreement by the Company and the consummation by the Company of the transactions
contemplated by this Agreement do not and will not, with or without the giving
of notice or the lapse of time, or both, (i) result in any violation of any
provision of the certificate of incorporation or by-laws of the Company, (ii)
conflict with or result in a breach by the Company of any of the terms or
provisions of, or constitute a default under, or result in the modification of,
or result in the creation or imposition of any lien, security interest, charge
or encumbrance upon any of the
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<PAGE> 3
properties or assets of the Company pursuant to, any indenture, mortgage, deed
of trust or other agreement or instrument to which the Company is a party or by
which the Company or any of its properties or assets are bound or affected which
would have a material adverse effect on the business, properties, operations,
condition (financial or other), results of operations or prospects of the
Company or (iii) violate or contravene any applicable law, rule or regulation or
any applicable decree, judgment or order of any court, United States federal or
state regulatory body, administrative agency or other governmental body having
jurisdiction over the Company or any of its properties or assets which would
have a material adverse effect on the business, properties, operations,
condition (financial or other), results of operations or prospects of the
Company or (iv) have any material adverse effect on any permit, certification,
registration, approval, consent, license or franchise necessary for the Company
to own or lease and operate any of its properties and to conduct any of its
business or the ability of the Company to make use thereof.
(d) APPROVALS. No authorization, approval or consent of, or filing
with, any court, governmental body, regulatory agency, self-regulatory
organization, or stock exchange or market or the stockholders of the Company is
required to be obtained or made by the Company in connection with the execution,
delivery and performance of this Agreement.
3. REPRESENTATIONS AND WARRANTIES OF THE HOLDERS. Each Holder
severally and not jointly represents and severally and not jointly warrants to
the Company that such Holder has all requisite power and authority, corporate or
otherwise, to execute, deliver and perform its obligations under this Agreement
and to consummate the transactions contemplated hereby; and this Agreement has
been duly and validly authorized, duly executed and delivered by such Holder
and, assuming due execution and delivery by the Company, is a valid and binding
agreement of such Holder enforceable in accordance with its terms, except as the
enforceability hereof may be limited by bankruptcy, insolvency, reorganization,
moratorium, fraudulent conveyance or other similar laws now or hereafter in
effect relating to or affecting creditors' rights generally and general
principles of equity, regardless of whether enforcement is considered in a
proceeding in equity or at law.
4. EFFECT OF AMENDMENT. From and after the Effective Date, (a)
the rights and obligations of the Company and each Holder with respect to such
Holder's Note set forth in such Holder's Note Purchase Agreement and Note and in
the Amendment Agreement, the Security Agreement, the Transfer Agent Agreement,
the Warrants and all other agreements, documents and instruments contemplated
hereby and thereby (collectively, the "Transaction Documents") shall apply with
full force and effect to such Holder's Note as amended hereby and (b) the
Transaction Documents shall be deemed amended hereby such that all applicable
references therein to such Holder's Note shall refer to such Holder's Note as
amended hereby.
5. EFFECTIVENESS OF THIS AGREEMENT. This Agreement shall become
effective on the date and time when the following shall have occurred (the
"Effective Date"):
(a) counterparts of this Agreement shall have been executed and
delivered by the Company and each Holder;
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<PAGE> 4
(b) the conditions to the Company's obligations set forth in
Section 6 shall have been satisfied or waived by the Company; and
(c) the conditions to the obligations of the Holders set forth in
Section 7 shall have been satisfied or waived by the Holders.
6. CONDITIONS TO THE COMPANY'S OBLIGATION. The Company's
obligations under this Agreement are conditioned upon satisfaction of the
following conditions precedent on or before the Effective Date (any one or more
of which may be waived by the Company in its sole discretion):
(a) On the Effective Date, no legal action, suit or proceeding
shall be pending or threatened which seeks to restrain or prohibit the
transactions contemplated by this Agreement; and
(b) The representations and warranties of each Holder contained in
this Agreement shall have been true and correct on the date of this Agreement
and shall be true and correct on the Effective Date as if given on and as of the
Effective Date (except for representations given as of a specific date which
representations shall be true and correct as of such date).
7. CONDITIONS TO THE HOLDER'S OBLIGATION. The several obligations
of the Holders under this Agreement are conditioned upon satisfaction of the
following conditions precedent for all Holders on or before the Effective Date
(any one or more of which may be waived by such Holder in its sole discretion):
(a) On the Effective Date, no legal action, suit or proceeding
shall be pending or threatened which seeks to restrain or prohibit the
transactions contemplated by this Agreement;
(b) The representations and warranties of the Company contained in
this Agreement shall have been true and correct on the date of this Agreement
and shall be true and correct on the Effective Date as if given on and as of the
Effective Date (except for representations given as of a specific date which
representations shall be true and correct as of such date), and on or before the
Effective Date the Company shall have performed all covenants and agreements of
the Company contained herein required to be performed by the Company on or
before the Effective Date; and
(c) No event which, (1) would constitute an Event of Default under
any Note or, with the giving of notice or the passage of time or both, would
constitute an Event of Default under any Note shall have occurred and be
continuing or (2) would constitute a Repurchase Event under any Note or, with
the giving of notice or the lapse of time, or both, would constitute a
Repurchase Event under any Note shall have occurred and be continuing.
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<PAGE> 5
8. CONFIRMATION OF AGREEMENTS. Except as amended by this
Agreement, the Notes and the other Transaction Documents shall remain in full
force and effect in accordance with their respective terms.
9. MISCELLANEOUS. (a) Capitalized terms used in this Agreement
and defined herein shall have the respective meanings provided herein.
Capitalized terms used in this Agreement and not otherwise defined in this
Agreement shall have the respective meanings provided in the Notes and, if not
defined in the Notes, the Amendment Agreement and the Note Purchase Agreements.
(b) This Agreement shall be construed and interpreted in
accordance with the laws of the State of New York.
(c) This Agreement may be executed in any number of counterparts
and by different parties hereto on separate counterparts, each of which
counterparts when so executed and delivered, shall be deemed to be an original
and all of which counterparts, taken together, shall constitute but one and the
same instrument. This Agreement may be executed and delivered by a party by a
telephone line facsimile transmission bearing a signature on behalf of such
party transmitted by such party to the other party.
(d) Section and paragraph headings in this Agreement are included
herein for convenience of reference only and shall not constitute a part of this
Agreement for any other purpose.
(e) Any provision of this Agreement that is prohibited,
unenforceable or not authorized in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition, unenforceability
or non-authorization without invalidating the remaining provisions hereof or
affecting the validity, enforceability or legality of such provision in any
other jurisdiction.
(f) No amendment or waiver of any provision of this Agreement
shall in any event be effective unless the same shall be in writing and signed
by the party to be charged with enforcement thereof and any such waiver shall be
effective only in the specific instance and for the specific purpose for which
given. No failure on the part of any party to exercise, and no delay in
exercising, any right under this Agreement shall operate as a waiver thereof by
such party. No single or partial exercise of any right under this Agreement
shall preclude any other or further exercise thereof or the exercise of any
other right.
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<PAGE> 6
IN WITNESS WHEREOF, the parties hereto have caused their duly
authorized officers to execute and deliver this Agreement as of the date first
above written.
SHAMAN PHARMACEUTICALS, INC.
By /s/ Lisa A. Conte
-------------------------------------
Name: Lisa A. Conte
Title: President and CEO
DELTA OPPORTUNITY FUND, LTD.
By /s/ Keith R. Bish
-------------------------------------
Name: Keith R. Bish
Title: Director
DIAZ & ALTSCHUL GROUP, LLC
By /s/ Arthur Altschul
-------------------------------------
Name: Arthur Altschul
Title:
NELSON PARTNERS
By /s/ Anne Dupuy
-------------------------------------
Name: Anne Dupuy
Title: Director
OLYMPUS SECURITIES, LTD.
By /s/ Anne Dupuy
-------------------------------------
Name: Anne Dupuy
Title: Director
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<PAGE> 7
OMICRON PARTNERS, LP
By /s/ Anthony L.M. Inder Reiden
-------------------------------------
Name: Anthony L.M. Inder Reiden
Title: Director of General Partner
OTATO LIMITED PARTNERSHIP
By /s/ Richard M. Cayne
-------------------------------------
Name: Richard M. Cayne
Title: General Counsel of OTA Grand
Cayman GP
OVERBROOK FUND I, LLC
By /s/ Arthur Altschul
-------------------------------------
Name: Arthur Altschul
Title:
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<PAGE> 1
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in
Amendment No. 2 to the Registration Statement (Form S-3) and related prospectus
of Shaman Pharmaceuticals, Inc. for the registration of 2,412,000 shares of its
common stock and to the incorporation by reference therein of our report dated
January 29, 1998, with respect to the financial statements of Shaman
Pharmaceuticals, Inc. included in its Annual Report (Form 10-K/A) for the year
ended December 31, 1997, filed with the Securities and Exchange Commission.
ERNST & YOUNG LLP
June 12, 1998
Palo Alto, California
